-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qit/LGLRFq/fMFgrzXtd3c8IigvVZUdTQkMasgom4XjACH2oj8WNt0GwZcc4NJx2 Y5W+Ugh1BqmJD7GDlSiMLA== /in/edgar/work/20000619/0000950129-00-003230/0000950129-00-003230.txt : 20000919 0000950129-00-003230.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950129-00-003230 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20000619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASIC ENERGY SERVICES INC CENTRAL INDEX KEY: 0001109189 STANDARD INDUSTRIAL CLASSIFICATION: [1389 ] IRS NUMBER: 752441819 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-33108 FILM NUMBER: 656726 BUSINESS ADDRESS: STREET 1: 408 NORTH BIG SPRING CITY: MIDLAND STATE: TX ZIP: 79701 BUSINESS PHONE: 9155700829 MAIL ADDRESS: STREET 1: 408 NORTH BIG SPRING CITY: MIDLAND STATE: TX ZIP: 79701 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA WELL SERVICE INC DATE OF NAME CHANGE: 20000313 S-1/A 1 0001.txt BASIC ENERGY SERVICES, INC. - AMENDMENT NO. 3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 2000 REGISTRATION NO. 333-33108 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 BASIC ENERGY SERVICES, INC.* (Exact name of registrant as specified in its charter) DELAWARE 1389 75-2441819 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
406 NORTH BIG SPRING MIDLAND, TEXAS 79701 (915) 570-0829 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) KENNETH V. HUSEMAN PRESIDENT 406 NORTH BIG SPRING MIDLAND, TEXAS 79701 (915) 570-0829 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: ANDREWS & KURTH L.L.P. VINSON & ELKINS L.L.P. 600 TRAVIS, SUITE 4200 2300 FIRST CITY TOWER HOUSTON, TEXAS 77002 1001 FANNIN (713) 220-4200 HOUSTON, TEXAS 77002 ATTN: ROBERT V. JEWELL (713) 758-2222 ATTN: JEFFERY B. FLOYD
- --------------- * Formerly known as Sierra Well Service, Inc. APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE(4) - -------------------------------------------------------------------------------------------------------- Common Stock(3)........................................ $68,080,000 $17,974
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Includes common stock issuable upon exercise of the underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). (3) Includes preferred share purchase rights associated with the common stock. (4) $15,939 was previously paid to the commission in connection with the initial filing fee of the Registration Statement on March 23, 2000. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq filing fee, the amounts set forth below are estimates: Securities and Exchange Commission registration fee......... $ 15,939 NASD filing fee............................................. 6,537 Nasdaq listing fee.......................................... 48,750 Printing and engraving expenses............................. 400,000 Legal fees and expenses..................................... 200,000 Accounting fees and expenses................................ 150,000 Transfer agent and registrar fees........................... 3,500 Miscellaneous............................................... 175,274 ---------- TOTAL............................................. $1,000,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law ("DGCL") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Basic Energy's certificate of incorporation and bylaws provide that indemnification shall be to the fullest extent permitted by the DGCL for all current or former directors or officers of Basic Energy. As permitted by the DGCL, the certificate of incorporation provides that directors of Basic Energy shall have no personal liability to Basic Energy or its stockholders for monetary damages for breach of fiduciary duty as a director, except (1) for any breach of the director's duty of loyalty to Basic Energy or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of II-1 law, (3) under Section 174 of the DGCL or (4) for any transaction from which a director derived an improper personal benefit. II-1 3 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following information relates to our securities issued or sold within the past three years which were not registered under the Securities Act of 1933 (giving effect to a 400-for-1 stock split in 2000): (i) In January 1997, we issued 4,000 shares of common stock to each Joey D. Fields and Dub W. Harrison as a bonus for services rendered as employees; (ii) In February 1997, we issued 88,555 shares of common stock to Southwest Royalties, Inc. for a total purchase price of $500,000; (iii) In July and August 1997, we issued an aggregate of 87,665 shares of common stock to Southwest Partners II, L.P. for a total purchase price of $1,672,000; (iv) In July, August, September and December 1997, we issued an aggregate of 892,225 shares of common stock to Southwest Partners III, L.P., for a total purchase price of $17,048,000; (v) In September 1997, we issued warrants (the "Warrants") to Joint Energy Development Investments Limited Partnership pursuant to a loan agreement as partial consideration for the loan, which Warrants were cancelled in March 1999; and (vi) In March 1999, we issued 500 shares of Series A Preferred Stock, 1,000 shares of Series B Preferred Stock and 1 share of Series C Preferred Stock to Joint Energy Development Investments II Limited Partnership in exchange for the cancellation of the Warrants. Simultaneously with the completion of this offering, we will issue notes and warrants convertible or exercisable into an aggregate of 278,334 shares of common stock (based on a estimated public offering price of $15.00 per share), valued at the initial public offering price, in connection with the acquisition of five well services businesses and the stock of one other corporation with four inactive rigs. We also may, at our discretion, issue and sell up to 500 shares of Series D Cumulative Preferred Stock at a purchase price of $10,000 per share to Enron North America Corp. or its affiliates on or about the time of the completion of this offering. Each of these transactions was effected without registration of the relevant security under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act for transactions not involving a public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. Exhibits: 1.1* -- Form of Underwriting Agreement 3.1+ -- Amended and Restated Certificate of Incorporation 3.2+ -- Restated Bylaws 3.3+ -- Certificate of Designations of Series A Cumulative Preferred Stock 3.4+ -- Certificate of Designations of Series B Convertible Preferred Stock 3.5+ -- Certificate of Designations of Series C Convertible Preferred Stock 3.6* -- Form of Certificate of Designations for Series One Junior Participating Preferred Stock (filed as Exhibit A to Exhibit 4.2) 3.7* -- Form of Certificate of Designations for Series D Cumulative Preferred Stock 4.1* -- Form of Stock Certificate representing one share of common stock 4.2* -- Form of Stockholder Rights Agreement dated as of May , 2000 between the Registrant and American Stock Transfer & Trust Company 4.3* -- Form of Rights Certificate (filed as Exhibit B to Exhibit 4.2) 5.1* -- Opinion of Andrews & Kurth L.L.P. 10.1+ -- Form of Indemnification Agreement
II-2 4 10.2+ -- 2000 Stock Option Plan 10.3+ -- Employment Agreement dated as of March 16, 1999 with Kenneth V. Huseman 10.4+ -- First Amendment to Employment Agreement dated as of March 21, 1999 with Kenneth V. Huseman 10.5* -- Employment Agreement with Dub W. Harrison 10.6* -- Employment Agreement with Charles W. Swift 10.7* -- Employment Agreement with Ronald T. McClung 10.8+ -- Securities Purchase Agreement dated as of March 31, 1999 with JEDI II 10.9+ -- Registration Rights Agreement dated as of March 31, 1999 with JEDI II 10.10+ -- Stockholders' Agreement dated as of March 31, 1999 with JEDI II and other stockholders named therein 10.11+ -- Stockholders' Agreement dated as of March 21, 2000 with JEDI II and other stockholders named therein 10.12+ -- Subordinated Loan Agreement dated as of March 31, 1999 with JEDI II 10.13+ -- $25,000,000 Subordinated Note dated as of March 31, 1999 to JEDI II 10.14+ -- Senior Loan Agreement dated as of March 31, 1999 with JEDI II as Senior Agent and the Senior Lender 10.15+ -- $24,408,000 Senior Note dated as of March 31, 1999 to JEDI II 10.16* -- Subscription Agreement dated as of June 1, 2000 between Basic Energy and Enron North America Corp. 10.17+ -- Stock Purchase Agreement dated as of March 1, 2000, as amended, with Turn Around Trucking and other sellers named therein 10.18+ -- Asset Purchase Agreement dated as of February 10, 2000 with Trinity 10.19+ -- Acquisition Agreement dated as of March 14, 2000, as amended, with Gold Star and other sellers named therein 10.20+ -- Stock Purchase Agreement dated as of February 29, 2000, as amended, with Eunice and the other sellers named therein 10.21+ -- Stock Purchase Agreement dated as of December 29, 1999, as amended, with Harrison and the other sellers named therein 10.22+ -- Stock Purchase Agreement dated as of February 8, 2000, as amended, with Sundown and the other sellers named therein 10.23+ -- First Amendment to Loan Agreement dated as of March 31, 2000 10.24** -- Amended and Restated Subordinated Loan Agreement dated as of June , 2000, with JEDI II 10.25* -- Form of Financing Agreement with CIT dated as of June , 2000 21.1+ -- Subsidiaries of Basic Energy 23.1+ -- Consent of KPMG LLP 23.4* -- Consent of Andrews & Kurth L.L.P. (Contained in Exhibit 5.1) 24.1+ -- Power of Attorney (included on signature page) 27.1+ -- Financial Data Schedule
- --------------- + Previously filed * Filed herewith ** To be filed by amendment b. Financial Statement Schedules II-3 5 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) To provide to the underwriter(s) at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter(s) to permit prompt delivery to each purchaser. (c) For purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (d) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, in the State of Texas, on June 16, 2000. BASIC ENERGY SERVICES, INC. By: /s/ RONALD T. MCCLUNG ---------------------------------- Name: Ronald T. McClung Title: Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED BELOW.
SIGNATURE DATE --------- ---- * Chairman and Director June 16, 2000 - ----------------------------------------------------- H.H. Wommack, III /s/ KENNETH V. HUSEMAN President, Chief Executive June 16, 2000 - ----------------------------------------------------- Officer and Vice Chairman Kenneth V. Huseman /s/ RONALD T. MCCLUNG Chief Financial Officer June 16, 2000 - ----------------------------------------------------- (Principal Accounting Officer) Ronald T. McClung * Director June 16, 2000 - ----------------------------------------------------- William M. Kerr, Jr. Director June 16, 2000 - ----------------------------------------------------- Paul L. Morris * Director June 16, 2000 - ----------------------------------------------------- William J. Myers * Director June 16, 2000 - ----------------------------------------------------- Steve Person * Director June 16, 2000 - ----------------------------------------------------- Clifford Strozier *By: /s/ RONALD T. MCCLUNG ------------------------------------------------ Ronald T. McClung Attorney-in-Fact
II-5 7 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 1.1* -- Form of Underwriting Agreement 3.1+ -- Amended and Restated Certificate of Incorporation 3.2+ -- Restated Bylaws 3.3+ -- Certificate of Designations of Series A Cumulative Preferred Stock 3.4+ -- Certificate of Designations of Series B Convertible Preferred Stock 3.5+ -- Certificate of Designations of Series C Convertible Preferred Stock 3.6* -- Form of Certificate of Designations for Series One Junior Participating Preferred Stock (filed as Exhibit A to Exhibit 4.2) 3.7* -- Form of Certificate of Designations for Series D Cumulative Preferred Stock 4.1* -- Form of Stock Certificate representing one share of common stock 4.2* -- Form of Stockholder Rights Agreement dated as of May , 2000 between the Registrant and American Stock Transfer & Trust Company 4.3* -- Form of Rights Certificate (filed as Exhibit B to Exhibit 4.2) 5.1* -- Opinion of Andrews & Kurth L.L.P. 10.1+ -- Form of Indemnification Agreement 10.2+ -- 2000 Stock Option Plan 10.3+ -- Employment Agreement dated as of March 16, 1999 with Kenneth V. Huseman 10.4+ -- First Amendment to Employment Agreement dated as of March 21, 1999 with Kenneth V. Huseman 10.5* -- Employment Agreement with Dub W. Harrison 10.6* -- Employment Agreement with Charles W. Swift 10.7* -- Employment Agreement with Ronald T. McClung 10.8+ -- Securities Purchase Agreement dated as of March 31, 1999 with JEDI II 10.9+ -- Registration Rights Agreement dated as of March 31, 1999 with JEDI II 10.10+ -- Stockholders' Agreement dated as of March 31, 1999 with JEDI II and other stockholders named therein 10.11+ -- Stockholders' Agreement dated as of March 21, 2000 with JEDI II and other stockholders named therein 10.12+ -- Subordinated Loan Agreement dated as of March 31, 1999 with JEDI II 10.13+ -- $25,000,000 Subordinated Note dated as of March 31, 1999 to JEDI II 10.14+ -- Senior Loan Agreement dated as of March 31, 1999 with JEDI II as Senior Agent and the Senior Lender 10.15+ -- $24,408,000 Senior Note dated as of March 31, 1999 to JEDI II 10.16* -- Subscription Agreement dated as of June 1, 2000 between Basic Energy and Enron North America Corp. 10.17+ -- Stock Purchase Agreement dated as of March 1, 2000, as amended, with Turn Around Trucking and other sellers named therein 10.18+ -- Asset Purchase Agreement dated as of February 10, 2000 with Trinity 10.19+ -- Acquisition Agreement dated as of March 14, 2000, as amended, with Gold Star and other sellers named therein 10.20+ -- Stock Purchase Agreement dated as of February 29, 2000, as amended, with Eunice and the other sellers named therein
8
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.21+ -- Stock Purchase Agreement dated as of December 29, 1999, as amended, with Harrison and the other sellers named therein 10.22+ -- Stock Purchase Agreement dated as of February 8, 2000, as amended, with Sundown and the other sellers named therein 10.23+ -- First Amendment to Loan Agreement dated as of March 31, 2000 10.24** -- Amended and Restated Subordinated Loan Agreement dated as of June , 2000, with JEDI II 10.25* -- Form of Financing Agreement with CIT dated as of June , 2000 21.1+ -- Subsidiaries of Basic Energy 23.1+ -- Consent of KPMG LLP 23.4* -- Consent of Andrews & Kurth L.L.P. (Contained in Exhibit 5.1) 24.1+ -- Power of Attorney (included on signature page) 27.1+ -- Financial Data Schedule
- --------------- + Previously filed * Filed herewith ** To be filed by amendment EX-1.1 2 0002.txt FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 Basic Energy Services, Inc. 3,700,000 Shares(1) Common Stock UNDERWRITING AGREEMENT ________ ___, 2000 PRUDENTIAL SECURITIES INCORPORATED JOHNSON RICE & COMPANY SIMMONS & COMPANY INTERNATIONAL As Representatives of the several Underwriters c/o Prudential Securities Incorporated One New York Plaza New York, New York 10292 Ladies and Gentlemen: Basic Energy Services, Inc., a Delaware corporation (the "Company"), hereby confirms its agreement with the several underwriters named in Schedule 1 hereto (the "Underwriters"), for whom you have been duly authorized to act as representatives (in such capacities, the "Representatives"), as set forth below. If you are the only Underwriters, all references herein to the Representatives shall be deemed to be to the Underwriters. In addition, Southwest Royalties Holdings, Inc. ("SRH") is a party to this Underwriting Agreement for purposes of Sections 8 and 8A. 1. Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the several Underwriters an aggregate of 3,700,000 shares (the "Firm Securities") of the Company's Common Stock, par value $.01 per share ("Common Stock"). The Company also proposes to issue and sell to the several Underwriters not more than 555,000 additional shares of Common Stock if requested by the Representatives as provided in Section 3 of this Agreement. Any and all shares of Common Stock to be purchased by the Underwriters pursuant to such option are referred to herein as the "Option Securities", and the Firm Securities and any Option Securities are collectively referred to herein as the "Securities". As part of the offering contemplated by this Agreement, the representatives have agreed to reserve out of the Firm Securities purchased by them up to 185,000 shares (the "Directed Shares") for sale to the Company's directors, officers, employees and other parties associated with the Company (each, individually a "Participant" and collectively, the "Participants") under the terms of the friends and family directed share program (the "Directed Share Program"). - ------------------------- (1) Plus an option to purchase from Sierra Well Service up to 555,000 additional shares to cover over-allotments. 2 Shares to be sold pursuant to the Directed Share Program shall be sold pursuant to this Agreement at the public offering price. Any Directed Share not confirmed for purchase by a Participant, under the Directed Share Program procedures, will be offered to the public by the Representatives as set forth in the Prospectus (as such term is hereinafter defined). 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the several Underwriters that: (a) A registration statement on Form S-1 (File No. 333-33108) with respect to the Securities, including a prospectus subject to completion, has been filed by the Company with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), and one or more amendments to such registration statement may have been so filed. After the execution of this Agreement, the Company will file with the Commission either (i) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the Act, either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined) relating to the Securities, that shall identify the Preliminary Prospectus (as hereinafter defined) that it supplements containing such information as is required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the Company does not rely on Rule 434 under the Act, a prospectus in the form most recently included in an amendment to such registration statement (or, if no such amendment shall have been filed, in such registration statement), with such changes or insertions as are required by Rule 430A under the Act or permitted by Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of this sentence as have been provided to and approved by the Representatives, prior to the execution of this Agreement, or (ii) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the Act, an amendment to such registration statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by the Representatives, prior to the execution of this Agreement. The Company may also file a related registration statement with the Commission pursuant to Rule 462(b) under the Act for the purpose of registering certain additional Securities, which registration shall be effective upon filing with the Commission. As used in this Agreement, the term "Original Registration Statement" means the registration statement initially filed relating to the Securities, as amended at the time when it was or is declared effective, including all financial schedules and exhibits thereto and including any information omitted therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration Statement" means any registration statement filed with the Commission pursuant to Rule 462(b) under the Act (including the Registration Statement and any Preliminary Prospectus or Prospectus incorporated therein at the time such Registration Statement becomes effective); the term "Registration Statement" includes both the Original Registration Statement and any Rule 462(b) Registration Statement; the term "Preliminary Prospectus" means each prospectus subject to completion filed with such registration statement or any amendment thereto (including the prospectus subject to completion, if any, included in the Registration Statement or any amendment thereto at the time it was or is declared effective); the term "Prospectus" means: 2 3 (A) if the Company relies on Rule 434 under the Act, the Term Sheet relating to the Securities that is first filed pursuant to Rule 424(b)(7) under the Act, together with the Preliminary Prospectus identified therein that such Term Sheet supplements; (B) if the Company does not rely on Rule 434 under the Act, the prospectus first filed with the Commission pursuant to Rule 424(b) under the Act; or (C) if the Company does not rely on Rule 434 under the Act and if no prospectus is required to be filed pursuant to Rule 424(b) under the Act, the prospectus included in the Registration Statement; and the term "Term Sheet" means any term sheet that satisfies the requirements of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus that includes a Term Sheet shall mean the date of such Term Sheet. (b) The Commission has not issued any order preventing or suspending use of any Preliminary Prospectus. When any Preliminary Prospectus was filed with the Commission it (i) contained all statements required to be stated therein in accordance with, and complied in all material respects with the requirements of, the Act and the rules and regulations of the Commission thereunder and (ii) did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When the Registration Statement or any amendment thereto was or is declared effective, it (i) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Act and the rules and regulations of the Commission thereunder and (ii) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. When the Prospectus or any Term Sheet that is a part thereof or any amendment or supplement to the Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or part thereof or such amendment or supplement is not required to be so filed, when the Registration Statement or the amendment thereto containing such amendment or supplement to the Prospectus was or is declared effective) and on the Firm Closing Date and any Option Closing Date (both as hereinafter defined), the Prospectus, as amended or supplemented at any such time, (i) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Act and the rules and regulations of the Commission thereunder and (ii) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing provisions of this paragraph (b) do not apply to statements or omissions made in any Preliminary Prospectus, the Registration Statement or any amendment thereto or the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein. 3 4 (c) If the Company has elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement has not been declared effective (i) the Company has filed a Rule 462(b) Registration Statement in compliance with and that is effective upon filing pursuant to Rule 462(b) and has received confirmation of its receipt and (ii) the Company has given irrevocable instructions for transmission of the applicable filing fee in connection with the filing of the Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated under the Act or the Commission has received payment of such filing fee. (d) The Company has no subsidiaries. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. The Company is duly qualified to transact business as a foreign corporation and is in good standing under the laws of all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification and in which the failure to be so qualified would have a material adverse effect on the business of the Company. (e) The Company has full corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement and the Prospectus or, if the Prospectus is not in existence, the most recent Preliminary Prospectus; and the Company has full corporate power and authority to enter into this Agreement and to carry out all the terms and provisions hereof to be carried out by it. (f) The Company has an authorized, issued and outstanding capitalization as set forth in the Prospectus or, if the Prospectus is not in existence, the most recent Preliminary Prospectus. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, and are fully paid and nonassessable. The Firm Securities and the Option Securities have been duly authorized and at the Firm Closing Date or the related Option Closing Date (as the case may be), when issued and delivered for payment therefor in accordance herewith, will be validly issued, fully paid and nonassessable. No holders of outstanding shares of capital stock of the Company are entitled as such to any preemptive or other rights to subscribe for any of the Securities, and no holder of securities of the Company has any right which has not been fully exercised or waived to require the Company to register the offer or sale of any securities owned by such holder under the Act in the public offering contemplated by this agreement. (g) The capital stock of the Company conforms to the description thereof under the caption "Description of Capital Stock" contained in the Prospectus or, if the Prospectus is not in existence, the most recent Preliminary Prospectus. (h) Except as disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), there are no outstanding (A) securities or obligations of the Company convertible into or exchangeable for any capital stock of the Company, (B) warrants, rights or options to subscribe for or purchase from the Company any such capital stock or any such convertible or exchangeable securities or obligations, or (C) obligations of the Company to issue any shares of capital stock, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options. 4 5 (i) The financial statements and schedules of the Company included in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) fairly present the financial position of the Company and the results of operations and changes in financial condition as of the dates and periods therein specified. Such financial statements and schedules have been prepared in accordance with United States generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise noted therein). The selected financial data set forth under the caption "Selected Financial Information" in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) fairly present, on the basis stated in the Prospectus (or such Preliminary Prospectus), the information included therein. The pro forma financial statements included in the Prospectus present fairly the information shown therein and have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been compiled on the pro forma bases described therein and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. The other financial and statistical information and data included in the Prospectus, derived from the historical and pro forma financial statements, are accurately presented in all material respects. (j) KPMG Peat Marwick LLP, who has certified the financial statements of the Company and delivered their report with respect to the audited consolidated financial statements and schedules included in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), is an independent public accountant as required by the Act and the applicable rules and regulations thereunder. (k) The execution and delivery of this Agreement have been duly authorized by the Company. This Agreement has been duly executed and delivered by the Company, and is the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally, or by equitable principles. (l) No legal or governmental proceedings are pending to which the Company is a party or to which the property of the Company is subject that are required to be described in the Registration Statement or the Prospectus and are not described therein (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), and, and, to the Company's knowledge, no such proceedings have been threatened against the Company or with respect to any of its properties. There is no contract or other document of a character required by the Act or the rules and regulations thereunder to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that has not been described therein (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) or filed as required. (m) The issuance, offering and sale of the Securities to the Underwriters by the Company pursuant to this Agreement, the compliance by the Company with the other provisions of this Agreement and the consummation of the other transactions herein contemplated do not (i) require the consent, approval, authorization, registration or qualification of or with any governmental authority, (except such as have been obtained, such as may be required by the 5 6 National Association of Securities Dealers, Inc. (the "NASD"), such as may be required under state securities or blue sky laws and, if the registration statement filed with respect to the Securities is not effective under the Act as of the time of execution hereof, such as may be required (and shall be obtained as provided in this Agreement) under the Act, or (ii) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Company is a party or by which the Company or any of its properties are bound, (B) the certificate of incorporation or by-laws of the Company, or (C) any statute or any judgment, decree, order, rule or regulation of any court or other governmental authority or any arbitrator applicable to the Company. (n) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus or, if the Prospectus is not in existence, the most recent Preliminary Prospectus, the Company has not sustained any material loss or interference with its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding and there has not been any material adverse change, or any development involving a prospective material adverse change, in the business affairs, properties, condition (financial or otherwise), business prospects, net worth, or results of the operations of the Company ("Material Adverse Change"), except in each case as described in or contemplated by the Prospectus or, if the Prospectus is not in existence, the most recent Preliminary Prospectus. (o) The Company has not, directly or indirectly, (i) taken any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or (ii) since the filing of the Registration Statement (A) sold, bid for, purchased, or paid anyone any compensation for soliciting purchases of, the Securities or (B) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company. (p) The Company has not distributed and, prior to the later of (i) the Closing Date and (ii) the completion of the distribution of the Securities, will not distribute any offering material in connection with the offering and sale of the Securities other than the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or other materials, if any permitted by the Act. (q) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), except as is otherwise disclosed in or contemplated by the Registration Statement or the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus): (1) the Company has not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; 6 7 (2) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock; and (3) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company. (r) The Company has good and indefeasible title in fee simple to all items of real property and good title to all personal property described in the Prospectus or the financial statements included in the Prospectus as being owned by the Company, free and clear of any security interests, liens, encumbrances, changes or claims, except where the failure to hold such title or the existence of such security interests, liens, encumbrances, changes or claims not materially and adversely affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company. Except as described in or contemplated by the Prospectus, any real property and buildings held under lease by the Company are held under valid and binding leases, except as to those leases which are not material to the Company or the lack of enforceability of which would not interfere with the use made or proposed to be made of such leased property by the Company. (s) No labor dispute with the employees of the Company exists or, to the Company's knowledge, is threatened or imminent that could reasonably be expected to result in a Material Adverse Change except as described in or contemplated by the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). (t) The Company owns or possesses, or can acquire on reasonable terms, all material patents, patent applications, trademarks, service marks, trade names, licenses, copyrights and proprietary or other confidential information currently employed by them in connection with its business, and the Company has not received any notice of infringement of or conflict with asserted rights of any third party with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change, except as described in or contemplated by the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). (u) The Company maintains insurance, which is in full force and effect, against such losses and risks and in such amounts as are prudent and customary in the business in which it is engaged. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not result in a Material Adverse Change. (v) The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its business, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change. 7 8 (w) The Company has conducted its operations in a manner that will not subject it to registration as an investment company under the Investment Company Act of 1940, as amended, and the sale of the Common Stock offered hereby will not cause the Company to become an investment company subject to registration under such Act. (x) The Company has filed all foreign, federal, state and local tax returns that are required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the Company) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith. (y) The Company is not in violation of any federal or state law or regulation relating to occupational safety and health or to the storage, handling or transportation of hazardous or toxic materials; the Company has received all permits, licenses or other approvals required of it under applicable federal and state occupational safety and health and environmental laws and regulations to conduct its business; the Company is in compliance with all terms and conditions of any such permit, license or approval, except in each case any such violation of law or regulation, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals which would not, singly or in the aggregate, result in a Material Adverse Change. (z) Each certificate which expressly references this Agreement is signed by any officer of the Company and is delivered to the Representatives or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters covered thereby. (aa) The Company does not own any shares of stock or any other equity securities of any corporation or any equity interest in any firm, partnership, association or other entity, except as described in or contemplated by the Prospectus. (bb) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (1) transactions are executed in accordance with management's general or specific authorizations; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (3) access to assets is permitted only in accordance with management's general or specific authorization; and (4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (cc) No default exists, and no event has occurred which, with notice or lapse of time or both, would constitute a default in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Company is a party or by which the Company or any of its properties is bound or may 8 9 be affected in any material adverse respect with regard to property, business or operations of the Company, except as will be cured or of no consequence after giving affect to the use of proceeds from the insurance of Common Stock pursuant to this Agreement. (dd) The execution and delivery of the purchase agreements, as amended, relating to the acquisitions of Turn Around Trucking, Inc., Sundown Operating, Inc., Eunice Well Servicing Co., Inc., Gold Star Service Company, Inc., Trinity Services, and Harrison Well Service, Inc. (the "Acquisition Documents") have been duly authorized by all necessary corporate action of the Company. The Acquisition Documents have been duly executed and delivered by the Company and the other parties thereto, and on the Firm Closing Date the transactions contemplated thereby shall have been consummated. On and as of the Firm Closing Date, each Acquisition Document shall be in full force and effect and shall constitute the valid and binding agreement between the parties and shall be enforceable against the Company and the other parties thereto in accordance with its terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally, or by equitable principles. The Underwriters and their counsel have been provided with true and complete copies of the Acquisition Documents and all schedules, exhibits, amendments and related agreements, and the Acquisition Documents conform in all material respects to the description thereof in the Prospectus. (ee) To the knowledge of the Company, each of the representations and warranties of the other parties to the Acquisition Documents are true and correct as of the date of this agreement and the Company, and to the knowledge of the Company, the other parties have performed or complied in all material respects with all covenants and agreements contained in the Acquisition Documents that are required to be performed or complied with prior to the date hereof. There exist no conditions that would constitute a default (or an event which with notice or the lapse of time, or both, would constitute a default) under any of the Acquisition Documents. Except for the consummation of the sale of the Firm Securities and the delivery of the consideration by the Company as contemplated by the Acquisition Documents, all of the material conditions to the consummation of the transactions contemplated by the Acquisition Documents have been met as of the date hereof. (ff) The execution and delivery of the Stockholders' Agreement by and between the Company, Joint Energy Development Investments II Limited Partnership ("JEDI") and certain other parties thereto dated March 21, 2000 (the "Stockholders' Agreement") has been duly authorized by all necessary corporate action of the Company, has been duly executed and delivered by the Company and the other parties thereto, is in full force and effect and constitutes the valid and binding agreement of the parties thereto and is enforceable against the Company and the other parties thereto in accordance with its terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally, or by equitable principles. The Underwriters and their counsel have been provided with true and complete copies of the Stockholders Agreement and all schedules, exhibits, amendments and related agreements and the Stockholders Agreement conforms in all material respects to the description thereof in the Prospectus. 9 10 (gg) The execution and delivery of the First Amendment to Loan Agreement among the Company, JEDI, and Enron North America Corp. dated as of March 21, 2000 (the "Loan Agreement Amendment") has been duly authorized by all necessary corporate action of the Company, has been duly executed and delivered by the Company and the other parties thereto, is in full force and effect and constitutes the valid and binding agreement of the parties thereto and is enforceable against the Company and the other parties thereto in accordance with its terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally, or by equitable principles. The Underwriters and their counsel have been provided with true and complete copies of the Loan Agreement Amendment and all schedules, exhibits, amendments and related agreements and the Loan Agreement Amendment conforms in all material respects to the description thereof in the Prospectus. (hh) The Company has entered into a credit facility with The CIT Group/Business Credit, Inc., and the execution and delivery of the credit facility has been duly authorized by all necessary corporate action of the Company, has been dully executed and delivered by the Company and each of the other parties thereto, is in full force and effect and constitutes the valid and binding agreement of the parties thereto and is enforceable against the Company and the other parties thereto in accordance with its terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally, or by equitable principles. All of the conditions to the initial funding, except for the consummation of the offering of the Firm Securities to the public, will be satisfied on the Firm Closing Date and the initial funding under the terms of the credit facility will be completed on or before the Firm Closing Date. The Underwriters and their counsel have been provided with true and complete copies of the credit facility and all schedules, exhibits, amendments and related agreements and the credit facility conforms in all material respects to the description thereof in the Prospectus. (ii) No registration under the Act or the Investment Company Act, and no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the issuance of the Common Stock of the Company pursuant to and as contemplated by the Acquisition Documents. (jj) Neither the Company or any other person associated with or acting on behalf of the Company including, without limitation, any director, officer or employee of the Company has offered or caused the Underwriters to offer any of the Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. 3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters, severally and not jointly, agrees to purchase from the Company, at a purchase price of $________ per share, the number of Firm Securities set forth opposite the name of such Underwriter in Schedule 1 hereto. One or more certificates in definitive form for 10 11 the Firm Securities that the several Underwriters have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Representatives request upon notice to the Company at least 48 hours prior to the Firm Closing Date, shall be delivered by or on behalf of the Company to the Representatives for the respective accounts of the Underwriters, against payment by or on behalf of the Underwriters of the purchase price therefor by wire transfer in same-day funds (the "Wired Funds") to the account of the Company. Such delivery of and payment for the Firm Securities shall be made at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin, Houston, Texas 77002-6760 at 9:30 A.M., New York time, on __________, 2000, or at such other place, time or date as the Representatives and the Company may agree upon or as the Representatives may determine pursuant to Section 9 hereof, such time and date of delivery against payment being herein referred to as the "Firm Closing Date". The Company will make such certificate or certificates for the Firm Securities available for checking and packaging by the Representatives at the offices in New York, New York of the Company's transfer agent or registrar or of Prudential Securities Incorporated at least 24 hours prior to the Firm Closing Date. (b) For the purpose of covering any over-allotments in connection with the distribution and sale of the Firm Securities as contemplated by the Prospectus, the Company hereby grants to the several Underwriters an option to purchase, severally and not jointly, the Option Securities. The purchase price to be paid for any Option Securities shall be the same price per share as the price per share for the Firm Securities set forth above in paragraph (a) of this Section 3. The option granted hereby may be exercised as to all or any part of the Option Securities from time to time within thirty days after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading). The Underwriters shall not be under any obligation to purchase any of the Option Securities prior to the exercise of such option. The Representatives may from time to time exercise the option granted hereby by giving notice in writing or by telephone (confirmed in writing) to the Company setting forth the aggregate number of Option Securities as to which the several Underwriters are then exercising the option and the date and time for delivery of and payment for such Option Securities. Any such date of delivery shall be determined by the Representatives but shall not be earlier than two business days or later than five business days after such exercise of the option and, in any event, shall not be earlier than the Firm Closing Date. The time and date set forth in such notice, or such other time on such other date as the Representatives and Company may agree upon or as the Representatives may determine pursuant to Section 9 hereof, is herein called the "Option Closing Date" with respect to such Option Securities. Upon exercise of the option as provided herein, the Company shall become obligated to sell to each of the several Underwriters, and, subject to the terms and conditions herein set forth, each of the Underwriters (severally and not jointly) shall become obligated to purchase from the Company, the same percentage of the total number of the Option Securities as to which the several Underwriters are then exercising the option as such Underwriter is obligated to purchase of the aggregate number of Firm Securities, as adjusted by the Representatives in such manner as they deem advisable to avoid fractional shares. If the option is exercised as to all or any portion of the Option Securities, one or more certificates in definitive form for such Option Securities, and payment therefor, shall be delivered on the related Option Closing Date in the manner, and upon the terms and conditions, set forth in paragraph (a) 11 12 of this Section 3, except that reference therein to the Firm Securities and the Firm Closing Date shall be deemed, for purposes of this paragraph (b), to refer to such Option Securities and Option Closing Date, respectively. (c) The Company hereby acknowledges that the wire transfer by or on behalf of the Underwriters of the purchase price for any Securities does not constitute closing of a purchase and sale of the Securities. Only execution and delivery of a receipt for Securities by the Underwriters indicates completion of the closing of a purchase of the Securities from the Company. Furthermore, in the event that the Underwriters wire funds to the Company prior to the completion of the closing of a purchase of Securities, the Company hereby acknowledges that until the Underwriters execute and deliver a receipt for the Securities, by facsimile or otherwise, the Company will not be entitled to the Wired Funds and shall return the Wired Funds to the Underwriters as soon as practicable (by wire transfer of same-day funds) upon demand. In the event that the closing of a purchase of Securities is not completed and the Wired Funds are not returned by the Company to the Underwriters on the same day the Wired Funds were received by the Company, the Company agrees to pay to the Underwriters in respect of each day the Wired Funds are not returned by it, in same-day funds, interest on the amount of such Wired Funds in an amount representing the Underwriters' cost of financing as reasonably determined by Prudential Securities Incorporated. (d) It is understood that any of you, individually and not as one of the Representatives, may (but shall not be obligated to) make payment on behalf of any Underwriter or Underwriters for any of the Securities to be purchased by such Underwriter or Underwriters. No such payment shall relieve such Underwriter or Underwriters from any of its or their obligations hereunder. 4. Offering by the Underwriters. Upon your authorization of the release of the Firm Securities, the several Underwriters propose to offer the Firm Securities for sale to the public upon the terms set forth in the Prospectus. 5. Covenants of the Company. The Company covenants and agrees with each of the Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Agreement, and any amendments thereto to become effective as promptly as possible. If required, the Company will file the Prospectus or any Term Sheet that constitutes a part thereof and any amendment or supplement thereto with the Commission in the manner and within the time period required by Rules 434 and 424(b) under the Act. During any time when a prospectus relating to the Securities is required to be delivered under the Act, the Company (i) will comply with all requirements imposed upon it by the Act and the rules and regulations of the Commission thereunder to the extent necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and of the Prospectus, as then amended or supplemented, and (ii) will not file with the Commission the prospectus, Term Sheet or the amendment referred to in the second sentence of Section 2(a) hereof, any amendment or supplement to such Prospectus, Term Sheet or any amendment to the 12 13 Registration Statement or any Rule 462(b) Registration Statement of which the Representatives previously have been advised and furnished with a copy for a reasonable period of time prior to the proposed filing and as to which filing the Representatives shall not have given their consent. The Company will prepare and file with the Commission, in accordance with the rules and regulations of the Commission, promptly upon request by the Representatives or counsel for the Underwriters, any amendments to the Registration Statement or amendments or supplements to the Prospectus that may be necessary or advisable in connection with the distribution of the Securities by the several Underwriters, and will use its best efforts to cause any such amendment to the Registration Statement to be declared effective by the Commission as promptly as possible. The Company will advise the Representatives, promptly after receiving notice thereof, of the time when the Registration Statement or any amendment thereto has been filed or declared effective or the Prospectus or any amendment or supplement thereto has been filed and will provide evidence satisfactory to the Representatives of each such filing or effectiveness. (b) The Company will advise the Representatives, promptly after receiving notice or obtaining knowledge thereof, of (i) the issuance by the Commission of any stop order suspending the effectiveness of the Original Registration Statement or any Rule 462(b) Registration Statement or any amendment thereto or any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, (ii) the suspension of the qualification of the Securities for offering or sale in any jurisdiction, (iii) the institution, threatening or contemplation of any proceeding for any such purpose or (iv) any request made by the Commission for amending the Original Registration Statement or any Rule 462(b) Registration Statement, for amending or supplementing the Prospectus or for additional information. The Company will use its best efforts to prevent the issuance of any such stop order and, if any such stop order is issued, to obtain the withdrawal thereof as promptly as possible. (c) The Company will arrange for the qualification of the Securities for offering and sale under the securities or blue sky laws of such United States jurisdictions as the Representatives may designate and will continue such qualifications in effect for as long as may be necessary to complete the distribution of the Securities, provided, however, that in connection therewith the Company shall in no event be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. (d) If, at any time prior to the later of (i) the final date when a prospectus relating to the Securities is required to be delivered under the Act or (ii) the Option Closing Date, any event occurs as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Prospectus to comply with the Act or the rules or regulations of the Commission thereunder, the Company will promptly notify the Representatives thereof and, subject to Section 5(a) hereof, will prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance. 13 14 (e) The Company will, without charge, provide (i) to the Representatives and to counsel for the Underwriters a conformed copy of the registration statement originally filed with respect to the Securities and each amendment thereto (in each case including exhibits thereto) or any Rule 462(b) Registration Statement, (ii) to each other Underwriter, a conformed copy of such registration statement or any Rule 462(b) Registration Statement and each amendment thereto (in each case without exhibits thereto) and (iii) so long as a prospectus relating to the Securities is required to be delivered under the Act, as many copies of each Preliminary Prospectus or the Prospectus or any amendment or supplement thereto as the Representatives may reasonably request; without limiting the application of clause (iii) of this sentence, the Company, not later than (A) 6:00 P.M., New York City time, on the date of determination of the public offering price, if such determination occurred at or prior to 10:00 A.M., New York City time, on such date or (B) 2:00 P.M., New York City time, on the business day following the date of determination of the public offering price, if such determination occurred after 10:00 A.M., New York City time, on such date, will deliver to the Underwriters, without charge, as many copies of the Prospectus and any amendment or supplement thereto as the Representatives may reasonably request for purposes of confirming orders that are expected to settle on the Firm Closing Date. (f) The Company, as soon as practicable, will make generally available to its security holders and to the Representatives an earnings statement that satisfies the provisions of Section 11(a) of the Act and Rule 158 thereunder. (g) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Prospectus. (h) The Company will not, directly or indirectly, without the prior written consent of Prudential Securities Incorporated, on behalf of the Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any option to purchase or otherwise sell or dispose (or announce any offer, sale, offer of sale, contract of sale, pledge, grant of any option to purchase or other sale or disposition) of any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, shares of Common Stock for a period of 180 days after the date hereof, except (1) pursuant to this Agreement, (2) for issuances pursuant to the exercise of employee and director stock options outstanding on the date hereof, (3) pursuant to the terms of convertible securities of the Company outstanding on the date hereof, (4) for the grants of options to purchase shares of Common Stock pursuant to option plans existing on the date hereof and (5) for the acquisitions described in the Prospectus. (i) The Company will not, directly or indirectly, (i) take any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation for soliciting purchases of, the Securities or (B) pay or agree to pay to any person any compensation for soliciting another to purchase any other securities of the Company. (j) The Company will obtain the agreements described in Section 7(g) hereof prior to the Firm Closing Date. 14 15 (k) If at any time during the 25-day period after the Registration Statement becomes effective or the period prior to the Option Closing Date, any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after notice from you advising the Company to the effect set forth above, forthwith prepare, consult with you concerning the substance of, and disseminate a press release or other public statement, reasonably satisfactory to you and to the Company, responding to or commenting on such rumor, publication or event. (l) If the Company elects to rely on Rule 462(b), the Company shall both file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) and pay the applicable fees in accordance with Rule 111 promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on the date of this Agreement and (ii) the time confirmations are sent or given, as specified by Rule 462(b)(2). (m) The Company will use its best efforts to cause the Securities to be duly included for quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National Market") prior to the Firm Closing Date. The Company will use its reasonable efforts to cause the Securities to remain included for quotation on the Nasdaq National Market or to relist the Common Stock on a national exchange following the Firm Closing Date. (n) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of 3 months following the date of the effectiveness of the Registration Statement. Prudential Securities will notify the Company as to which Directed Shares will need to be restricted under NASD rules. The Company will direct the transfer agent to place stop transfer restrictions on such securities for such period of time. 6. Expenses. (a) The Company will pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing or other production of documents with respect to the transactions, including any costs of printing the registration statement originally filed with respect to the Securities and any amendment thereto, any Rule 462(b) Registration Statement, any Preliminary Prospectus and the Prospectus and any amendment or supplement thereto, this Agreement and any blue sky memoranda, (ii) all arrangements relating to the delivery to the Underwriters of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (iv) preparation, issuance and delivery to the Underwriters of any certificates evidencing the Securities, including transfer agent's and registrar's fees, (v) the qualification of the Securities under state securities and blue sky laws, including filing fees and reasonable fees and disbursements of counsel for the Underwriters relating thereto, (vi) the filing fees of the Commission and the National Association of Securities Dealers, Inc. relating to the Securities, (vii) any quotation of the Securities on the Nasdaq 15 16 National Market, (viii) any expenses of the Company's officers in connection with any meetings with prospective investors in the Securities (other than as shall have been specifically approved by the Representatives to be paid for by the Underwriters), (ix) advertising relating to the offering of the Securities that has been requested by the Company (other than as shall have been specifically approved by the Representatives to be paid for by the Underwriters), and (x) the fees and disbursements of counsel for the Underwriters in connection with the matters relating to the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any incurred by the Underwriters in connection with the Directed Share Program. (b) If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 7 hereof is not satisfied, because this Agreement is terminated pursuant to Section 11 hereof or because of any failure, refusal or inability on the part of the Company to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally upon demand for all out-of-pocket expenses (including counsel fees and disbursements) that shall have been reasonably incurred by them in connection with the proposed purchase and sale of the Securities. The Company shall not in any event be liable to any of the Underwriters for the loss of anticipated profits from the transactions covered by this Agreement. 7. Conditions of the Underwriters' Obligations. The obligations of the several Underwriters to purchase and pay for the Firm Securities shall be subject, in the Representatives' sole discretion, to the accuracy of the representations and warranties of the Company contained herein as of the date hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing Date, to the accuracy of the statements of the Company's officers made pursuant to the provisions hereof, to the performance by the Company of its covenants and agreements hereunder and to the following additional conditions: (a) If the Original Registration Statement or any amendment thereto filed prior to the Firm Closing Date has not been declared effective as of the time of execution hereof, the Original Registration Statement or such amendment and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have been declared effective not later than the earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to the registration statement originally filed with respect to the Securities or to the Registration Statement, as the case may be, containing information regarding the initial public offering price of the Securities has been filed with the Commission and (ii) the time confirmations are sent or given as specified by Rule 462(b)(2), or with respect to the Original Registration Statement, or such later time and date as shall have been consented to by the Representatives; if required, the Prospectus or any Term Sheet that constitutes a part thereof and any amendment or supplement thereto shall have been filed with the Commission in the manner and within the time period required by Rules 434 and 424(b) under the Act; no stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued, and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission; and the Company shall have 16 17 complied with any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise). (b) The Representatives shall have received an opinion, dated the Firm Closing Date, of Andrews & Kurth L.L.P., counsel for the Company, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation and is in good standing under the laws of Texas. (ii) the Company has the requisite corporate power to own or lease its properties and conduct its business as described in the Registration Statement and the Prospectus and to enter into and perform its obligations under this Agreement; (iii) the Company has authorized, issued and outstanding capital stock as set forth in the Prospectus under the caption "Capitalization"; all of the issued shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and have been issued in compliance with all applicable federal and state securities laws and, to the knowledge of such counsel, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities; (iv) the Firm Securities to be purchased by the Underwriters have been duly authorized by all necessary corporate action of the Company for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be validly issued, fully paid and nonassessable; to the knowledge of such counsel, except for such rights as have been waived as of the date hereof, no holders of outstanding shares of capital stock of the Company are entitled as such to any preemptive or other rights to subscribe for any of the Securities; and no holders of securities of the Company are entitled to have such securities registered under the Registration Statement other than those holders who have waived such rights; (v) the statements set forth under the heading "Description of Capital Stock" in the Prospectus, insofar as such statements purport to summarize certain provisions of the capital stock of the Company, provide a fair summary of such provisions; and the statements set forth under the headings "The Company - Current Acquisitions" and "Business -- Environmental Regulation" in the Prospectus, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, provide a fair summary of such legal matters, documents and proceedings; (vi) the execution and delivery of this Agreement have been duly authorized by all necessary corporate action of the Company, and this Agreement has been duly executed and delivered by the Company; 17 18 (vii) to the knowledge of such counsel, (A) no legal or governmental proceedings are pending to which the Company is a party or to which the property of the Company is subject that are required by the Act or the rules and regulations thereunder to be described in the Registration Statement or the Prospectus and are not described therein, and no such proceedings have been threatened against the Company or with respect to any of its properties that might reasonably be expected to have a Material Adverse Effect and (B) no contract or other document is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not described therein or filed as required; (viii) the issuance, offering and sale of the Securities to the Underwriters by the Company pursuant to this Agreement, the compliance by the Company with the other provisions of this Agreement and the consummation of the other transactions herein contemplated do not (A) require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as have been obtained and such as may be required by the NASD or under state securities or blue sky laws, or (B) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, (1) any agreement included as an exhibit to the registration statement, (2) or the charter documents or by-laws of the Company , or (3) any statute or any judgment, decree, order, rule or regulation of any court or other governmental authority or any arbitrator known to such counsel and applicable to the Company , except where any such conflict, breach, violation or default would not, singly or in the aggregate, result in a Material Adverse Change; (ix) the Registration Statement has been declared effective under the Act; any required filing of the Prospectus, or any Term Sheet that constitutes a part thereof, pursuant to Rules 434 and 424(b) has been made in the manner and within the time period required by Rules 434 and 424(b) and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any amendment thereto has been issued under the Act, and no proceedings for that purpose have been instituted or threatened or, to the knowledge of such counsel, are contemplated by the Commission; (x) the Registration Statement , when it became effective, and the Prospectus and any amendments thereof or supplements thereto (in each case, other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion) , on the date of filing or the date thereof, complied as to form in all material respects with the applicable requirements of the Act and the rules and regulations of the Commission thereunder; (xi) if the Company elects to rely on Rule 434, the Prospectus is not "materially different", as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time of its effectiveness or an effective post-effective 18 19 amendment thereto (including such information that is permitted to be omitted pursuant to Rule 430A); (xii) The execution and delivery of the Stockholders' Agreement has been duly authorized by all necessary corporate action of the Company, and has been duly executed and delivered by the Company; (xiii) The execution and delivery of the Loan Agreement Amendment has been duly authorized by all necessary corporate action of the Company, and has been duly executed and delivered by the Company; and (xiv) The execution and delivery of the credit facility has been duly authorized by all necessary corporate action of the Company, and has been duly executed and delivered by the Company. Such counsel shall make the statements set forth in the following paragraph: We have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (except to the extent expressly stated herein). We have, however, reviewed and discussed such statements with certain officers of the Company, with representatives of KPMG Peat Marwick LLP, independent public accountants for the Company, with attorneys at Kerr & Ward, L.L.P., counsel for the Company, and with the representatives of the Underwriters. In the course of such review and discussions, nothing has come to our attention that would lead us to believe that the Registration Statement (except for financial statements and notes thereto and related schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which we make no statement), at the time such Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and notes thereto and related schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which we make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Firm Closing Date, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering any such opinion, such counsel may rely, as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials. References to the Registration Statement and the Prospectus in this paragraph (b) shall include any amendment or supplement thereto at the date of such opinion. (c) The Representatives shall have received an opinion, dating the Firm Closing Date, of Kerr & Ward, L.L. P. to the effect that: 19 20 (i) the execution and delivery of the Acquisition Documents have been duly authorized by all necessary corporate action of the Company, and they have been duly executed and delivered by the Company; and (ii) no registration under the Act or the Investment Company Act, and no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the issuance of the Common Stock of the Company pursuant to and as contemplated by the Acquisition Documents. (d) The Representatives shall have received an opinion, dated the Firm Closing Date, of Vinson & Elkins L.L.P., counsel for the Underwriters, with respect to the issuance and sale of the Firm Securities, the Registration Statement and the Prospectus, and such other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (e) The Representatives shall have received from KPMG Peat Marwick LLP a letter or letters dated, respectively, the date hereof and the Firm Closing Date, in form and substance satisfactory to the Representatives, to the effect that: (i) they are independent accountants with respect to the Company within the meaning of the Act and the applicable rules and regulations thereunder; (ii) in their opinion, the audited financial statements and schedules and pro forma financial statements examined by them and included in the Registration Statement and the Prospectus comply in form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations; (iii) on the basis of a reading of the latest available interim unaudited financial statements of the Company , carrying out certain specified procedures (which do not constitute an examination made in accordance with generally accepted auditing standards) that would not necessarily reveal matters of significance with respect to the comments set forth in this paragraph (iii), a reading of the minute books of the shareholders, the board of directors and any committees thereof of the Company , and inquiries of certain officials of the Company who have responsibility for financial and accounting matters, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements of the Company included in the Registration Statement and the Prospectus do not comply in form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations thereunder or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement and the Prospectus; and 20 21 (B) at a specific date not more than five business days prior to the date of such letter, there were any changes in the capital stock or long-term debt of the Company or any decreases in not current assets or stockholders' equity of the Company and its consolidated subsidiaries, in each case compared with amounts shown on the March 31, 2000 unaudited balance sheet included in the Registration Statement and the Prospectus, or for the period from April 1, 2000 to such specified date there were any decreases, as compared with the comparable period in 1999, in sales, net revenues, net income before income taxes or total or per share amounts of net income of the Company , except in all instances for changes, decreases or increases set forth in such letter; (iv) they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information that are derived from the general accounting records of the Company and are included in the Registration Statement and the Prospectus under the captions "Summary Historical and Pro Forma Financial Information," "Summary Operating Data," "Dilution," "Capitalization," and "Selected Consolidated Financial Data" and in certain other indicated portions of the Registration Statement and in Exhibit 11 to the Registration Statement, and have compared such amounts, percentages and financial information with such records of the Company and with information derived from such records and have found them to be in agreement, excluding any questions of legal interpretation; and (v) on the basis of a reading of the unaudited pro forma combined financial statements included in the Registration Statement and the Prospectus, carrying out certain specified procedures that would not necessarily reveal matters of significance with respect to the comments set forth in this paragraph (v), inquiries of certain officials of the Company and Turnaround Trucking, Inc., Sundown Operating Company, Inc., Eunice Well Service Company, Gold Star Service Company, Inc., Trinity Services and Harrison Well Service, Inc. who have responsibility for financial and accounting matters and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the unaudited pro forma combined financial statements, nothing came to their attention that caused them to believe that the unaudited pro forma combined financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements. In the event that the letters referred to above set forth any such changes, decreases or increases, it shall be a further condition to the obligations of the Underwriters that (A) such letters shall be accompanied by a written explanation of the Company as to the significance thereof, unless the Representatives deem such explanation unnecessary, and (B) such changes, decreases or increases do not, in the sole judgment of the Representatives, make it impractical or inadvisable to proceed with the purchase and delivery of the Securities as contemplated by the Registration Statement, as amended as of the date hereof. 21 22 References to the Registration Statement and the Prospectus in this paragraph (d) with respect to either letter referred to above shall include any amendment or supplement thereto at the date of such letter. (f) The Representatives shall have received a certificate, dated the Firm Closing Date, of the principal executive officer and the principal financial or accounting officer of the Company to the effect that: (i) the representations and warranties of the Company in this Agreement are true and correct as if made on and as of the Firm Closing Date; the Registration Statement, as amended as of the Firm Closing Date, does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented as of the Firm Closing Date, does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company has performed all covenants and agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Firm Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement or any amendment thereto has been issued, and no proceedings for that purpose have been instituted or threatened or, to the best of the Company's knowledge, are contemplated by the Commission; and (iii) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as described in or contemplated by the Prospectus the Company has not sustained any material loss or interference with its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), management, business prospects, net worth or results of operations of the Company. (g) The Representatives shall have received from each person who is a director or officer of the Company or who owns any shares of Common Stock an agreement to the effect that such person will not, directly or indirectly, without the prior written consent of Prudential Securities Incorporated, on behalf of the Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any option to purchase or otherwise sell or dispose (or announce any offer, sale, offer of sale, contract of sale, pledge, grant of any option to purchase or other sale or disposition) of any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, shares of Common Stock for a period of 180 days after the date of this Agreement. (h) On or before the Firm Closing Date, the Representatives and counsel for the Underwriters shall have received such further certificates, documents or other information as they may have reasonably requested from the Company. 22 23 (i) Prior to the commencement of the offering of the Securities, the Securities shall have been listed for quotation on the Nasdaq National Market. (j) Each of the acquisition transactions contemplated by the Acquisition Documents shall have been consummated pursuant to and in accordance with the Acquisition Documents. All opinions, certificates, letters and documents delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Representatives and counsel for the Underwriters. The Company shall furnish to the Representatives such conformed copies of such opinions, certificates, letters and documents in such quantities as the Representatives and counsel for the Underwriters shall reasonably request. The respective obligations of the several Underwriters to purchase and pay for any Option Securities shall be subject, in their discretion, to each of the foregoing conditions to purchase the Firm Securities, except that all references to the Firm Securities and the Firm Closing Date shall be deemed to refer to such Option Securities and the related Option Closing Date, respectively. 8. Indemnification and Contribution. (a) The Company and, subject to the further provisions of Section 8(e) and limited to clauses (i) - (iii) of Section 8(a), SRH jointly and severally agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act"), against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement made by the Company in Section 2 of this Agreement; (ii) any untrue statement or alleged untrue statement of any material fact contained in (A) the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto or (B) any application or other document, or any amendment or supplement thereto, executed by the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Securities under the securities or blue sky laws thereof or filed with the Commission or any securities association or securities exchange (each an "Application"); (iii) the omission or alleged omission to state in the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or any Application a material fact required to be stated therein or necessary to make the statements therein not misleading; 23 24 (iv) any untrue statement or alleged untrue statement of any material fact contained in any audio or visual materials provided by the Company or based upon written information furnished by or on behalf of the Company including, without limitation, slides, videos, films, tape recordings, used in connection with the marketing of the Securities, including, without limitation, statements communicated to securities analysts employed by the Underwriters; or (v) any untrue statement or alleged untrue statement of a material fact included in the Prospectus or material distributed in, in connection with the reservation and sale of the Directed Share Program to directors, officers and employees of the Company or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, when considered in conjunction with the Prospectus or Preliminary Prospectus, not misleading, and will reimburse, as incurred, each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, that neither the Company nor SRH will be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or any amendment thereto, any Preliminary Prospectus, or the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein; and provided, further, that neither the Company nor SRH will be liable to any Underwriter or any person controlling such Underwriter with respect to any such untrue statement or omission made in any Preliminary Prospectus that is corrected in the Prospectus (or any amendment or supplement thereto) if the person asserting any such loss, claim, damage or liability purchased Securities from such Underwriter but was not sent or given a copy of the Prospectus (as amended or supplemented) at or prior to the written confirmation of the sale of such Securities to such person in any case where such delivery of the Prospectus (as amended or supplemented) is required by the Act, unless such failure to deliver the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 5(d) and (e) of this Agreement. This indemnity agreement will be in addition to any liability which the Company or SRH may otherwise have. Neither the Company nor SRH will, without the prior written consent of the Underwriter or Underwriters purchasing, in the aggregate, more than fifty percent (50%) of the Securities, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any such Underwriter or any person who controls any such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of all of the Underwriters and such controlling persons from all liability arising out of such claim, action, suit or proceeding. 24 25 (b) Each Underwriter, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or any Application or (ii) the omission or the alleged omission to state therein a material fact required to be stated in the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or any Application or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or any action in respect thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In connection with the offer and sale of the Directed Shares, the Company agrees, promptly upon a request, in writing to indemnify and hold harmless the Underwriters from and against any and all losses, liabilities, claims, damages and expenses incurred by them as a result of the failure of any director, officer or employee of the Company to pay for and accept delivery of the Directed Shares which were properly confirmed. (d) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and 25 26 approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Representatives in the case of paragraph (a) of this Section 8, representing the indemnified parties under such paragraph (a) who are parties to such action or actions) or (ii) the indemnifying party does not promptly retain counsel satisfactory to the indemnified party or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party. (e) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 8 is unavailable or insufficient, for any reason, to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the parties' relative intents, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. The Company, SRH and the Underwriters agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to above in this paragraph (e). Notwithstanding any other provision of this paragraph (e), no Underwriter shall be obligated to make contributions hereunder that in the aggregate exceed the total public offering price of the Securities purchased by such Underwriter under this Agreement, less the 26 27 aggregate amount of any damages that such Underwriter has otherwise been required to pay in respect of the same or any substantially similar claim, and no person guilty of fraudulent misrepresentation (within the meaning of Section II (f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute hereunder are several in proportion to their respective underwriting obligations and not joint, and contributions among Underwriters shall be governed by the provisions of the Prudential Securities Incorporated Master Agreement Among Underwriters. For purposes of this paragraph (e), each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement or any amendment thereto and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company. (f) Notwithstanding anything to the contrary in this Agreement, the indemnification or contribution obligations of SRH pursuant to Section 8(a)(i)-(iii) or Section 8(e) are subject to the following additional provisions: (i) It shall be a condition to the obligation of SRH to indemnify or make any contribution pursuant to Section 8(a)(i)-(iii) or Section 8(e) that the Company shall have failed to pay such amount or otherwise failed to satisfy its obligations set forth in Section 8 within 60 days of notification to SRH by the Underwriters of any claim for indemnification. (ii) The liability of SRH shall not exceed the fair market value at the Closing of the Common Stock in the Company owned by SRH on the date of the Prospectus; provided, however, that for so long as SRH is subject to the Indenture (the "Indenture") dated October 17, 1997 among Southwest Royalties, Inc., Southwest Royalties Holdings, Inc. and State Street Bank and Trust Company, the liability of SRH shall be measured at the time the Company fails to perform and shall be limited to the maximum amount allowable under Section 4.10 of the Indenture. 9. Default of Underwriters. If one or more Underwriters default in their obligations to purchase Firm Securities or Option Securities hereunder and the aggregate number of such Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase is ten percent or less of the aggregate number of Firm Securities or Option Securities to be purchased by all of the Underwriters at such time hereunder, the other Underwriters may make arrangements satisfactory to the Representatives for the purchase of such Securities by other persons (who may include one or more of the non-defaulting Underwriters, including the Representatives), but if no such arrangements are made by the Firm Closing Date or the related Option Closing Date, as the case may be, the other Underwriters shall be obligated severally in proportion to their respective commitments hereunder to purchase the Firm Securities or Option Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase. If one or more Underwriters so default with respect to an aggregate number of Securities that is more than ten percent of the aggregate number of Firm Securities or Option Securities, as the case may be, to be purchased by all of the Underwriters at such time hereunder, and if arrangements 27 28 satisfactory to the Representatives are not made within 36 hours after such default for the purchase by other persons (who may include one or more of the non-defaulting Underwriters, including the Representatives) of the Securities with respect to which such default occurs, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company other than as provided in Section 10 hereof. In the event of any default by one or more Underwriters as described in this Section 9, the Representatives shall have the right to postpone the Firm Closing Date or the Option Closing Date, as the case may be, established as provided in Section 3 hereof for not more than seven business days in order that any necessary changes may be made in the arrangements or documents for the purchase and delivery of the Firm Securities or Option Securities, as the case may be. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 9. Nothing herein shall relieve any defaulting Underwriter from liability for its default. 10. Survival. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers and the several Underwriters set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, any Underwriter or any controlling person referred to in Section 8 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6 and 8 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated with respect to the Firm Securities or any Option Securities in the sole discretion of the Representatives by notice to the Company given prior to the Firm Closing Date or the related Option Closing Date, respectively, in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Firm Closing Date or such Option Closing Date, respectively, (i) the Company shall have, in the sole judgment of the Representatives, sustained any material loss or interference with its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding or there shall have been any Material Adverse Change, or any development involving a prospective Material Adverse Change (including without limitation a change in management or control of the Company), except in each case as described in or contemplated by the Prospectus (exclusive of any amendment or supplement thereto); (ii) trading in the Common Stock shall have been suspended by the Commission or the Nasdaq National Market or trading in securities generally on the New York Stock Exchange or Nasdaq National Market shall have been suspended or minimum or maximum prices shall have been established on either such system or exchange; (iii) a banking moratorium shall have been declared by New York or United States authorities; or 28 29 (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or (C) any other calamity or crisis or material adverse change in general economic, political or financial conditions having an effect on the U.S. financial markets that, in the sole judgment of the Representatives, makes it impractical or inadvisable to proceed with the public offering or the delivery of the Securities as contemplated by the Registration Statement, as amended as of the date hereof. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Information Supplied by Underwriters. The statements set forth in the last paragraph on the front cover page and under the section titled "Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent such statements relate to the Underwriters) constitute the only information furnished by any Underwriter through the Representatives to the Company for the purposes of Sections 2(b) and 8 hereof. The Underwriters confirm that such statements (to such extent) are correct. 13. Notices. All communications hereunder shall be in writing and, if sent to any of the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission and confirmed in writing to (1) Prudential Securities Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity Transactions Group; (2) if sent to the Company, to 406 North Big Spring, Midland, Texas 79701; and (3) if sent to SRH, to [406] North Big Spring, Midland, Texas 79701. 14. Successors. This Agreement shall inure to the benefit of and shall be binding upon the several Underwriters, the Company, SRH and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Company contained in Section 8 of this Agreement shall also be for the benefit of any person or persons who control any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters contained in Section 8 of this Agreement shall also be for the benefit of the directors of the Company, the officers of the Company who have signed the Registration Statement and any person or persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from any Underwriter shall be deemed a successor because of such purchase. 29 30 15. Applicable Law. The validity and interpretation of this Agreement, and the terms and conditions set forth herein, shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any provisions relating to conflicts of laws. 16. Consent to Jurisdiction and Service of Process. All judicial proceedings arising out of or relating to this Agreement may be brought in any state or federal court of competent jurisdiction in the State of New York, and by execution and delivery of this Agreement, the Company accepts for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts and waives any defense of forum non conveniens and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. A copy of any such process so served shall be mailed by registered mail to the Company at its address provided in Section 13 hereof; provided, however, that, unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of service of such process. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any Underwriter to bring proceedings against the Selling Shareholder in the courts of any other jurisdiction. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 30 31 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute an agreement binding the Company and each of the several Underwriters. Very truly yours, BASIC ENERGY SERVICES, INC. By ---------------------------------- Kenneth V. Huseman Chief Executive Officer SOUTHWEST ROYALTIES HOLDINGS, INC. By ---------------------------------- Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. PRUDENTIAL SECURITIES INCORPORATED JOHNSON RICE & COMPANY SIMMONS & COMPANY INTERNATIONAL By PRUDENTIAL SECURITIES INCORPORATED By ---------------------------- Jean-Claude Canfin Managing Director For itself and on behalf of the Representatives. 31 32 SCHEDULE 1 UNDERWRITERS Number of Firm Securities to Underwriter be Purchased - ----------- ------------ Prudential Securities Incorporated....... Johnson Rice & Company....... Simmons & Company International....... --------------- Total .............. 32 EX-3.7 3 0003.txt FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES D 1 EXHIBIT 3.7 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES D CUMULATIVE PREFERRED STOCK of BASIC ENERGY SERVICES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware BASIC ENERGY SERVICES, INC., a Delaware corporation (hereinafter called the "Corporation"), does hereby certify in accordance with Sections 103 and 151 of the Delaware General Corporation Law ("DGCL"), that the following resolution was duly adopted by action of the Board of Directors of the Corporation (the "Board"): RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the provisions of Article Fourth of the Amended and Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), and pursuant to Section 151 of the DGCL, the Board hereby creates a series of preferred stock of the Corporation and hereby states that the voting powers, designations, preferences and relative, participating, optional or other special rights of which, and qualifications, limitations or restrictions thereof (in addition to the provisions set forth in the Certificate of Incorporation which are applicable to the preferred stock of all classes and series), shall be as follows: 1. Number and Designation. There shall be created from the 5,000,000 shares of preferred stock of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of preferred stock, designated as the Series D Cumulative Preferred Stock (the "Series D Preferred Stock"), having a stated par value equal to $10,000 per share (the "Stated Value"), and the number of shares (the "Shares") that shall constitute such series shall not be more than 500 shares which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. 2. Rank. The Series D Preferred Stock shall, with respect to dividend rights and rights on redemption, distribution, liquidation, dissolution and winding up, rank senior and prior to all classes or series of common stock of the Corporation, including the Corporation's common stock, $0.01 par value ("Common Stock"), and each other class or series of capital stock of the Corporation, the terms of which provide that such class or series shall rank junior to the Series D Preferred Stock or the terms of which do not specify any rank relative to the Series D Preferred Stock. All equity securities of the Corporation to which the Series D Preferred Stock ranks senior and prior (whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise), including the Common Stock, and any rights or options exercisable or convertible therefor, are collectively referred to herein as the "Junior Securities." All equity securities of the Corporation with which the Series D Preferred Stock ranks on a parity (whether with respect to 2 dividends or upon liquidation, dissolution or winding up), and any rights or options exercisable or convertible therefor, are collectively referred to herein as the "Parity Securities". 3. Dividends. The holders of the Series D Preferred Stock shall be entitled to receive, when, as and if declared by the Board, dividends out of funds legally available therefor, prior and in preference to any declaration or payment of any dividend or other distribution (each a "Dividend" and collectively "Dividends") (payable other than in Common Stock, or in other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock (each such Dividend a "Junior Stock Dividend")) on any shares of Junior Stock, (A) at a rate of 12% per annum of the Stated Value for each share of Series D Preferred Stock until June 30, 2001, (B) at a rate of 12% per annum of the Stated Value for each share of Series D Preferred Stock after June 30, 2001 until June 30, 2002, and (C) at a rate of 16% per annum of the Stated Value for each share of Series D Preferred Stock after June 30, 2002. (b) All dividends with respect to the Series D Preferred Stock shall be cumulative (whether or not declared by the Board) from the date of original issuance and shall be payable, out of the assets of the Corporation legally available therefor, in quarterly installments on March 31, June 30, September 30 and December 31 of each year (a "Dividend Payment Date") commencing September 30, 2000. Each such annual dividend shall be fully cumulative, to the extent not paid, and shall accrue (whether or not earned or declared) from the date of issuance of the Series D Preferred Stock, and thereafter from the first day of the quarterly period in respect of which such dividend may be payable as herein provided. Dividends payable with respect to any partial dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. The record date for the payment of dividends on the Series D Preferred Stock shall be fixed by the Board and in no event be more than thirty (30) days nor less that then (10) days prior to a Dividend Payment Date. On each Dividend Payment Date, all dividends which shall have accrued on each share of Series D Preferred Stock outstanding on such Dividend Payment Date shall accumulate and be deemed to become "due." Any dividend which shall not be paid on the Dividend Payment Date on which it shall become due shall be deemed to be past due until such dividend shall be paid. No interest, sum of money in lieu of interest, or other property or securities shall be payable in respect of any Dividend payment or payments which are past due. Dividends paid on Shares of Series D Preferred Stock in an amount less than the total amount of such Dividends at the time accumulated and payable on such Shares shall be allocated pro rata on a share-by-share basis among all such Shares of Series D Preferred Stock at the time outstanding. (c) So long as any shares of the Series D Preferred Stock are outstanding, no dividends (other than Junior Stock Dividends) shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities (all such dividends or distributions being hereinafter referred to as a "Junior Securities Distribution") for any consideration by the Corporation, unless a Dividend shall have first been declared and paid in full on the Series D Preferred Stock. 2 3 4. Liquidation Preference. In the event of any Liquidation (as defined below), dissolution or winding up of the Corporation (each a "Liquidation Event"), either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of the Series D Preferred Stock (the "Holders") shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation or other payment to the holders of Junior Stock, by reason of their ownership of such Series D Preferred Stock, the sum of (i) an amount, in cash, equal to all declared but unpaid Dividends on the Series D Preferred Stock and (ii) the Stated Value for each share of Series D Preferred Stock then held by them (the "Liquidation Preference"). If the assets and funds distributed among the Holders of the full Liquidation Preference are insufficient to permit the payment to such Holders of the full Liquidation Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed pro rata among the Holders of the Series D Preferred Stock and holders of Parity Securities (as adjusted for any stock splits, stock dividends or distributions, recapitalizations, and similar events with respect to the Shares of Series D Preferred Stock). (b) After giving effect to the provisions of Section 3(a) and after satisfaction of the Liquidation Preference or other rights triggered by a Liquidation Event on securities other than Junior Stock, all of the remaining assets of the Corporation shall be distributed ratably among holders of Junior Stock. (c) For purposes of this Certificate of Designations, "Liquidation" shall mean (i) the acquisition of the Corporation of another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation) or (ii) sale of all or substantially all of the assets or shares of stock of the Corporation; provided, however, that, in each such case, the applicable transaction shall not be deemed a Liquidation, dissolution or winding up unless the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale (by virtue of the shares of the Corporation owned by such stockholders or securities issued solely with respect thereto as consideration for the Corporation's acquisition or sale or otherwise) hold less than 50% of the voting power of the surviving or acquiring entity. 5. Redemption. The Corporation may, at the option of the Board, redeem, to the extent of funds legally available therefor, at any time on or before December 31, 2000, in whole but not in part, in the manner provided for in paragraph 5(b) hereof, all of the Shares of the Series D Preferred Stock at a price per share equal to the Stated Value, plus all accrued and unpaid Dividends thereon (including an amount in cash equal to a pro rated Dividend for the period from the Dividend Payment Date immediately prior to the date of redemption (the "Redemption Date")) (the "First Redemption Price"). 3 4 After December 31, 2000, the Corporation may, at the option of the Board, redeem, to the extent of funds legally available therefor, in whole but not in part, in the manner provided for in paragraph 5(b) hereof, all the shares of the Series D Preferred Stock at a price per share equal to 110% of the Stated Value, plus all accrued and unpaid dividends (including an amount in cash equal to a pro rated Dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date) (the "Second Redemption Price"). Any reference to the "Corporation Redemption Price" shall mean either the First Redemption Price or the Second Redemption Price, as the case may be. (b) Procedures for Redemption. (i) At least five (5) days and not more than sixty (60) days prior to the date fixed for a redemption of the Series D Preferred Stock, written notice (the "Redemption Notice") shall be given by first class mail, postage prepaid, to each Holder of record on the record date fixed for such redemption of the Series D Preferred Stock at such Holder's address as it appears on the stock books of the Corporation; provided, that, no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series D Preferred Stock to be redeemed except as to the Holder or Holders to whom the Corporation has failed to give said notice or to whom such notice was defective. The Redemption Notice shall state: (A) the Corporation Redemption Price; (B) the date fixed for redemption; (C) that the Holder is to surrender to the Corporation, in the manner, at the place or places and at the price designated, his certificate or certificates representing the shares of Series D Preferred Stock to be redeemed; and (D) that Dividends on the shares of the Series D Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Corporation defaults in the payment of the Corporation Redemption Price. (ii) Each Holder of Series D Preferred Stock shall surrender the certificate or certificates representing such shares of Series D Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in a manner and at the place designated in the Redemption Notice, and, on the Redemption Date, the full Corporation Redemption Price for such shares shall be payable in cash to the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. (iii) On and after the Redemption Date, unless the Corporation defaults in the payment in full of the applicable redemption price, Dividends on the Series D Preferred Stock called for redemption shall cease to accumulate, and all rights of the Holders of redeemed shares shall terminate with respect thereto on the Redemption Date, other than the right to receive the Corporation Redemption Price. 4 5 (c) Except as provided in paragraph 5, the Corporation shall not have the right or obligation to call or redeem at any time all or any shares of the Series D Preferred Stock. 6. Conversion. The Shares of the Series D Preferred Stock are not convertible. 7. Voting Rights. (a) Holders of the Series D Preferred Stock shall not be entitled to vote, and shall have no voting rights on any matters, except as required by Delaware law or as set forth below in Section 7(b). (b) So long as any shares of Series D Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of Holders of at least a majority of the outstanding shares of Series D Preferred Stock, voting separately as one class, (i) create, authorize or issue any class or series of stock of the Corporation ranking pari passu or senior to the Series D Preferred Stock as to rights in respect of dividends, redemption, distribution, liquidation, dissolution and winding up, or (ii) amend the Certificate of Incorporation (A) to increase or decrease the aggregate number of authorized shares of preferred stock of the Corporation, (B) to increase or decrease the par value of the shares of preferred stock of the Corporation or (C) to alter or change the specified powers, preferences, or special rights of the Holders of this Series D Preferred Stock so as to affect them adversely. The holders of at least a majority of the outstanding shares of Series D Preferred Stock, voting separately as one class, may waive compliance with any provision of this Certificate of Designation. (c) In exercising the voting rights set forth in this Section 7, each share of Preferred Stock shall be entitled to one vote. (d) Holders of Series D Preferred Stock shall be entitled to act by written consent in lieu of a meeting of stockholders with respect to the matters set forth above in Section 7(b) when voting as a separate class. 5 6 IN WITNESS WHEREOF, Basic Energy Services, Inc. has caused this Certificate of Designations to be signed and attested by the undersigned this __ day of ____________, 2000. BASIC ENERGY SERVICES, INC. By: --------------------------------- Name: Title: President 6 EX-4.1 4 0004.txt FORM OF STOCK CERTIFICATE 1 EXHIBIT 4.1 COMMON STOCK COMMON STOCK [LOGO] INCORPORATED UNDER THE LAWS BASIC ENERGY SERVICES, INC. CUSIP 069854 10 7 OF THE STATE OF DELAWARE SEE LEGENDS ON REVERSE This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF BASIC ENERGY SERVICES, INC., incorporated under the laws of the State of Delaware (the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly executed. This certificate and shares represented hereby are issued and shall be held subject to all the provisions of the Amended and Restated Certificate of Incorporation (copies of which are on file with the Transfer Agent). This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrant. Witness the signatures of its duly authorized officers. Dated: ------------------------------------- ------------------------- Kenneth V. Huseman, Bill E. Coggin, President and Chief Executive Officer Secretary Countersigned and Requested: American Stock Transfer & Trust Company Transfer Agent and Registrar By Authorized Signature 2 BASIC ENERGY SERVICES, INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - AS TENANTS IN COMMON GIFT MIN ACT - ___________Custodian _________________ TEN ENT - AS TENANTS BY THE ENTIRETIES (Cust) (Minor) JT TEN - AS JOINT TENANTS WITH RIGHT OF Under the ________ Transfers to Minor Act SURVIVORSHIP AND NOT AS (state) TENANTS IN COMMON
Additional abbreviations may also be used though not in the above list. For value received, __________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================= ======================================= ______________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ common shares represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________________ Attorney to transfer the sold stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ________________ X ----------------------------------- NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. X ----------------------------------- This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Basic Energy Services, Inc. and American Stock Transfer & Trust Company (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Basic Energy Services, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed or be evidenced by separate certificates and no longer be evidenced by this certificate. Basis Energy Services, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who becomes an Acquiring person or an Affiliate or Associate thereof (as such terns are defined in the Rights Agreement), and certain transferees thereof, will become null and void and will no longer be transferable. THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO SEC RULE 17Ad-15 - -------------------------------------------------------------------------------- SIGNATURE(S) GUARANTEED BY: EX-4.2 5 0005.txt FORM OF STOCKHOLDER RIGHTS AGREEMENT 1 EXHIBIT 4.2 BASIC ENERGY SERVICES, INC. AND AMERICAN STOCK TRANSFER & TRUST COMPANY, AS RIGHTS AGENT RIGHTS AGREEMENT DATED AS OF JUNE ___, 2000 2 TABLE OF CONTENTS Section 1. Certain Definitions................................................................ 2 Section 2. Appointment of Rights Agent........................................................ 8 Section 3. Issue of Right Certificates........................................................ 8 Section 4. Form of Right Certificates......................................................... 11 Section 5. Countersignature and Registration.................................................. 11 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates....................................... 12 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights...................... 13 Section 8. Cancellation and Destruction of Right Certificates................................. 15 Section 9. Availability of Preferred Shares................................................... 16 Section 10. Preferred Shares Record Date...................................................... 18 Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights................ 19 Section 12. Certificate of Adjusted Purchase Price or Number of Shares........................ 32 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.............. 33 Section 14. Fractional Rights and Fractional Shares........................................... 39 Section 15. Rights of Action.................................................................. 41 Section 16. Agreement of Right Holders........................................................ 42 Section 17. Right Certificate Holder Not Deemed a Stockholder................................. 42 Section 18. Concerning the Rights Agent....................................................... 43 Section 19. Merger or Consolidation or Change of Name of Rights Agent......................... 44 Section 20. Duties of Rights Agent............................................................ 45
-i- 3 Section 21. Change of Rights Agent............................................................ 49 Section 22. Issuance of New Right Certificates................................................ 50 Section 23. Redemption........................................................................ 51 Section 24. Exchange.......................................................................... 52 Section 25. Notice of Certain Events.......................................................... 54 Section 26. Notices........................................................................... 56 Section 27. Supplements and Amendments........................................................ 56 Section 28. Successors........................................................................ 58 Section 29. Benefits of this Agreement........................................................ 58 Section 30. Determination and Actions by the Board of Directors............................... 58 Section 31. Severability...................................................................... 59 Section 32. Governing Law..................................................................... 59 Section 33. Counterparts...................................................................... 59 Section 34. Descriptive Headings.............................................................. 59
-ii- 4 RIGHTS AGREEMENT This Agreement, dated as of June __, 2000 ("Agreement"), between Basic Energy Services, Inc., a Delaware corporation (the "Company"), and American Stock Transfer & Trust Company, as rights agent (the "Rights Agent"). RECITALS: WHEREAS, at a meeting of the Board of Directors of the Company duly called and held on March 21, 2000, at which a quorum was present and acting throughout, such Board of Directors authorized a Pricing Committee, with the power, among other things, to declare a dividend of one preferred share purchase right (a "Right") for each share of Common Stock (as such term is hereinafter defined) of the Company and to determine the record date for holders entitled to receive such dividend; and WHEREAS, the Pricing Committee, by unanimous consent, authorized and declared a dividend of one preferred share purchase right (a "Right") for each share of Common Stock (as such term is hereinafter defined) of the Company outstanding on June __, 2000 (the "Record Date"), and with each Right representing the right to purchase one one-hundredth of a Preferred Share, upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each share of Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined); 5 NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the shares of Common Stock then outstanding, but shall not include an Exempt Person; provided, however, that if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person" has become such inadvertently (including, without limitation, because (i) such Person was unaware that it beneficially owned a percentage of Common Stock that would otherwise cause such Person to be an "Acquiring Person" or (ii) such Person was aware of the extent of its Beneficial Ownership of Common Stock but was unaware of the consequences of such Beneficial Ownership under this Agreement) and without any intention of changing or influencing control of the Company, and such Person, as promptly as practicable after being advised of such determination divested or divests himself or itself of Beneficial Ownership of a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, then such Person shall not be deemed to be or to have become an "Acquiring Person" for any purposes of this Agreement. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the -2- 6 Common Stock of the Company then outstanding; provided, however, that if a Person (other than an Exempt Person) shall become the Beneficial Owner of 15% or more of the Common Stock of the Company then outstanding by reason of the share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Stock of the Company, then such Person shall be deemed to be an "Acquiring Person" unless upon the consummation of the acquisition of such additional shares of Common Stock such Person does not own 15% or more of the shares of Common Stock then outstanding. (b) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement. (c) "Associate" shall have the meaning ascribed to such term in Rule l2b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement. (d) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group -3- 7 members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (I) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (II) securities which such Person has a right to acquire upon the exercise of Rights at any time prior to the time a Person becomes an Acquiring Person; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security by reason of such an agreement, arrangement or understanding if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act (as such term is hereinafter defined) and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person and with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide -4- 8 public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(d)(ii)(B)) or disposing of such securities of the Company. Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then issued and outstanding which such Person would be deemed to own beneficially hereunder. (e) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in New York City are authorized or obligated by law or executive order to close. (f) "Close of Business" on any given date shall mean 5:00 P.M., Eastern Standard (New York City) time, on such date; provided, however, that, if such date is not a Business Day, it shall mean 5:00 P.M., Eastern Standard (New York City) time, on the next succeeding Business Day. (g) "Common Stock" when used with reference to the Company shall mean the shares of common stock, par value $0.01 per share, of the Company. "Common Stock" when used with reference to any Person other then the Company shall mean the capital stock (or, in the case of an unincorporated entity, the equivalent equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. -5- 9 (h) "Common Stock equivalent" shall have the meaning set forth in Section 11(a)(iii) hereof. (i) "Company" shall have the meaning set forth in the preamble hereof. (j) "current per share market price" shall have the meaning set forth in Section 11(d) hereof. (k) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. (l) "Distribution Date" shall have the meaning set forth in Section 3 hereof. (m) "Equivalent Preferred Shares" shall have the meaning set forth in Section 11(b) hereof. (n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (o) "Exchange Ratio" shall have the meaning set forth in Section 24(a) hereof. (p) "Exempt Person" shall mean (i) the Company or any Subsidiary (as such term is hereinafter defined) of the Company or any employee benefit plan of the Company, (ii) H.H. Wommack, III, his spouse, lineal descendants and ascendants, heirs, executors or other legal representatives and any trusts or limited partnerships established for the benefit of the foregoing, or any other person or entity in which the foregoing persons or entities are at the time of determination the direct record and beneficial owners of all outstanding voting securities, (iii) Southwest Royalties Holdings, Inc., Southwest Partners II, L.P. and Southwest Partners III, L.P. and each of their Affiliates and Associates, or (iv) Joint Energy Development Investments II Limited Partnership ("JEDI"), provided that JEDI shall cease to be an Exempt Person if the shares of which JEDI is a Beneficial Owner exceed 15% of the shares of Common Stock then outstanding. -6- 10 (q) "Final Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (r) "Nasdaq" shall mean the National Association of Securities Dealers, Inc. Automated Quotations System. (s) "NYSE" shall mean the New York Stock Exchange, Inc. (t) "Person" shall mean any individual, firm, corporation, limited liability company, partnership, limited partnership or other entity, and shall include any successor (by merger or otherwise) of such entity. (u) "Preferred Shares" shall mean shares of Series One Junior Participating Preferred Stock, par value $0.01 per share, of the Company having the rights and preferences set forth in the Form of Certificate of Designations attached to this Agreement as Exhibit A. (v) "Purchase Price" shall have the meaning set forth in Section 7(b) hereof. (w) "Record Date" shall have the meaning set forth in the recitals of this Agreement. (x) "Redemption Date" shall have the meaning set forth in Section 7(a) hereof. (y) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (z) "Rights Agent" shall have the meaning set forth in the preamble hereof. (aa) "Right" shall have the meaning set forth in the recitals of this Agreement. (ab) "Right Certificate" shall have the meaning set forth in Section 3(a) hereof. (ac) "Section 11(a)(iii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. (ad) "Security" shall have the meaning set forth in Section 11(d) hereof. -7- 11 (ae) "Stock Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (af) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. (ag) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (ah) "Summary of Rights" shall have the meaning set forth in Section 3(b) hereof. (ai) "Trading Day" shall have the meaning set forth in Section 11(d) hereof. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall, prior to the Distribution Date, also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the tenth Business Day after the Stock Acquisition Date or (ii) the tenth Business Day (or such later date as may be determined by action of the Board of Directors of the Company prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person of, or of the first public announcement of the intention of any Person to commence, a tender or exchange offer the consummation of which would result in any Person becoming an Acquiring Person (including any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier -8- 12 of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Stock registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the Rights will be transferable only in connection with the transfer of Common Stock. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, at the expense of the Company, send) by first-class, insured, postage prepaid mail, to each record holder of Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing one Right for each share of Common Stock so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of Common Stock as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with a copy of the Summary of Rights attached thereto. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Stock outstanding on the -9- 13 Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. (c) Certificates for Common Stock which become outstanding (including, without limitation, reacquired Common Stock referred to in the last sentence of this paragraph (c) that are subsequently issued or distributed by the Company) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Basic Energy Services, Inc. and American Stock Transfer & Trust Company (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Sierra Well Service, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed or be evidenced by separate certificates and no longer be evidenced by this certificate. Sierra Well Service, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who becomes an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), and certain transferees thereof, will become null and void and will no longer be transferable. With respect to such certificate containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. In the event that the Company purchases or acquires any Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such Common Stock shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Stock which are no longer outstanding. -10- 14 Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase Preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Sections 11, 13 and 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-hundredths of a Preferred Share as shall be set forth therein at the price per one one-hundredth of a Preferred Share set forth therein, but the number of such one one-hundredths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. (a) The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any of its Vice Presidents, or its Treasurer, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force -11- 15 and effect as though the Person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any Person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificates although at the date of the execution of this Rights Agreement any such Person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a) Subject to the provisions of Section 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates entitling the registered holder to purchase a like number of one one-hundredths of a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the -12- 16 principal office of the Rights Agent. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Right Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Right Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon, the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Subject to the provisions of Section 11(a)(ii) hereof, at any time after the Distribution Date and prior to the close of business on the earlier of the Redemption Date and the Final Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise -13- 17 provided herein), in whole or in part, at any time after the Distribution Date, upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each one one-hundredth of a Preferred Share as to which the Rights are exercised, at or prior to the earliest of (i) the Close of Business on June __, 2010 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date") and (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. (b) The Purchase Price for each one one-hundredth of a Preferred Share purchasable pursuant to the exercise of a Right shall initially be $70.00, and shall be subject to adjustment from time to time as provided in Section 11 or 13 hereof (the "Purchase Price") and shall be payable in lawful money of the United States of America in accordance with paragraph (c) of this Section 7. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Shares certificates for the number of Preferred Shares to be purchased and the Company hereby irrevocably authorizes any such transfer agent to comply with all such requests, or (B) requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent of the Preferred Shares with such depositary agent) and the Company hereby -14- 18 directs such depositary agent to comply with such request; (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof; (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder; and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) Except as otherwise provided herein, in case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder of Rights upon the occurrence of any purported transfer or exercise of Rights pursuant to Section 6 hereof or this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of assignment or election to purchase set forth on the reverse side of the Rights Certificate surrendered for such transfer or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents be delivered to the Rights Agent for cancellation -15- 19 or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and, in such case, shall deliver a certificate of destruction thereof to the Company. Section9. Availability of Preferred Shares. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. (b) So long as the Preferred Shares (and, following the time that a Person becomes an Acquiring Person, shares of Common Stock and other securities) issuable upon the exercise of Rights may be listed or admitted -16- 20 to trading on the NYSE or listed on any other national securities exchange or quotation system, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed or admitted to trading on the NYSE or listed on any other exchange or quotation system upon official notice of issuance upon such exercise. (c) From and after such time as the Rights become exercisable, the Company shall use its best efforts, if then necessary to permit the issuance of Preferred Shares (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) upon the exercise of Rights, to register and qualify such Preferred Shares (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) under the Securities Act and any applicable state securities or "Blue Sky" laws (to the extent exemptions therefrom are not available), cause such registration statement and qualifications to become effective as soon as possible after such filing and keep such registration and qualifications effective until the earlier of the date as of which the Rights are no longer exercisable for such securities and the Final Expiration Date. The Company may temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights in order to prepare and file a registration statement under the Securities Act and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement under the Securities Act (if required) shall have been declared effective. (d) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The -17- 21 Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section10. Preferred Shares Record Date. Each Person in whose name any certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. -18- 22 Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights. The Purchase Price, the number of Preferred Shares or other securities or property covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Share transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. -19- 23 (ii) Subject to Sections 23 and 24 of this Agreement, in the event any Person becomes an Acquiring Person, then (A) the Purchase Price shall be adjusted to be the Purchase Price in effect immediately prior to such Person becoming an Acquiring Person multiplied by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such Person becoming an Acquiring Person, whether or not such Right was then exercisable, and (B) each holder of a Right, except as otherwise provided in this Section 11(a)(ii) and Subsection 11(a)(iii) hereof, shall thereafter have the right to receive, upon exercise at a price equal to the Purchase Price (as so adjusted), in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Common Stock (determined pursuant to Section 11(d) hereof) on the date such Person became an Acquiring Person; provided, however, that the Purchase Price and the number of shares of Common Stock so receivable upon exercise of a Right shall thereafter be subject to further adjustment as appropriate in accordance with Section 11(f) hereof. Notwithstanding anything in this Agreement to the contrary, however, from and after the time (the "invalidation time") when any Person first becomes an Acquiring Person, any Rights that are beneficially owned by (x) any Acquiring Person (or any Affiliate or -20- 24 Associate of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the invalidation time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (II) a transfer which the Board of Directors has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this paragraph, and subsequent transferees of such Persons, shall be void without any further action and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights under any provision of this Agreement. The Company shall use all reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. From and after the invalidation time, no Right Certificate shall be issued pursuant to Section 3 or Section 6 hereof that represents Rights that are or have become void pursuant to the provisions of this paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have become void pursuant to the provisions of this paragraph shall be cancelled. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and not pursuant to this Section 11(a)(ii). Notwithstanding the occurrence of an adjustment in accordance with this Section 11(a)(ii), the Rights (other than those that have been invalidated pursuant to this Section 11(a)(ii)), shall remain subject to redemption pursuant to Section 23 hereof on the terms set forth herein. -21- 25 (iii) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the subparagraph (ii) of this Section 11(a), the Company shall take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon exercise of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional shares of Common Stock the Company shall, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party, (A) determine the excess of (1) the value of the shares of Common Stock issuable upon the exercise of a Right in accordance with the foregoing subparagraph (ii) (the "Current Value") over (2) the then current Purchase Price multiplied by the number of one one-hundredths of Preferred Shares for which a Right was exercisable immediately prior to the time that the Acquiring Person became such (such excess, the "Spread"), and (B) with respect to each Right (other than Rights which have become void pursuant to Section 11(a)(ii)), make adequate provision to substitute for the shares of Common Stock issuable in accordance with subparagraph (ii) upon exercise of the Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Preferred Shares or other equity securities of the Company (including, without limitation, shares or fractions of shares of preferred stock which, by virtue of having dividend, voting and liquidation rights substantially comparable to those of the shares of Common Stock, are deemed in good faith by the Board of Directors to have substantially the same value as the shares of Common Stock (such shares of preferred stock and shares or fractions of shares of preferred stock are hereinafter referred to as -22- 26 "Common Stock equivalents")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having a value which, when added to the value of the shares of Common Stock actually issued upon exercise of such Right, shall have an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board of Directors upon the advice of a nationally recognized investment banking firm selected in good faith by the Board of Directors; provided, however, that if the Company shall not make adequate provision to deliver value pursuant to clause (B) above within 30 days following the date that the Acquiring Person became such (the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available), and then, if necessary, such number of fractions of Preferred Shares (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If, upon the date any Person becomes an Acquiring Person, the Board of Directors shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, then, if the Board of Director so elects, the 30-day period set forth above may be extended to the extent necessary, but not more than 90 days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such 30-day period, as it may be extended, is herein called the "Substitution Period"). To the extent that the Company determines that some action need -23- 27 be taken pursuant to the second and/or third sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such second sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the shares of Common Stock shall be the current per share market price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and the per share or fractional value of any "Common Stock equivalent" shall be deemed to equal the current per share market price of the Common Stock. The Board of Directors of the Company may, but shall not be required to, establish procedures to allocate the right to receive shares of Common Stock upon the exercise of the Rights among holders of Rights pursuant to this Section 11(a)(iii). (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("equivalent preferred shares")) or securities convertible into Preferred Shares or equivalent preferred shares at a price per Preferred Share or equivalent preferred share (or having a conversion price per share, if a security convertible -24- 28 into Preferred Shares or equivalent preferred shares) less than the then current per share market price of the Preferred Shares on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to he offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price that would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a -25- 29 consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d)(i) For the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the average of the daily closing prices per share of such Security for the 30 consecutive Trading Days immediately prior to such date; provided, however, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security -26- 30 or securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Security is not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange on which the security is listed or admitted to trading on any national securities exchange, a Business Day. (ii) For the purpose of a computation hereunder, the "current per share market price" of the Preferred Shares shall be determined in accordance with the method set forth in Section 11(d)(i). -27- 31 If the Preferred Shares are not publicly traded, the "current per share market price" of the Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Stock as determined pursuant to Section 11(d)(i) (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof), multiplied by 100. If neither the Common Stock nor the Preferred Shares is publicly held or so listed or traded, "current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one ten-thousandth of a Preferred Share or one ten-thousandth of any other share or security as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which require such adjustment and (ii) the date of the expiration of the right to exercise any Rights. (f) If, as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in -28- 32 Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a Preferred Share (calculated to the nearest one ten-thousandth of a Preferred Share) obtained by (A) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (B) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights in substitution for any adjustment in the number of one one-hundredths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing -29- 33 the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, such record date shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall he entitled after such adjustment. Right Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a Preferred Share issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-hundredths of a Preferred Share which were expressed in the initial Right Certificates issued hereunder. -30- 34 (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-hundredth of the then par value, if any, of the Preferred Shares or other shares of capital stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares or other such shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it, in its sole discretion, shall determine to be advisable in order that any consolidation or subdivision of the Preferred Shares, issuance wholly for cash of any Preferred Shares at less than the current market price, issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or issuance of rights, options or -31- 35 warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) In the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Stock payable in Common Stock or (ii) effect a subdivision, combination or consolidation of the Common Stock (by reclassification or otherwise than by payment of dividends in Common Stock) into a greater or lesser number of shares of Common Stock, then in any such case the Rights associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction, of which the numerator shall be equal to the number of shares of Common Stock outstanding immediately prior to the occurrence of the event and of which the denominator shall be equal to the total number of shares of Common Stock outstanding immediately following the occurrence of such event. The adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Stock or the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 23 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be obligated -32- 36 or responsible for calculating any adjustment nor shall it be deemed to have knowledge of such adjustment unless and until it shall have received such certificate. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event, directly or indirectly, at any time after a Person has become an Acquiring Person, (i) the Company shall consolidate with, or merge with and into, any other Person, (ii) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Stock shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person (other than the Company or one or more of its wholly-owned Subsidiaries), then, and in each such case, proper provision shall be made so that (A) each holder of a Right (other than Rights that have become void pursuant to Section 11(a)(ii)) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of validly issued, fully paid and non-assessable and freely tradeable shares of Common Stock of the Principal Party (as defined herein) not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall equal the result obtained by (I) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (II) 50% of the then current -33- 37 per share market price of the Common Stock of such Principal Party (determined in accordance to Section 11(d)(i) hereof) on the date of consummation of such consolidation, merger, sale or transfer; provided that the Purchase Price and the number of shares of Common Stock of such Principal Party issuable upon exercise of each Right shall be further adjusted as provided in Section 11(f) of this Agreement to reflect any events occurring in respect of such Principal Party after the date of such consolidation, merger, sale or transfer; (B) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed to refer to such Principal Party; and (D) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its shares of Common Stock in accordance with Section 9 hereof) in connection with such consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the Rights; provided that, upon the subsequent occurrence of any consolidation, merger, sale or transfer of assets or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the Purchase Price as provided in this Section 13(a), such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the Common Stock of the Principal Party receivable upon the exercise of a Right pursuant to this Section 13(a), and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property. -34- 38 (b) As used in this Section 13, "Principal Party" shall mean (i) in the case of any transaction described in clause (i) or (ii) of the first sentence of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or (y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives) or (z) the Person resulting from the consolidation; and (ii) in the case of any transaction described in clause (iii) of the first sentence in Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Stock having the greatest aggregate market value of shares outstanding; provided, however, that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, the term "Principal Party" shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, and the Common Stocks of all of such persons have been so -35- 39 registered, the term "Principal Party" shall refer to whichever of such Persons is the issuer of Common Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests. (c) The Company shall not consummate any consolidation, merger, sale or transfer referred to in Section 13(a) hereof unless prior thereto the Company and the Principal Party involved therein shall have executed and delivered to the Rights Agent an agreement confirming that the requirements of Sections 13(a) and (b) hereof shall promptly be performed in accordance with their terms and that such consolidation, merger, sale or transfer of assets shall not result in a default by the Principal Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof and providing that, as soon as practicable after executing such agreement pursuant to this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Securities Act, if necessary, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective -36- 40 as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Final Expiration Date, and similarly comply with applicable state securities laws; (ii) use its best efforts, if the Common Stock of the Principal Party shall be listed or admitted to trading on the New York Stock Exchange or on another national securities exchange, to list or admit to trading (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on the New York Stock Exchange or such securities exchange, or, if the Common Stock of the Principal Party shall not be listed or admitted to trading on the New York Stock Exchange or a national securities exchange, to cause the Rights and the securities receivable upon exercise of the Rights to be reported by such other system then in use; (iii) deliver to holders of the Rights historical financial statements for the Principal Party which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; and (iv) obtain waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. (d) In case the Principal Party has provision in any of its authorized securities or in its certificate of incorporation or by-laws or other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights pursuant to this Section 13), in connection with, or as a consequence of, the consummation -37- 41 of a transaction referred to in this Section 13, shares of Common Stock of such Principal Party at less than the then current market price per share thereof (determined pursuant to Section 11(d) hereof) or securities exercisable for, or convertible into, Common Stock of such Principal Party at less than such then current market price, or (ii) providing for any special payment, tax or similar provision in connection with the issuance of the Common Stock of such Principal Party pursuant to the provisions of Section 13, then, in such event, the Company hereby agrees with each holder of Rights that it shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been cancelled, waived or amended, or that the authorized securities shall be redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction. (e) The Company covenants and agrees that it shall not, at any time after a Person first becomes an Acquiring Person enter into any transaction of the type contemplated by any of clauses (i) - (iii) of Section 13(a) hereof if (x) at the time of or immediately after such consolidation, merger, sale, transfer or other transaction there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (y) prior to, simultaneously with or immediately after such consolidation, merger, sale, transfer of other transaction, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its -38- 42 Affiliates or Associates or (z) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Rights are not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a -39- 43 market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-hundredth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-hundredth of a Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For the purposes of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock upon the exercise or exchange of Rights. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of -40- 44 Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock (as determined in accordance with Section 14(a) hereof) for the Trading Day immediately prior to the date of such exercise or exchange. (d) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). Section 15. Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement. -41- 45 Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right thus: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Stock; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or agency of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter -42- 46 submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The indemnification provided for hereunder shall survive the expiration of the Rights and the termination of this Agreement. (b) The Rights Agent may conclusively rely upon and shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, -43- 47 where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. Notwithstanding anything in this Agreement to the contrary, in no event shall the Rights Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage and regardless of the form of the action. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. -44- 48 (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound, and no implied duties or obligations shall be read into this Agreement against the Rights Agent: (a) Before the Rights Agent acts or refrains from acting, it may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by my one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full -45- 49 authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void in accordance with Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this -46- 50 Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective -47- 51 date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lead money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct. (j) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of election to purchase set forth on the reverse thereof, as the case may be, has not been completed to certify the holder is not an Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. (k) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for -48- 52 believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (l) The Rights Agent shall not be required to take notice or be deemed to have notice of any fact, event or determination (including, without limitation, any dates or events defined in this Agreement or the designation of any Person as an Acquiring Person, Affiliate, Associate or Subsidiary) under this Agreement unless and until the rights Agent shall be specifically notified in writing by the Company of such fact, event or determination. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock or Preferred Shares by registered or certified mail, and, at the expense of the Company, to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the -49- 53 Company or by such a court shall be a corporation organized and doing business under the laws of the United States, in good standing, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Stock following the Distribution Date and prior to the earlier of the Redemption Date and the Final -50- 54 Expiration Date, the Company may with respect to shares of Common Stock so issued or sold pursuant to (i) the exercise of stock options, (ii) under any employee plan or arrangement, (iii) upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company or (iv) a contractual obligation of the Company in each case existing prior to the Distribution Date, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale. Section 23. Redemption. (a) The Board of Directors of the Company may, at its option, at any time prior to the Close of Business on the 10th Business Day after the Stock Acquisition Date, redeem all but not less than all the then outstanding Rights at a redemption price of $0.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors of the Company may be made effective at such time, on such basis and with such conditions as the Board of Directors of the Company, in its sole discretion may establish. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the current market price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at such later time as the Board of Directors may establish for the effectiveness of such redemption), and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or -51- 55 any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors of the Company ordering the redemption of the Rights, the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Stock prior to the Distribution Date. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person first becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Stock then outstanding. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exchanged pursuant to this Section 24(a) shall thereafter be exercisable only in accordance with Section 13 and may not be exchanged pursuant to -52- 56 this Section 24(a). The exchange of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights hold by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights. (c) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to -53- 57 authorize additional shares of Common Stock for issuance upon exchange of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional Common Stock, the Company shall substitute, for each share of Common Stock that would otherwise be issuable upon exchange of a Right, a number of Preferred Shares or fraction thereof such that the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share market price of one share of Common Stock as of the date of issuance of such Preferred Shares or fraction thereof. (d) The Company shall not be required to issue fractions of a share of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such shares of fractional Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this Section 24(d), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24. Section 25. Notice of Certain Events. (a) In case the Company shall at any time after the earlier of the Distribution Date and the Stock Acquisition Date propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect -54- 58 any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision or combination of outstanding Preferred Shares), (iv) to effect any consolidation or merger with or into, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Stock payable in Common Stock or to effect a subdivision, combination or consolidation of the Common Stock (by reclassification or otherwise than by payment of dividends in Common Stock), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification. consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Stock and/or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Stock and/or Preferred Shares, whichever shall be the earlier. (b) In case the event set forth in Section 11(a)(ii) or Section 13 hereof shall occur, then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate (or if occurring prior to the Distribution Date, the holders of the Common Stock), in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event -55- 59 and the consequences of such event to holders of Rights under Section 11(a)(ii) or Section 13 hereof, as the case may be. Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by registered or certified mail and deemed given upon receipt, addressed (until another address is filed in writing with the Rights Agent) as follows: Sierra Well Service, Inc. 406 North Big Spring Midland, Texas 79701 Attention: President Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sent by registered or certified mail and shall be deemed given upon receipt, and addressed (until another address is filed in writing with the Company) as follows: American Stock Transfer & Trust Company 40 Wall Street, 46th Fl. New York, New York 10005 Attention: Executive Vice President Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. Except as otherwise provided in this Section 27, for so long as the Rights are then redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, supplement or amend any provision of this -56- 60 Agreement in any respect without the approval of any holders of the Rights, including, without limitation, as long as the Rights are then redeemable, to extend the period during which the Rights may be redeemed. At any time when the Rights are no longer redeemable, except as otherwise provided in this Section 27, the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv) change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable; provided that no such supplement or amendment shall adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no such amendment may cause the rights again to become redeemable or cause the Agreement again to become amendable other than in accordance with this sentence. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which decreases the Redemption Price. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything in this Agreement to the contrary, no supplement or amendment that changes the rights and duties of the Rights Agent under this Agreement will be effective against the Rights Agent without the execution of such supplement or amendment by the Rights Agent. -57- 61 Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock). Section 30. Determination and Actions by the Board of Directors. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise the rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including, without limitation, a determination to redeem or not redeem the Rights or to amend this Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors of the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other parties, and (y) not subject the Board of Directors to any liability to the holders of the Rights. -58- 62 Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 32. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 33. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 34. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. -59- 63 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. Basic Energy Services, Inc. By: -------------------------------------- Kenneth V. Huseman President and Chief Executive Officer American Stock Transfer & Trust Company By: -------------------------------------- Herbert J. Lemmer, Vice President 64 EXHIBIT A CERTIFICATE OF DESIGNATIONS OF SERIES ONE JUNIOR PARTICIPATING PREFERRED STOCK OF BASIC ENERGY SERVICES, INC. (PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) ---------- Basic Energy Services, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on March 21, 2000: WHEREAS, pursuant to the Company's Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Company is authorized to issue up to 5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), from time to time, none of which are currently outstanding; and WHEREAS, pursuant to the authority vested in the Board of Directors of the Company in accordance with the General Corporation Law of the State of Delaware and the Company's Certificate of Incorporation, the Board of Directors is authorized by resolution duly adopted to designate shares of Preferred Stock to be issued, in one or more series, to provide for the designation thereof of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof; NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Certificate of Incorporation, the Board of Directors on March 21, 2000 adopted the following resolutions to create a new series of Preferred Stock; and be it further RESOLVED, that pursuant to the authority of the Board of Directors of the Company in accordance with the provisions of the Delaware General Corporation Law and the Certificate of Incorporation, a Series One Junior Participating Preferred Stock of the Company is hereby created and 500,000 shares of preferred stock shall be reserved for issuance as Series One Junior A-1 65 Participatory Preferred Stock in accordance with the Certificate of Designation, with the designations thereof and the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof as set forth below: Section 1. Designation and Amount. The shares of such series shall be designated as "Series One Junior Participating Preferred Stock" (the "Series One Preferred Stock") and the number of shares constituting the Series One Preferred Stock shall be 500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series One Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series One Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock of the Company (the "Preferred Stock") (or any similar stock) ranking prior and superior to the Series One Preferred Stock with respect to dividends, the holders of shares of Series One Preferred Stock, in preference to the holders of Common Stock, par value $0.01 per share, of the Company (the "Common Stock") and of any other stock of the Company ranking junior to the Series One Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, quarterly dividends payable in cash on the last day of January, April, July, and October in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series One Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 and (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock, declared on the Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series One Preferred Stock. In the event that the Company shall at any time after June ___, 2000 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. A-2 66 (B) The Company shall declare a dividend or distribution on the Series One Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1.00 per share on the Series One Preferred Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series One Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series One Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series One Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series One Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series One Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series One Preferred Stock shall entitle the holder thereof to 100 votes on all matters upon which the holders of the Common Stock of the Company are entitled to vote. In the event the Company shall at any time after June ___, 2000 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except A-3 67 as otherwise required by law, the holders of shares of Series One Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law or the Certificate of Incorporation, holders of Series One Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series One Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series One Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series One Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series One Preferred Stock, except dividends paid ratably on the Series One Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series One Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series One Preferred Stock or rights, warrants or options to acquire such junior stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series One Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series One Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. A-4 68 (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series One Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series One Preferred Stock unless, prior thereto, the holders of shares of Series One Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividend distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series One Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series One Preferred Stock, except distributions made ratably on the Series One Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event, however, that there are not sufficient assets available to permit payment in full of the Series One Preferred Stock liquidation preference and the liquidation preferences of all other classes and series of stock of the Company, if any, that rank on a parity with the Series One Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series One Preferred Stock and the holders of such parity shares in the proportion to their respective liquidation preferences. In the event the Company shall at any time after June ___, 2000 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In the case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are A-5 69 converted into, exchanged for or changed into other stock or securities, cash and/or any property, then in any such case each share of Series One Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is converted, exchanged or converted. In the event the Company shall at any time after June ___, 2000 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series One Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series One Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series One Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, junior to all other series of Preferred Stock and senior to the Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series One Preferred Stock so as to affect the Series One Preferred Stock adversely, then the holders of the Series One Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series One Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. Series One Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series One Preferred Stock. A-6 70 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its Chairman, President and Chief Executive Officer and attested by its Secretary this ___th day of June, 2000. ------------------------------------- Kenneth V. Huseman President and Chief Executive Officer - --------------------------------- Secretary A-7 71 EXHIBIT B Form of Right Certificate Certificate No. R- ______ Rights NOT EXERCISABLE AFTER JUNE _, 2010 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. Basic Energy Services, Inc. This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of June __, 2000 (the "Rights Agreement"), between Basic Energy Services, Inc., a Delaware corporation (the "Company"), and American Stock Transfer & Trust Company, as rights agent (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., Eastern Standard (New York City) time, on June ___, 2010 at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one-hundredth of a fully paid non-assessable share of Series One Junior Participating Preferred Stock, par value $0.01 per share, of the Company (the "Preferred Shares") at a purchase price of $70.00 (subject to adjustment as provided in the Rights Agreement) per one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of one-hundredths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of June __, 2000, based on the Preferred Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of one-hundredths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the offices of the Rights Agent. This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate B-1 72 number of Preferred Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Right Certificate (i) may be redeemed by the Company at a redemption price of $0.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares or shares of the Company's Common Stock, par value $0.01 per share. No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one-hundredth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but, in lieu thereof, a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ________________________ , ________ . B-2 73 BASIC ENERGY SERVICES, INC. ATTEST: By - ------------------------------------ ------------------------------------- Name: Name: Title: Secretary Title: President Countersigned: American Stock Transfer & Trust Company, as Rights Agent By ------------------------------------- Name: Title: B-3 74 FORM OF REVERSE SIDE OF RIGHT CERTIFICATE FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificate.) FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers to ________________________________________________________________________________ (Please print name and address of transferee) this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: __________________________ , _____ Signature ---------------------------------- Signature Guaranteed: Signatures must be guaranteed by an eligible and recognized participant (as determined by the Rights Agent) in a signature guarantee program (such as the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchange Medallion Program), unless the Rights Certificate is delivered by (i) a registered holder of the Rights (or a participant in DTC whose name appears on a security position listing as the owner of such Rights) or (ii) for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, trust company, or savings bank or savings and loan association having an office or correspondent in the United States, in each case in accordance with the Rights Agent's standards and procedures and pursuant B-4 75 to Rule 17Ad-15 under the Securities Exchange Act of 1934 as such rule may be amended from time to time. The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature ------------------------------ B-5 76 Form of Reverse Side of Right Certificate - continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Right Certificate.) To: Sierra Well Service, Inc. The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of: Please insert social security ___________________ or other identifying number ___________________ _____________________________ ___________________ (Please print name and address) If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security ___________________ or other identifying number ___________________ _____________________________ ___________________ (Please print name and address) Dated: _____________ , ______ Signature ----------------------------------- Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. B-6 77 (Form of Reverse Side of Right Certificate -- continued) The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature ----------------------------------- B-7 78 NOTICE The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored. B-8 79 EXHIBIT C SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On June __, 2000, the Board of Directors of Sierra Well Service, Inc. (the "Company") declared a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of common stock, par value $0.01 per share ("Common Stock"), of the Company. The distribution is payable on June ___, 2000 (the "Record Date") to the stockholders of record on that date. Each Right entitles the registered holder thereof to purchase from the Company one-hundredth of a share of Series One Junior Participating Preferred Stock, par value $0.01 per share, of the Company (the "Preferred Stock") at a price of $70.00, subject to adjustment. The following is a summary of the Rights; the full description and terms of the Rights are set forth in a Stockholder Rights Agreement (the "Rights Agreement") between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). Copies of the Rights Agreement and the Certificate of Designation are available free of charge from the Company. This summary description of the Rights and the Preferred Stock does not purport to be complete and is qualified in its entirety by reference to all the provisions of the Rights Agreement and the Certificate of Designation, including the definitions therein of certain terms, which Rights Agreement and Certificate of Designation are incorporated herein by reference. Initially, the Rights will attach to all certificates representing shares of outstanding Company Common Stock, and no separate Rights Certificates will be distributed. The Rights will separate from the Company Common Stock and the Distribution Date will occur upon the earlier of (i) 10 business days following the date of public announcement that a person or group of persons has become an Acquiring Person (as hereinafter defined) or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to the time a person becomes an Acquiring Person) following the commencement of, or the announcement of an intention to make, a tender offer or exchange offer upon consummation of which the offeror would, if successful, become an Acquiring Person (the earlier of such dates being called the "Distribution Date"). The term "Acquiring Person" means any person who or which, together with all of its affiliates and associates, shall be the beneficial owner of 15% or more of the outstanding Common Stock, but shall not include (i) the Company or any Subsidiary (as such term is hereinafter defined) of the Company or any employee benefit plan of the Company, (ii) H.H. Wommack, III, his spouse, lineal descendants and ascendants, heirs, executors or other legal representatives and any trusts or limited partnerships established for the benefit of the foregoing, or any other person or entity in which the foregoing persons or entities are at the time of determination the direct record and beneficial owners of all outstanding voting securities, (iii) Southwest Royalties Holdings, Inc., Southwest Partners II, L.P. and Southwest Partners III, L.P. and each of their Affiliates and Associates, or (iv) Joint Energy Development Investments II Limited Partnership ("JEDI"), provided C-1 80 that JEDI shall cease to be an Exempt Person if the shares of which JEDI is a Beneficial Owner exceed 15% of the shares of Common Stock then outstanding. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Stock certificates issued after the Record Date, upon transfer or new issuance of Common Stock, will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Stock, outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and such separate Rights Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on June ____, 2010 (the "Expiration Date") [THE DATE 10 YEARS AFTER THE RECORD DATE]. The Purchase Price payable, and the number of one-hundredths of a share of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to subscribe for or purchase shares of Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then current market price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends paid or dividends payable in Preferred Stock) or of subscription rights or warrants (other than those referred to in (ii) above). The number of outstanding Rights and the number of one-hundredths of a share of Preferred Stock issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of the Common Stock or a stock dividend on the Common Stock payable in the Common Stock or subdivisions, consolidations or combinations of the Common Stock occurring, in any such case, prior to the Distribution Date. In the event that following a Stock Acquisition Date (the date of public announcement that an Acquiring Person has become such) the Company is acquired in a merger or other business combination transaction or more than 50% of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right (the "Flip-Over Right"). C-2 81 In the event that an Acquiring Person becomes the beneficial owner of 15% or more of the outstanding shares of Common Stock, proper provision shall be made so that each holder of a Right (other than the Acquiring Person and its affiliates and associates) will thereafter have the right to receive upon exercise that number of shares of Common Stock (or, under certain circumstances, cash, other equity securities or property of the Company) having a market value equal to two times the Purchase Price of the Rights (the "Flip-In Right"). Upon the occurrence of the foregoing event giving rise to the exercisability of the Rights, any Rights that are or were at any time owned by an Acquiring Person shall become void. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. Upon exercise of the Rights, no fractional shares of Preferred Stock will be issued other than fractions which are integral multiples of one-hundredth of a share of Preferred Stock; cash will be paid in lieu of fractional shares of Preferred Stock that are not integral multiples of one-hundredth of a share of Preferred Stock. At any time prior to the earlier to occur of (i) 5:00 p.m., Eastern Standard (New York City) time on the 10th business day after the Stock Acquisition Date or (ii) the expiration of the Rights, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"); provided, that (i) if the Board of Directors authorizes redemption on or after the time a person becomes an Acquiring Person, then such authorization must be by Board Approval (as hereinafter defined) and (ii) the period for redemption may, upon Board Approval, be extended by amending the Rights Agreement. The term "Board Approval" means the approval of a majority of the directors of the Company. Immediately upon any redemption of the Rights described in this paragraph, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. The terms of the Rights may be amended by the Board of Directors without the consent of the holders of the Rights at any time and from time to time provided that such amendment does not adversely affect the interests of the holders of the Rights. In addition, during any time that the Rights are subject to redemption, the terms of the Rights may be amended by Board Approval, including an amendment that adversely affects the interests of the holders of the Rights, without the consent of the holders of Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Preferred Stock (or other consideration). C-3 82 DESCRIPTION OF PREFERRED STOCK Each one-hundredth of a share of the Preferred Stock ("Preferred Share Fraction") that may be acquired upon exercise of the Rights will be nonredeemable and subordinate to any other shares of preferred stock that may be issued by the Company. Each Preferred Share Fraction will have a minimum preferential quarterly dividend rate of $0.01 per Preferred Share Fraction but will, in any event, be entitled to a dividend equal to the per share dividend declared on the Company Common Stock. In the event of liquidation, the holder of a Preferred Share Fraction will receive a preferred liquidation payment equal to the greater of $0.01 per Preferred Share Fraction or the per share amount paid in respect of a share of Company Common Stock. Each Preferred Share Fraction will have one vote, voting together with the Company Common Stock. In the event of any merger, consolidation or other transaction in which shares of Company Common Stock are exchanged, each Preferred Share Fraction will be entitled to receive the per share amount paid in respect of each share of Company Common Stock. The rights of holders of the Preferred Stock to dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary antidilution provisions. Because of the nature of the Preferred Stock's dividend, liquidation and voting rights, the economic value of one Preferred Share Fraction that may be acquired upon the exercise of each Right should approximate the economic value of one share of the Company's Common Stock. C-4 EX-5.1 6 0006.txt OPINION OF ANDREWS & KURTH L.L.P. 1 EXHIBIT 5.1 June 23, 2000 Board of Directors Basic Energy Services, Inc. 406 North Big Spring Midland, Texas 79701 Gentlemen: We have acted as counsel to Basic Energy Services, Inc., a Delaware corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), of the Registration Statement on Form S-1 filed by the Company with the Commission on March 23, 2000, as amended on May 22, 2000 (the "Registration Statement"), with respect to the offering and sale by the Company of up to 4,255,000 shares (the "Shares") of common stock, par value $0.01 per share (the "Common Stock"), of the Company. This opinion also relates to any registration statement of the Company relating to the registration of additional shares of Common Stock pursuant to Rule 462(b) under the Act. We have examined originals or copies of (i) the Amended and Restated Certificate of Incorporation of the Company; (ii) the Restated Bylaws of the Company; (iii) certain resolutions of the Board of Directors and the stockholders of the Company; and (iv) such other documents and records as we have deemed necessary and relevant for purposes hereof. We have relied upon certificates of public officials and officers of the Company as to certain matters of fact relating to this opinion and have made such investigations of law as we have deemed necessary and relevant as a basis hereof. We have not independently verified any factual matter relating to this opinion. We have assumed the genuineness of all signatures, the authenticity of all documents, certificates and records submitted to us as copies, and the conformity to original documents, certificates and records of all documents, certificates and records submitted to us as copies. Based upon the foregoing, and subject to the limitations and assumptions set forth herein, and having due regard for such legal considerations as we deem relevant, we are of the opinion that: The issuance of the Common Stock has been duly authorized, and when issued and delivered by the Company against payment therefor as described in the Registration Statement, such shares will be validly issued, fully paid and nonassessable. 2 Basic Energy Services, Inc. May 22, 2000 Page 2 The foregoing opinion is based on and is limited to the General Corporation Law of the State of Delaware and the relevant laws of the United States of America, and we render no opinion with respect to the laws of any other jurisdiction. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as Exhibit 5.l to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus contained in the Registration Statement. By giving such consent, we do not admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations issued thereunder. This opinion may be incorporated by reference in a registration statement of the Company relating to the registration of additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act, in which case the opinions expressed herein will apply to the additional shares registered thereunder. Very truly yours, /s/ Andrews & Kurth L.L.P. -2- EX-10.5 7 0007.txt EMPLOYMENT AGREEMENT WITH DUB W. HARRISON 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT This Employment Agreement, including the attached Exhibit A (together, the "Agreement"), is entered into between Sierra Well Service, Inc., a Delaware corporation (the "Company"), and Dub W. Harrison ("Employee") effective as of March 1, 2000 (the "Effective Date"). WITNESSETH: WHEREAS, the Company desires to employ Employee pursuant to the terms and conditions set forth in this Agreement, and Employee desires to be employed by the Company pursuant to such terms and conditions; NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, the Company and Employee agree as follows: ARTICLE I: EMPLOYMENT AND DUTIES 1.1 The Company agrees to employ Employee and Employee agrees to be employed by the Company subject to the terms and conditions of this Agreement, beginning as of the Effective Date and continuing until the date set forth on Exhibit A (the "Term"). If Employee's employment with the Company continues after the end of the Term, Employee shall be an "at-will" employee. 1.2 Employee shall be employed in the position set forth on Exhibit A and shall have the normal authorities, responsibilities and duties of such position. However, the Company may assign Employee such additional or different duties from time to time as may be reasonably appropriate in the good faith opinion of the Company, including duties with an affiliate. Employee shall at all times comply with the policies and procedures of the Company as in effect from time to time. ARTICLE II: COMPENSATION AND BENEFITS 2.1 During the Term the Company shall pay Employee a Monthly Base Salary as set forth on Exhibit A, which shall be paid in accordance with the Company's standard payroll practice. Such Monthly Base Salary may be increased from time-to-time by the Board of Directors of the Company (the "Board"), but may not be decreased unless a similar decrease is made to the base salaries of the officers of the Company. 2.2 Employee shall be eligible to participate in the Company's cash bonus and employee stock option plans as may be approved from time to time by the Board. 2 2.3 The Company may withhold from any compensation, benefits, or amounts payable to Employee all taxes as may be required pursuant to any applicable law. 2.4 Employee shall be reimbursed by the Company for reasonable travel, lodging, meals, customer entertainment and other expenses incurred by him in connection with performing his duties hereunder in accordance with the Company's policies in effect from time to time. ARTICLE III: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION 3.1 The Company shall have the right to terminate Employee's employment at any time prior to the expiration of the Term: (i) for "Cause", upon the determination by the Board that "Cause" exists for termination of Employee's employment (a "Termination for Cause"). As used herein, the term "Cause" means (a) Employee's gross negligence or willful misconduct in the performance of Employee's duties; (b) Employee has been convicted of a felony; (c) Employee has willfully refused without proper legal reason to perform the duties and responsibilities required of Employee under this Agreement; (d) Employee's material breach of any material provision of this Agreement which remains uncorrected for 10 business days following written notice by the Company to Employee of such breach; or (e) chronic alcohol abuse or illegal drug use by Employee that is determined by the Board to materially impair Employee's ability to perform his duties and responsibilities hereunder; (ii) for any reason other than Cause (an "Involuntary Termination"); or (iii) if Employee becomes entitled to benefits under the Company's (or an affiliate's) long-term disability plan or, if Employee is not covered by any such plan, upon Employee becoming unable to perform substantially, with reasonable accommodation, Employee's duties as a result of a physical or mental impairment as determined by a physician selected or approved by the Company (a "Disability Termination"). 3.2 Employee shall have the right to terminate Employee's employment at any time prior to the expiration of the Term: (i) for a material breach by the Company of a material provision of this Agreement which remains uncorrected for 10 business days following written notice of such breach by Employee to the Company (a "Good Reason Termination"); or -2- 3 (ii) for any other reason 30 days following written notice to the Company, unless such notice period is waived by the Company (a "Voluntary Termination"). 3.3 Upon a Voluntary Termination, a Termination for Cause, a Disability Termination, or a termination due to Employee's death, Employee (or Employee's spouse or, if none, Employee's estate) shall be paid the pro rata Monthly Base Salary earned through the date of such termination; however, Employee shall not be entitled any future compensation or benefits which would otherwise have been provided pursuant to this Agreement had the Term continued following such termination of employment, including, without limitation, any bonuses, incentive compensation, stock option or other equity based award that is not vested or payable pursuant to its terms at the date of such termination of employment. 3.4 Upon an Involuntary Termination or a Good Reason Termination, Employee shall be paid, as soon as reasonably practical following such termination, a lump sum amount equal to six months' Monthly Base Salary (however, if such termination occurs on or following a Change of Control (as defined in the Company's 2000 Stock Incentive Plan), "18 months'" shall be substituted for "six months'"); however, Employee shall not be entitled to receive any severance payment pursuant to this Section 3.4 unless Employee has executed (and not revoked) a general release of all claims Employee may have against the Company and its affiliates relating to Employee's employment hereunder in a form of such release reasonably acceptable to the Company. Employee shall not be entitled to any future compensation or benefits which would otherwise have been provided pursuant to this Agreement had the Term continued following such termination of employment, including, without limitation, any bonuses, incentive compensation, stock option or other equity based award that is not vested or payable pursuant to its terms at the date of such termination of employment. 3.5 In all cases, the compensation payable to Employee under this Agreement upon termination of the employment relationship shall be offset against any amounts to which Employee may otherwise be entitled under any and all severance plans and policies of the Company or its affiliates. 3.6 Termination of the employment relationship pursuant to this Agreement shall not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles IV and V. ARTICLE IV: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS 4.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by the Company which relate to the Company's business, products or services shall be disclosed to the Company by Employee and are and shall be the sole and exclusive property of the Company. -3- 4 4.2 Employee acknowledges that the business of the Company and its affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets ("Confidential Information") which are valuable, special, and unique assets which the Company or its affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such Confidential Information against unauthorized disclosure and use is of critical importance to the Company and its affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after Employee's termination of employment with the Company, make any unauthorized disclosure of any Confidential Information, or make any use thereof, except in the carrying out of Employee's employment responsibilities hereunder. The affiliates of the Company shall be third party beneficiaries of Employee's obligations under this Section. As a result of Employee's employment by the Company, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of the Company and its affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential business information and trade secrets. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article IV by Employee, and the Company shall be entitled to enforce the provisions of this Article IV by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article IV, but shall be in addition to all remedies available at law or in equity to the Company, including the recovery of damages from Employee and his or her agents involved in such breach. 4.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during Employee's employment by the Company which contain or disclose Confidential Information shall be and remain the sole property of the Company and its affiliates, as the case may be. Upon termination of Employee's employment by the Company, for any reason, Employee promptly shall deliver the same, and all copies thereof, to the Company. 4.4 If, during Employee's employment with the Company, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to the Company's business, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on the Company's premises or otherwise), Employee shall disclose such work to the Company. The Company shall be deemed the author of such work if the work is prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and the Company -4- 5 shall be the author of the work. If such work is neither prepared by the Employee within the scope of his or her employment nor a work specially ordered and is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. ARTICLE V: NON-COMPETITION OBLIGATIONS 5.1 As part of the consideration for the compensation and benefits to be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary, in order to protect the Company's interests in the Confidential Information that the Company will furnish and make available to Employee in the performance of his duties with the Company, and as an additional incentive for the Company to enter into this Agreement, the Company and Employee agree to the non-competition provisions of this Article V. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others (as a principal, agent, owner, employee, consultant or otherwise), in any geographic area or market where the Company or any of its affiliated companies is conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business (the "Territory"): (i) engage in any business competitive with the business conducted by the Company or its affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by the Company or its affiliates; (iii) induce any employee of the Company or any of its affiliates to terminate his or her employment with the Company or its affiliates, or hire or assist in the hiring of any such employee by a person, association, or entity not affiliated with the Company; (iv) call upon any person or entity which is, at that time, or which has been, within one year prior to that time, a customer of the Company within the Territory for the purpose of soliciting customers, orders or contracts for any business competitive with the Company or its affiliates within the Territory; or (v) testify as an expert witness in matters related to the Company's business for an adverse party to the Company in litigation; provided, that nothing contained herein shall interfere with Employee's duty to testify as a witness if required by law. -5- 6 These non-competition obligations shall apply during Employee's employment with the Company and its affiliates and shall extend until six months after Employee's termination of the employment with the Company and its affiliates. Notwithstanding the foregoing, these non-competition obligations shall not apply if Employee's employment is terminated on or following a Change of Control. In addition, the foregoing restrictions shall not prohibit Employee from owning less than 2% of any class of securities of any public company that is engaged in competition with the Company or an affiliate. 5.2 Employee understands that the foregoing restrictions may limit Employee's ability to engage in certain businesses during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article V by Employee, and the Company shall be entitled to enforce the provisions of this Article V by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article V, but shall be in addition to all remedies available at law or in equity to the Company, including, without limitation, the recovery of damages from Employee and his or her agents involved in such breach. Employee further agrees to waive any requirement for the Company's securing or posting of any bond in connection with such remedies. 5.3 It is expressly understood and agreed that the Company and Employee consider the restrictions contained in this Article V to be reasonable and necessary to protect the proprietary information of the Company. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 5.4 The covenants in this Article V are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 5.5 All of the covenants in this Article V shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants. It is specifically agreed that the period of six months following termination of employment, during which the agreements and covenants of Employee made herein shall be effective, shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Article V. -6- 7 ARTICLE VI: MISCELLANEOUS 6.1 For purposes of this Agreement, all notices and other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Sierra Well Service, Inc. 406 N. Big Spring Street Midland, Texas 79701 Attention: Corporate Secretary If to Employee, to the address last shown on the Company's records. Either the Company or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 6.2 This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another state or country. 6.3 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.4 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 6.5 This Agreement shall be binding upon and inure to the benefit of the Company and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of the Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under Agreement hereof are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or -7- 8 involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of the Company. 6.6 This Agreement replaces in full all previous agreements and discussions pertaining to the following subject matters covered herein: the nature of Employee's employment relationship with the Company and the term and termination of such relationship. This Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect such subject matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to such subject matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by the Company that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board. ARTICLE VII: DISPUTE RESOLUTION 7.1 Except with respect to injunctive relief as provided in Section 5.2 above, any dispute or controversy about the validity, interpretation, effect or alleged violation of this Agreement (an "Arbitrable Dispute") must be submitted to confidential arbitration in Midland, Texas. Arbitration shall take place before an experienced employment arbitrator licensed to practice law in such state and selected in accordance with the Model Employment Arbitration Procedures of the American Arbitration Association. Arbitration shall be the exclusive remedy of any Arbitrable Dispute. Judgement may be entered on the arbitrator's award in any court having jurisdiction. The parties hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. All costs and expenses, including attorneys' fees, shall be awarded as determined by the arbitrator. Should any party to this Agreement pursue any Arbitrable Dispute by any method other than arbitration, the other party shall be entitled to recover from the party initiating the use of such method all damages, costs, expenses and attorneys' fees incurred as a result of the use of such method. Notwithstanding anything herein to the contrary, nothing in this Agreement shall purport to waive or in any way limit the right of any party to seek to enforce any judgment or decision on an Arbitrable Dispute in a court of competent jurisdiction. -8- 9 IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement in multiple originals, effective for all purposes as of the Effective Date. SIERRA WELL SERVICE, INC. By: /s/ Kenneth V. Huseman -------------------------------- Name: Kenneth V. Huseman Title: President and CEO EMPLOYEE /s/ Dub W. Harrison ----------------------------------- Dub W. Harrison -9- 10 EXHIBIT "A" TO EMPLOYMENT AGREEMENT BETWEEN SIERRA WELL SERVICE, INC. AND DUB W. HARRISON Term Ending Date: February 28, 2003 or, if earlier, the date Employee's employment is terminated for any reason Position: Vice President Monthly Base Salary: $8,333.34 A-1 EX-10.6 8 0008.txt EMPLOYMENT AGREEMENT WITH CHARLES W. SWIFT 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT This Employment Agreement, including the attached Exhibit A (together, the "Agreement"), is entered into between Sierra Well Service, Inc., a Delaware corporation (the "Company"), and Charles W. Swift ("Employee") effective as of March 1, 2000 (the "Effective Date"). WITNESSETH: WHEREAS, the Company desires to employ Employee pursuant to the terms and conditions set forth in this Agreement, and Employee desires to be employed by the Company pursuant to such terms and conditions; NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, the Company and Employee agree as follows: ARTICLE I: EMPLOYMENT AND DUTIES 1.1 The Company agrees to employ Employee and Employee agrees to be employed by the Company subject to the terms and conditions of this Agreement, beginning as of the Effective Date and continuing until the date set forth on Exhibit A (the "Term"). If Employee's employment with the Company continues after the end of the Term, Employee shall be an "at-will" employee. 1.2 Employee shall be employed in the position set forth on Exhibit A and shall have the normal authorities, responsibilities and duties of such position. However, the Company may assign Employee such additional or different duties from time to time as may be reasonably appropriate in the good faith opinion of the Company, including duties with an affiliate. Employee shall at all times comply with the policies and procedures of the Company as in effect from time to time. ARTICLE II: COMPENSATION AND BENEFITS 2.1 During the Term the Company shall pay Employee a Monthly Base Salary as set forth on Exhibit A, which shall be paid in accordance with the Company's standard payroll practice. Such Monthly Base Salary may be increased from time-to-time by the Board of Directors of the Company (the "Board"), but may not be decreased unless a similar decrease is made to the base salaries of the officers of the Company. 2.2 Employee shall be eligible to participate in the Company's cash bonus and employee stock option plans as may be approved from time to time by the Board. 2 2.3 The Company may withhold from any compensation, benefits, or amounts payable to Employee all taxes as may be required pursuant to any applicable law. 2.4 Employee shall be reimbursed by the Company for reasonable travel, lodging, meals, customer entertainment and other expenses incurred by him in connection with performing his duties hereunder in accordance with the Company's policies in effect from time to time. ARTICLE III: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION 3.1 The Company shall have the right to terminate Employee's employment at any time prior to the expiration of the Term: (i) for "Cause", upon the determination by the Board that "Cause" exists for termination of Employee's employment (a "Termination for Cause"). As used herein, the term "Cause" means (a) Employee's gross negligence or willful misconduct in the performance of Employee's duties; (b) Employee has been convicted of a felony; (c) Employee has willfully refused without proper legal reason to perform the duties and responsibilities required of Employee under this Agreement; (d) Employee's material breach of any material provision of this Agreement which remains uncorrected for 10 business days following written notice by the Company to Employee of such breach; or (e) chronic alcohol abuse or illegal drug use by Employee that is determined by the Board to materially impair Employee's ability to perform his duties and responsibilities hereunder; (ii) for any reason other than Cause (an "Involuntary Termination"); or (iii) if Employee becomes entitled to benefits under the Company's (or an affiliate's) long-term disability plan or, if Employee is not covered by any such plan, upon Employee becoming unable to perform substantially, with reasonable accommodation, Employee's duties as a result of a physical or mental impairment as determined by a physician selected or approved by the Company (a "Disability Termination"). 3.2 Employee shall have the right to terminate Employee's employment at any time prior to the expiration of the Term: (i) for a material breach by the Company of a material provision of this Agreement which remains uncorrected for 10 business days following written notice of such breach by Employee to the Company (a "Good Reason Termination"); or -2- 3 (ii) for any other reason 30 days following written notice to the Company, unless such notice period is waived by the Company (a "Voluntary Termination"). 3.3 Upon a Voluntary Termination, a Termination for Cause, a Disability Termination, or a termination due to Employee's death, Employee (or Employee's spouse or, if none, Employee's estate) shall be paid the pro rata Monthly Base Salary earned through the date of such termination; however, Employee shall not be entitled any future compensation or benefits which would otherwise have been provided pursuant to this Agreement had the Term continued following such termination of employment, including, without limitation, any bonuses, incentive compensation, stock option or other equity based award that is not vested or payable pursuant to its terms at the date of such termination of employment. 3.4 Upon an Involuntary Termination or a Good Reason Termination, Employee shall be paid, as soon as reasonably practical following such termination, a lump sum amount equal to six months' Monthly Base Salary (however, if such termination occurs on or following a Change of Control (as defined in the Company's 2000 Stock Incentive Plan), "18 months'" shall be substituted for "six months'"); however, Employee shall not be entitled to receive any severance payment pursuant to this Section 3.4 unless Employee has executed (and not revoked) a general release of all claims Employee may have against the Company and its affiliates relating to Employee's employment hereunder in a form of such release reasonably acceptable to the Company. Employee shall not be entitled to any future compensation or benefits which would otherwise have been provided pursuant to this Agreement had the Term continued following such termination of employment, including, without limitation, any bonuses, incentive compensation, stock option or other equity based award that is not vested or payable pursuant to its terms at the date of such termination of employment. 3.5 In all cases, the compensation payable to Employee under this Agreement upon termination of the employment relationship shall be offset against any amounts to which Employee may otherwise be entitled under any and all severance plans and policies of the Company or its affiliates. 3.6 Termination of the employment relationship pursuant to this Agreement shall not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles IV and V. ARTICLE IV: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS 4.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by the Company which relate to the Company's business, products or services shall be disclosed to the Company by Employee and are and shall be the sole and exclusive property of the Company. -3- 4 4.2 Employee acknowledges that the business of the Company and its affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets ("Confidential Information") which are valuable, special, and unique assets which the Company or its affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such Confidential Information against unauthorized disclosure and use is of critical importance to the Company and its affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after Employee's termination of employment with the Company, make any unauthorized disclosure of any Confidential Information, or make any use thereof, except in the carrying out of Employee's employment responsibilities hereunder. The affiliates of the Company shall be third party beneficiaries of Employee's obligations under this Section. As a result of Employee's employment by the Company, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of the Company and its affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential business information and trade secrets. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article IV by Employee, and the Company shall be entitled to enforce the provisions of this Article IV by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article IV, but shall be in addition to all remedies available at law or in equity to the Company, including the recovery of damages from Employee and his or her agents involved in such breach. 4.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during Employee's employment by the Company which contain or disclose Confidential Information shall be and remain the sole property of the Company and its affiliates, as the case may be. Upon termination of Employee's employment by the Company, for any reason, Employee promptly shall deliver the same, and all copies thereof, to the Company. 4.4 If, during Employee's employment with the Company, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to the Company's business, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on the Company's premises or otherwise), Employee shall disclose such work to the Company. The Company shall be deemed the author of such work if the work is prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and the Company -4- 5 shall be the author of the work. If such work is neither prepared by the Employee within the scope of his or her employment nor a work specially ordered and is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. ARTICLE V: NON-COMPETITION OBLIGATIONS 5.1 As part of the consideration for the compensation and benefits to be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary, in order to protect the Company's interests in the Confidential Information that the Company will furnish and make available to Employee in the performance of his duties with the Company, and as an additional incentive for the Company to enter into this Agreement, the Company and Employee agree to the non-competition provisions of this Article V. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others (as a principal, agent, owner, employee, consultant or otherwise), in any geographic area or market where the Company or any of its affiliated companies is conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business (the "Territory"): (i) engage in any business competitive with the business conducted by the Company or its affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by the Company or its affiliates; (iii) induce any employee of the Company or any of its affiliates to terminate his or her employment with the Company or its affiliates, or hire or assist in the hiring of any such employee by a person, association, or entity not affiliated with the Company; (iv) call upon any person or entity which is, at that time, or which has been, within one year prior to that time, a customer of the Company within the Territory for the purpose of soliciting customers, orders or contracts for any business competitive with the Company or its affiliates within the Territory; or (v) testify as an expert witness in matters related to the Company's business for an adverse party to the Company in litigation; provided, that nothing contained herein shall interfere with Employee's duty to testify as a witness if required by law. -5- 6 These non-competition obligations shall apply during Employee's employment with the Company and its affiliates and shall extend until six months after Employee's termination of the employment with the Company and its affiliates. Notwithstanding the foregoing, these non-competition obligations shall not apply if Employee's employment is terminated on or following a Change of Control. In addition, the foregoing restrictions shall not prohibit Employee from owning less than 2% of any class of securities of any public company that is engaged in competition with the Company or an affiliate. 5.2 Employee understands that the foregoing restrictions may limit Employee's ability to engage in certain businesses during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article V by Employee, and the Company shall be entitled to enforce the provisions of this Article V by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article V, but shall be in addition to all remedies available at law or in equity to the Company, including, without limitation, the recovery of damages from Employee and his or her agents involved in such breach. Employee further agrees to waive any requirement for the Company's securing or posting of any bond in connection with such remedies. 5.3 It is expressly understood and agreed that the Company and Employee consider the restrictions contained in this Article V to be reasonable and necessary to protect the proprietary information of the Company. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 5.4 The covenants in this Article V are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 5.5 All of the covenants in this Article V shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants. It is specifically agreed that the period of six months following termination of employment, during which the agreements and covenants of Employee made herein shall be effective, shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Article V. -6- 7 ARTICLE VI: MISCELLANEOUS 6.1 For purposes of this Agreement, all notices and other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Sierra Well Service, Inc. 406 N. Big Spring Street Midland, Texas 79701 Attention: Corporate Secretary If to Employee, to the address last shown on the Company's records. Either the Company or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 6.2 This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another state or country. 6.3 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.4 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 6.5 This Agreement shall be binding upon and inure to the benefit of the Company and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of the Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under Agreement hereof are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or -7- 8 involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of the Company. 6.6 This Agreement replaces in full all previous agreements and discussions pertaining to the following subject matters covered herein: the nature of Employee's employment relationship with the Company and the term and termination of such relationship. This Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect such subject matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to such subject matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by the Company that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board. ARTICLE VII: DISPUTE RESOLUTION 7.1 Except with respect to injunctive relief as provided in Section 5.2 above, any dispute or controversy about the validity, interpretation, effect or alleged violation of this Agreement (an "Arbitrable Dispute") must be submitted to confidential arbitration in Midland, Texas. Arbitration shall take place before an experienced employment arbitrator licensed to practice law in such state and selected in accordance with the Model Employment Arbitration Procedures of the American Arbitration Association. Arbitration shall be the exclusive remedy of any Arbitrable Dispute. Judgement may be entered on the arbitrator's award in any court having jurisdiction. The parties hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. All costs and expenses, including attorneys' fees, shall be awarded as determined by the arbitrator. Should any party to this Agreement pursue any Arbitrable Dispute by any method other than arbitration, the other party shall be entitled to recover from the party initiating the use of such method all damages, costs, expenses and attorneys' fees incurred as a result of the use of such method. Notwithstanding anything herein to the contrary, nothing in this Agreement shall purport to waive or in any way limit the right of any party to seek to enforce any judgment or decision on an Arbitrable Dispute in a court of competent jurisdiction. -8- 9 IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement in multiple originals, effective for all purposes as of the Effective Date. SIERRA WELL SERVICE, INC. By: /s/ Kenneth V. Huseman ------------------------------ Name: Kenneth V. Huseman Title: President and CEO EMPLOYEE /s/ Charles W. Swift ----------------------------------- Charles W. Swift -9- 10 EXHIBIT "A" TO EMPLOYMENT AGREEMENT BETWEEN SIERRA WELL SERVICE, INC. AND CHARLES W. SWIFT Term Ending Date: February 28, 2003 or, if earlier, the date Employee's employment is terminated for any reason Position: Vice President Monthly Base Salary: $8,333.34 A-1 EX-10.7 9 0009.txt EMPLOYMENT AGREEMENT WITH RONALD T. MCCLUNG 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT This Employment Agreement, including the attached Exhibit A (together, the "Agreement"), is entered into between Sierra Well Service, Inc., a Delaware corporation (the "Company"), and Ronald T. McClung ("Employee") effective as of March 1, 2000 (the "Effective Date"). WITNESSETH: WHEREAS, the Company desires to employ Employee pursuant to the terms and conditions set forth in this Agreement, and Employee desires to be employed by the Company pursuant to such terms and conditions; NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, the Company and Employee agree as follows: ARTICLE I: EMPLOYMENT AND DUTIES 1.1 The Company agrees to employ Employee and Employee agrees to be employed by the Company subject to the terms and conditions of this Agreement, beginning as of the Effective Date and continuing until the date set forth on Exhibit A (the "Term"). If Employee's employment with the Company continues after the end of the Term, Employee shall be an "at-will" employee. 1.2 Employee shall be employed in the position set forth on Exhibit A and shall have the normal authorities, responsibilities and duties of such position. However, the Company may assign Employee such additional or different duties from time to time as may be reasonably appropriate in the good faith opinion of the Company, including duties with an affiliate. Employee shall at all times comply with the policies and procedures of the Company as in effect from time to time. ARTICLE II: COMPENSATION AND BENEFITS 2.1 During the Term the Company shall pay Employee a Monthly Base Salary as set forth on Exhibit A, which shall be paid in accordance with the Company's standard payroll practice. Such Monthly Base Salary may be increased from time-to-time by the Board of Directors of the Company (the "Board"), but may not be decreased unless a similar decrease is made to the base salaries of the officers of the Company. 2.2 Employee shall be eligible to participate in the Company's cash bonus and employee stock option plans as may be approved from time to time by the Board. 2 2.3 The Company may withhold from any compensation, benefits, or amounts payable to Employee all taxes as may be required pursuant to any applicable law. 2.4 Employee shall be reimbursed by the Company for reasonable travel, lodging, meals, customer entertainment and other expenses incurred by him in connection with performing his duties hereunder in accordance with the Company's policies in effect from time to time. ARTICLE III: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION 3.1 The Company shall have the right to terminate Employee's employment at any time prior to the expiration of the Term: (i) for "Cause", upon the determination by the Board that "Cause" exists for termination of Employee's employment (a "Termination for Cause"). As used herein, the term "Cause" means (a) Employee's gross negligence or willful misconduct in the performance of Employee's duties; (b) Employee has been convicted of a felony; (c) Employee has willfully refused without proper legal reason to perform the duties and responsibilities required of Employee under this Agreement; (d) Employee's material breach of any material provision of this Agreement which remains uncorrected for 10 business days following written notice by the Company to Employee of such breach; or (e) chronic alcohol abuse or illegal drug use by Employee that is determined by the Board to materially impair Employee's ability to perform his duties and responsibilities hereunder; (ii) for any reason other than Cause (an "Involuntary Termination"); or (iii) if Employee becomes entitled to benefits under the Company's (or an affiliate's) long-term disability plan or, if Employee is not covered by any such plan, upon Employee becoming unable to perform substantially, with reasonable accommodation, Employee's duties as a result of a physical or mental impairment as determined by a physician selected or approved by the Company (a "Disability Termination"). 3.2 Employee shall have the right to terminate Employee's employment at any time prior to the expiration of the Term: (i) for a material breach by the Company of a material provision of this Agreement which remains uncorrected for 10 business days following written notice of such breach by Employee to the Company (a "Good Reason Termination"); or -2- 3 (ii) for any other reason 30 days following written notice to the Company, unless such notice period is waived by the Company (a "Voluntary Termination"). 3.3 Upon a Voluntary Termination, a Termination for Cause, a Disability Termination, or a termination due to Employee's death, Employee (or Employee's spouse or, if none, Employee's estate) shall be paid the pro rata Monthly Base Salary earned through the date of such termination; however, Employee shall not be entitled any future compensation or benefits which would otherwise have been provided pursuant to this Agreement had the Term continued following such termination of employment, including, without limitation, any bonuses, incentive compensation, stock option or other equity based award that is not vested or payable pursuant to its terms at the date of such termination of employment. 3.4 Upon an Involuntary Termination or a Good Reason Termination, Employee shall be paid, as soon as reasonably practical following such termination, a lump sum amount equal to six months' Monthly Base Salary (however, if such termination occurs on or following a Change of Control (as defined in the Company's 2000 Stock Incentive Plan), "18 months'" shall be substituted for "six months'"); however, Employee shall not be entitled to receive any severance payment pursuant to this Section 3.4 unless Employee has executed (and not revoked) a general release of all claims Employee may have against the Company and its affiliates relating to Employee's employment hereunder in a form of such release reasonably acceptable to the Company. Employee shall not be entitled to any future compensation or benefits which would otherwise have been provided pursuant to this Agreement had the Term continued following such termination of employment, including, without limitation, any bonuses, incentive compensation, stock option or other equity based award that is not vested or payable pursuant to its terms at the date of such termination of employment. 3.5 In all cases, the compensation payable to Employee under this Agreement upon termination of the employment relationship shall be offset against any amounts to which Employee may otherwise be entitled under any and all severance plans and policies of the Company or its affiliates. 3.6 Termination of the employment relationship pursuant to this Agreement shall not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles IV and V. ARTICLE IV: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS 4.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by the Company which relate to the Company's business, products or services shall be disclosed to the Company by Employee and are and shall be the sole and exclusive property of the Company. -3- 4 4.2 Employee acknowledges that the business of the Company and its affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets ("Confidential Information") which are valuable, special, and unique assets which the Company or its affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such Confidential Information against unauthorized disclosure and use is of critical importance to the Company and its affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after Employee's termination of employment with the Company, make any unauthorized disclosure of any Confidential Information, or make any use thereof, except in the carrying out of Employee's employment responsibilities hereunder. The affiliates of the Company shall be third party beneficiaries of Employee's obligations under this Section. As a result of Employee's employment by the Company, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of the Company and its affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential business information and trade secrets. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article IV by Employee, and the Company shall be entitled to enforce the provisions of this Article IV by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article IV, but shall be in addition to all remedies available at law or in equity to the Company, including the recovery of damages from Employee and his or her agents involved in such breach. 4.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during Employee's employment by the Company which contain or disclose Confidential Information shall be and remain the sole property of the Company and its affiliates, as the case may be. Upon termination of Employee's employment by the Company, for any reason, Employee promptly shall deliver the same, and all copies thereof, to the Company. 4.4 If, during Employee's employment with the Company, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to the Company's business, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on the Company's premises or otherwise), Employee shall disclose such work to the Company. The Company shall be deemed the author of such work if the work is prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and the Company -4- 5 shall be the author of the work. If such work is neither prepared by the Employee within the scope of his or her employment nor a work specially ordered and is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. ARTICLE V: NON-COMPETITION OBLIGATIONS 5.1 As part of the consideration for the compensation and benefits to be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary, in order to protect the Company's interests in the Confidential Information that the Company will furnish and make available to Employee in the performance of his duties with the Company, and as an additional incentive for the Company to enter into this Agreement, the Company and Employee agree to the non-competition provisions of this Article V. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others (as a principal, agent, owner, employee, consultant or otherwise), in any geographic area or market where the Company or any of its affiliated companies is conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business (the "Territory"): (i) engage in any business competitive with the business conducted by the Company or its affiliates; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by the Company or its affiliates; (iii) induce any employee of the Company or any of its affiliates to terminate his or her employment with the Company or its affiliates, or hire or assist in the hiring of any such employee by a person, association, or entity not affiliated with the Company; (iv) call upon any person or entity which is, at that time, or which has been, within one year prior to that time, a customer of the Company within the Territory for the purpose of soliciting customers, orders or contracts for any business competitive with the Company or its affiliates within the Territory; or (v) testify as an expert witness in matters related to the Company's business for an adverse party to the Company in litigation; provided, that nothing contained herein shall interfere with Employee's duty to testify as a witness if required by law. -5- 6 These non-competition obligations shall apply during Employee's employment with the Company and its affiliates and shall extend until six months after Employee's termination of the employment with the Company and its affiliates. Notwithstanding the foregoing, these non-competition obligations shall not apply if Employee's employment is terminated on or following a Change of Control. In addition, the foregoing restrictions shall not prohibit Employee from owning less than 2% of any class of securities of any public company that is engaged in competition with the Company or an affiliate. 5.2 Employee understands that the foregoing restrictions may limit Employee's ability to engage in certain businesses during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article V by Employee, and the Company shall be entitled to enforce the provisions of this Article V by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article V, but shall be in addition to all remedies available at law or in equity to the Company, including, without limitation, the recovery of damages from Employee and his or her agents involved in such breach. Employee further agrees to waive any requirement for the Company's securing or posting of any bond in connection with such remedies. 5.3 It is expressly understood and agreed that the Company and Employee consider the restrictions contained in this Article V to be reasonable and necessary to protect the proprietary information of the Company. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 5.4 The covenants in this Article V are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 5.5 All of the covenants in this Article V shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants. It is specifically agreed that the period of six months following termination of employment, during which the agreements and covenants of Employee made herein shall be effective, shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Article V. -6- 7 ARTICLE VI: MISCELLANEOUS 6.1 For purposes of this Agreement, all notices and other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Sierra Well Service, Inc. 406 N. Big Spring Street Midland, Texas 79701 Attention: Corporate Secretary If to Employee, to the address last shown on the Company's records. Either the Company or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 6.2 This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another state or country. 6.3 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.4 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 6.5 This Agreement shall be binding upon and inure to the benefit of the Company and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of the Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under Agreement hereof are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or -7- 8 involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of the Company. 6.6 This Agreement replaces in full all previous agreements and discussions pertaining to the following subject matters covered herein: the nature of Employee's employment relationship with the Company and the term and termination of such relationship. This Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect such subject matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to such subject matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by the Company that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board. ARTICLE VII: DISPUTE RESOLUTION 7.1 Except with respect to injunctive relief as provided in Section 5.2 above, any dispute or controversy about the validity, interpretation, effect or alleged violation of this Agreement (an "Arbitrable Dispute") must be submitted to confidential arbitration in Midland, Texas. Arbitration shall take place before an experienced employment arbitrator licensed to practice law in such state and selected in accordance with the Model Employment Arbitration Procedures of the American Arbitration Association. Arbitration shall be the exclusive remedy of any Arbitrable Dispute. Judgement may be entered on the arbitrator's award in any court having jurisdiction. The parties hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. All costs and expenses, including attorneys' fees, shall be awarded as determined by the arbitrator. Should any party to this Agreement pursue any Arbitrable Dispute by any method other than arbitration, the other party shall be entitled to recover from the party initiating the use of such method all damages, costs, expenses and attorneys' fees incurred as a result of the use of such method. Notwithstanding anything herein to the contrary, nothing in this Agreement shall purport to waive or in any way limit the right of any party to seek to enforce any judgment or decision on an Arbitrable Dispute in a court of competent jurisdiction. -8- 9 IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement in multiple originals, effective for all purposes as of the Effective Date. SIERRA WELL SERVICE, INC. By: /s/ Kenneth V. Huseman ------------------------- Name: Kenneth V. Huseman Title: President and CEO EMPLOYEE /s/ Ronald T. McClung ----------------------------- Ronald T. McClung -9- 10 EXHIBIT "A" TO EMPLOYMENT AGREEMENT BETWEEN SIERRA WELL SERVICE, INC. AND RONALD T. MCCLUNG ------------------------------------------------------- Term Ending Date: February 28, 2003 or, if earlier, the date Employee's employment is terminated for any reason Position: Chief Financial Officer Monthly Base Salary: $7,500.00 A-1 EX-10.16 10 0010.txt SUBSCRIPTION AGREEMENT 1 EXHIBIT 10.16 SUBSCRIPTION AGREEMENT BETWEEN ENRON NORTH AMERICA CORP., AND BASIC ENERGY SERVICE, INC. DATED AS OF JUNE 1, 2000 SERIES D PREFERRED STOCK 2 TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.....................................................................................1 1.01 Defined Terms...................................................................................1 1.02 Terminology.....................................................................................1 ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK; TERMS OF ISSUE............................................2 2.01 Authorization; Certificate of Designations......................................................2 2.02 Purchase and Sale of Series D Preferred Stock...................................................2 2.03 Delivery........................................................................................2 2.04 Closing.........................................................................................2 2.05 Limitation on Indebtedness......................................................................2 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................3 3.01 Organization and Good Standing; Foreign Qualifications; Licenses and Permits....................3 3.02 Ownership and Capitalization of the Company.....................................................3 3.03 Authority; Authorization of Agreement...........................................................3 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................................................4 4.01 Organization and Good Standing..................................................................4 4.02 Authority; Authorization of Agreement...........................................................4 4.03 Brokerage Agreements............................................................................4 4.04 Consents and Approvals..........................................................................5 4.05 Additional Representations of Purchaser.........................................................5 ARTICLE 5 ADDITIONAL AGREEMENTS AND COVENANTS.............................................................6 5.01 Disclaimer......................................................................................6 5.02 Regulatory Covenant.............................................................................6 ARTICLE 6 MISCELLANEOUS...................................................................................6 6.01 Arbitration.....................................................................................6 6.02 Expenses........................................................................................7 6.03 Entire Agreement................................................................................7 6.04 Choice of Law; Headings.........................................................................8 6.05 Amendments......................................................................................8 6.06 Further Assurances..............................................................................8 6.07 Successors and Assigns..........................................................................8 6.08 Severability....................................................................................8 6.09 Counterparts....................................................................................8 6.10 Notices.........................................................................................8 6.11 Survival.......................................................................................10
-i- 3 LIST OF ATTACHMENTS, EXHIBITS AND SCHEDULES: Attachment I - Definitions Schedule 3.02 - Ownership and Capitalization of the Company Exhibit A - Certificate of Designations of Series D Preferred Stock -ii- 4 SUBSCRIPTION AGREEMENT This SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered into as of this 1st day of June, 2000, by and among Enron North America Corp., a Texas corporation (the "Purchaser"), and Basic Energy Service, Inc. (the "Company"). RECITALS WHEREAS, in the event the aggregate offering price of shares sold in the Company's initial public offering of common stock (the "IPO") is less than $55,000,000 but greater than $45,000,000, Purchaser desires to subscribe for, and the Company desires to issue to Purchaser, certain equity interests in the Company, in accordance with and subject to the terms and conditions set forth in this Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the premises and of the respective representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS 1.01 DEFINED TERMS. Any capitalized term used herein shall have the meaning given such term in Attachment I hereto, which is incorporated herein by reference and shall be deemed to be a part of this Agreement for all purposes. 1.02 TERMINOLOGY. All article, section, subsection, schedule and exhibit references used in this Agreement are to this Agreement unless otherwise specified. All schedules and exhibits attached to this Agreement constitute a part of this Agreement and are incorporated herein. Unless the context of this Agreement clearly requires otherwise, (a) the singular shall include the plural and the plural shall include the singular wherever and as often as may be appropriate; (b) references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; (c) references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form; (d) the words "include," "includes" or "including" shall be deemed to be followed by the words "without limitation"; (e) the words "hereof," "herein," "hereunder," and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or article in which such words appear; (f) references to Persons includes their respective permitted successors and assigns and, in the case of a Government Authority, Persons succeeding to the respective functions and capacities of such Government Authority; and (g) when reference is being made to a date or time, the word "from" shall mean "from and including" and the word "to" shall mean "to but not including." Currency amounts referenced herein are in United States Dollars. 5 ARTICLE 2 AUTHORIZATION AND SALE OF PREFERRED STOCK; TERMS OF ISSUE 2.01 AUTHORIZATION; CERTIFICATE OF DESIGNATIONS. The Company has authorized the issuance and sale pursuant to the terms and conditions hereof of up to 500 shares of its Series D Preferred Stock, having the rights, restrictions, privileges and preferences as set forth in the form of the Company's Certificate of Designations, Preference and Rights of Series D Cumulative Preferred Stock (the "Certificate"), attached hereto as Exhibit A, which Certificate the Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing Date (as defined in Section 2.04 herein). 2.02 PURCHASE AND SALE OF SERIES D PREFERRED STOCK. Subject to the terms and conditions set forth herein, in the event the aggregate offering price of shares sold in the IPO is less than $55,000,000 but greater than $45,000,000, on the Closing Date (as defined in Section 2.04 herein) (a) Purchaser hereby subscribes for and agrees to purchase, and the Company agrees to issue to Purchaser, up to 500 shares of cumulative preferred stock, $10,000 par value per share (the "Series D Preferred Stock"), of the Company (the "Issue") and (b) Purchaser, in turn, agrees to pay the Company $10,000 for each share of the Issue (the "Initial Purchase Price"), with the actual number of shares of the Issue and the aggregate Initial Purchase Price of all shares of the Issue determined as the difference of $55,000,000 less the aggregate offering price of shares sold in the IPO. 2.03 DELIVERY. On the Closing Date, the Company shall deliver to Purchaser one certificate representing the Issue, registered in Purchaser's name, against cash payment in immediately available funds of the full amount of the Initial Purchase Price by the Purchaser. On the Closing Date, contemporaneously with the closing of the IPO the Company will also pay to ECT Securities Limited Partnership a fee in an amount equal to five percent (5.0%) of the Initial Purchase Price. 2.04 CLOSING. The closing of the purchase and sale of the Series D Preferred Stock (the "Closing") shall take place (a) at the same place and time as the closing of the IPO, or (b) at such time and place as the Company and the Purchaser may agree (either, the "Closing Date"), subject to Section 2.06 below. 2.05 LIMITATION ON INDEBTEDNESS. The Company shall not incur total Indebtedness in excess of $40,000,000, excluding Capitalized Lease Obligations outstanding on the date of this Agreement, without the consent of Purchaser which shall be in the sole discretion of Purchaser unless such Indebtedness is used to repay the Issue in full including all accrued and unpaid dividends. 2.06 CONDITION TO CLOSING. The Closing shall be conditioned on the representations and warranties of the Company contained in Article 3 remaining true and correct as of the Closing Date, and the delivery of a certificate of the President of the Company stating that the representations and warranties of the Company contained in Article 3 of this Agreement remain true and correct as of the Closing Date. 2 6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Purchaser as follows: 3.01 ORGANIZATION AND GOOD STANDING; FOREIGN QUALIFICATIONS; LICENSES AND PERMITS. (a) The Company is a corporation that is validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and lease the properties it currently owns and leases and to carry on its business as such business is currently conducted. (b) The Company is duly licensed, registered and qualified to do business, as a foreign corporation, and is in good standing in all jurisdictions in which the ownership, leasing or operation of its assets or the conduct of its business as currently conducted requires such qualification, except where the failure to be so licensed, registered or qualified has not had and is not reasonably likely to have a material adverse effect on the assets, liabilities, results of operations, financial condition or business of the Company ("Material Adverse Effect"). (c) Except for any Licenses that are ministerial in nature and are routinely issued or granted by the applicable issuing or granting authority in the ordinary course of business, the Company has all material licenses required to own its assets and conduct its business as it is currently conducted. 3.02 OWNERSHIP AND CAPITALIZATION OF THE COMPANY. Except as contemplated by this Agreement or as described on Schedule 3.02, there are no outstanding commitments or agreements to which the Company is a party, or by which the Company is bound, that obligate the Company to issue to any Person any equity interest in the Company. Except as described in Schedule 3.02, the Company does not own, directly or indirectly, or hold rights to acquire, any outstanding equity or other ownership interest (or securities, rights or other interest convertible into equity interests) of any Entity. 3.03 AUTHORITY; AUTHORIZATION OF AGREEMENT. (a) The Company has full corporate power and authority to (i) execute and deliver this Agreement and (ii) consummate the transactions contemplated hereby and perform all the terms and conditions hereof required to be performed by it. The execution, delivery and performance by the Company of this Agreement have been duly authorized by all requisite corporate action with respect to the Company. (b) This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by Creditors' Rights. 3 7 3.04 INFORMATION CONTAINED IN THE REGISTRATION STATEMENT. A registration statement on Form S-1 (File No. 333-33108) (the "Registration Statement") with respect to the issuance of shares of common stock and preferred share purchase rights of the Company, including a prospectus subject to completion (the "Prospectus"), has been filed by the Company with the Commission under the Securities Act, and one or more amendments to the Registration Statement will be filed. The Prospectus contained in the Registration Statement, as amended or supplemented as of the date hereof and at any time hereafter did not or will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to the Company as follows: 4.01 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation that is validly existing and in good standing under the laws of the State of Texas and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as such business is currently conducted. 4.02 AUTHORITY; AUTHORIZATION OF AGREEMENT. (a) Purchaser has full corporate power and authority to (i) execute and deliver this Agreement and (ii) consummate the transactions contemplated hereby and thereby and perform all the terms and conditions hereof and thereof required to be performed by it. The execution, delivery and performance by Purchaser of this Agreement has been duly authorized by all requisite corporate action with respect to Purchaser. In addition, this Agreement has been duly executed and delivered by Purchaser. (b) This Agreement constitutes the legal, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with its respective terms, except as such enforceability may be limited by Creditors' Rights. 4.03 BROKERAGE AGREEMENTS. Neither Purchaser nor any of its Affiliates have entered into any agreement with any Person that provides for the payment of any commission, brokerage or "finder's" fee arising out of the transactions contemplated by this Agreement for which the Company might have any liability or obligation provided, the fee payable to Enron North America Corp. in connection with the amendment to the loan agreement is not in connection with the transactions contemplated by this Agreement. 4.04 CONSENTS AND APPROVALS. Except for consents, waivers, approvals or authorizations that have already been obtained, no consent, waiver, approval or authorization of, or declaration, designation, filing, registration or qualification with, any Governmental Authority, or any other 4 8 Person or Entity, is required to be made or obtained by Purchaser in connection with its execution, delivery and performance of this Agreement. 4.05 ADDITIONAL REPRESENTATIONS OF PURCHASER. (a) Purchaser is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment advisor" within the meaning of the Investment Advisers Act of 1940, as amended. (b) Purchaser (i) acknowledges that it has had access to certain financial and other information, and has been afforded the opportunity to ask questions of representatives of the Company and to receive answers thereto in connection with its evaluation of the risks and merits of consummating the transactions contemplated hereby, (ii) is financially capable of owning, and bearing the risks of ownership of, the Issue to be acquired by Purchaser and (iii) is an "Accredited Investor" within the meaning of Rule 501 of Regulation D under the Securities Act. (c) Purchaser is acquiring the Issue for its own account and not with a view to the resale or distribution of all or any part thereof in violation of applicable securities laws; Purchaser understands that the Series D Preferred Stock being acquired by it has not been registered under the Securities Act or applicable state securities laws and, therefore, it will be necessary for it to continue to hold the Series D Preferred Stock being acquired by it and continue to bear the economic risk of the investment therein unless and until the offering and sale of the Series D Preferred Stock by it are registered under such Securities Act and applicable state securities laws or an opinion of counsel that exemption from registration is available. (d) Purchaser is not (i) an "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to ERISA, a plan (as defined in Section 4975(e) of the Code), a trustee of any such plan acting on behalf of such plan, an entity whose underlying assets include plan assets by reason of a plan's investment in the entity, in each case other than a governmental plan (as defined in Section 3(32) of ERISA or Section 414(d) of the Code) or (ii) a governmental plan that treats itself as subject to the Department of Labor Regulations Section 2510.3-101 or interprets applicable state law as incorporating similar rules. The acquisition and holding of the Series D Preferred Stock by Purchaser will not cause the Company, any Shareholder of the Company (other than the Purchaser) or any officer or director of the Company to be subject to any law, rule or regulation relating to employee benefit plans to which Purchaser may be subject. ARTICLE 5 ADDITIONAL AGREEMENTS AND COVENANTS 5.01 DISCLAIMER. Purchaser acknowledges and agrees as follows: (a) The Company and its representatives have provided Purchaser with certain information relating to the Company and the business to be conducted by the Company 5 9 and/or the Company Subsidiaries in an effort to assist Purchaser with its due diligence investigation of the Company; (b) Such information is not intended to constitute the sole basis for any decision by Purchaser to invest in the Company; (c) Purchaser has performed its owned independent investigation and evaluation of the Company (which includes the review of the information described in clause (a) above) and is basing its decision to invest in the Company solely on (i) such independent investigation (which includes the review of the information described in clause (a) above) and (ii) the representations, warranties and covenants of the Company set forth herein; (d) Neither the Company nor its Affiliates, officers, employees, representatives or agents shall have any liability resulting from the use by Purchaser of any information delivered or made available to Purchaser by or on behalf of the Company other than information contained in the Prospectus; and (e) Neither the Company nor any of its Affiliates, officers, employees, representatives or agents makes any representations or warranties of any kind whatsoever to Purchaser, whether express or implied, by contract or otherwise, except as expressly set forth herein. 5.02 REGULATORY COVENANT. Purchaser agrees that for so long as Purchaser owns an interest in the Company, Purchaser will not take or fail to take any action, if the effect thereof would be to cause the representations and warranties set forth in Sections 4.05(a) and (d) above to cease to be true and correct with respect to Purchaser. ARTICLE 6 MISCELLANEOUS 6.01 ARBITRATION. (a) Binding Arbitration. On the request of either Company or Purchaser, (whether made before or after the institution of any legal proceeding), any action, dispute, claim or controversy of any kind now existing or hereafter arising between any of the parties hereto in any way arising out of, pertaining to or in connection with this Agreement (a "Dispute") shall be resolved by binding arbitration in accordance with the terms hereof. Either Company or Purchaser may, by summary proceedings, bring an action in court to compel arbitration of any Dispute. (b) Governing Rules. Any arbitration shall be administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable, the Federal Arbitration Act. Judgment on any award rendered by an arbitrator may be entered in any court having jurisdiction. 6 10 (c) Arbitrators. Arbitration hereunder shall be before a three-person panel of neutral arbitrators, consisting of one person from each of the following categories: (1) an attorney who has practiced in the area of commercial law for at least 10 years or a retired judge at the Texas or United States District Court or an appellate court level: (2) a person with at least 10 years experience in commercial lending: and (3) a person with at least 10 years experience in the petroleum industry. The AAA shall submit a list of persons meeting the criteria outlined above for each category of arbitrator, and the parties shall select one person from each category in the manner established by the AAA. If the parties cannot agree on an arbitrator within 30 days after the request for an arbitration, then any party may request the AAA to select an arbitrator. The arbitrators may engage engineers, accountants or other consultants that the arbitrator deems necessary to render a conclusion in the arbitration proceeding. (d) Conduct of Arbitration. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with the AAA. Arbitration proceedings shall be conducted in Houston, Texas. Arbitrators shall be empowered to impose sanctions and to take such other actions as the arbitrators deem necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. At the conclusion of any arbitration proceeding, the arbitrator shall make specific written findings of fact and conclusions of law. The arbitrators shall have the power to award recovery of all costs and fees to the prevailing party. Company and Purchaser each agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of information required by applicable law. (e) Costs of Arbitration. All fees of the arbitrators and any engineer, accountant or other consultant engaged by the arbitrators, shall be paid by Company and Purchaser equally unless otherwise awarded by the arbitrators. 6.02 EXPENSES. All legal and other costs and expenses incurred in connection with the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party that incurred such costs and expenses. 6.03 ENTIRE AGREEMENT. This Agreement (together with the other agreements referred to herein) set forth the entire agreement and understanding of the parties in respect of the transactions contemplated by this Agreement and supersede all prior agreements, arrangements and undertakings (oral or written) relating to the transactions contemplated by this Agreement. 6.04 CHOICE OF LAW; HEADINGS. THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 6.05 AMENDMENTS. This Agreement may be amended, modified, superseded or canceled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time or times to require 7 11 performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by any party of any condition, or of any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation or warranty. 6.06 FURTHER ASSURANCES. Each party agrees to execute such further instruments or documents as any other party may from time to time reasonably request in order to confirm or carry out the transactions contemplated in this Agreement; provided that no such instrument or document shall expand a party's obligations or liabilities beyond that contemplated in this Agreement. 6.07 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties hereunder shall not be assignable by any party hereto prior to the Closing without the prior written consent of the other parties hereto; provided, any assignment by Purchaser to any entity controlling, controlled by or under common control with Purchaser shall be permitted unless otherwise prohibited by law. 6.08 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. 6.09 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute but one and the same agreement. 6.10 NOTICES. Any notice, request or demand provided or permitted to be given under this Agreement shall be in writing, and may be served by personal delivery, by telecopy or by depositing same in the mail, addressed to the party to be notified, postage prepaid, and registered or certified with a return receipt requested. Any such notice, request or demand deposited in the mail in the manner hereinabove described shall be deemed to have been given and received on the date of the delivery as shown on the return receipt. Any notice, request or demand served in any other manner shall be deemed to have been given and received only if and when actually received by the relevant party hereto (except that notice given by telecopier shall be deemed given and received upon receipt only if received during normal business hours and if received other than during normal business hours shall be deemed received as of the opening of business on the next Business Day). For purposes of any such notices, requests or demands, the addresses and telecopy numbers of the parties shall be as follows: (a) If to the Company, to: Basic Energy Service, Inc. 406 North Big Spring Midland, Texas 79701 Attention: Kenneth V. Huseman, President Telecopier: (915) 570-0487 8 12 with a copy to: Andrews & Kurth L.L.P. 600 Travis, Suite 4200 Houston, Texas 77002 Attention: Robert V. Jewell Telecopier: (713) 220-4285 (b) If to Purchaser, to: Enron North America Corp. 1400 Smith Street Houston, Texas 77002 Attention: Jessee E. Neyman Telecopier: 713 646-3393 With a copy to: Enron North America Corp. - Legal Department 1400 Smith Street Houston, Texas 77002 Attention: Telecopier: Each party shall have the right, upon giving 10 days' notice to the other in the manner hereinabove provided, to change its address for purposes of any notices, requests or demands. 6.11 SURVIVAL. The obligations set forth under Section 2.05 shall survive the Closing until the Issue has been repaid in full. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 9 13 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. BASIC ENERGY SERVICE, INC. By: /s/ Kenneth V. Huseman ----------------------------------------- Name: Kenneth V. Huseman --------------------------------------- Title: President and CEO -------------------------------------- ENRON NORTH AMERICA CORP. By: /s/ Jesse E. Neyman ----------------------------------------- Name: Jesse E. Neyman --------------------------------------- Title: -------------------------------------- 10 14 ATTACHMENT I DEFINITIONS Capitalized terms used in this Agreement shall have the meanings ascribed to them in this Attachment I unless such terms are defined elsewhere in this Agreement: AAA: As defined in Section 6.01(b) AFFILIATE: With respect to any Person, any other Person that (a) owns or controls the first Person, (b) is owned or controlled by the first Person or (c) is under common ownership or control with the first Person, where "owned" means direct or indirect ownership of more than 50% of the equity interests or rights to distributions on account of equity of the Person and "control" means the direct or indirect power to directly the management or policies of the Person, whether through the ownership of voting securities, by contract or otherwise; provided however, that when used with respect to the Company, the term "Affiliate" shall only include any other Person that is owned or controlled by the Company. AGREEMENT: As defined in the introductory paragraph. BUSINESS DAY: Any day other than a Saturday, Sunday or bank holiday in Texas. CAPITALIZED LEASE OBLIGATION: The amount of the liability under any capital lease that, in accordance with GAAP, is required to be capitalized and reflected as a liability on the balance sheet. CERTIFICATE: As defined in Section 2.01. CLOSING: As defined in Section 2.04. CLOSING DATE: As defined in Section 2.04. COMMISSION: The U.S. Securities and Exchange Commission. COMPANY: As defined in the introductory paragraph. CREDITORS' RIGHTS: Bankruptcy, insolvency or other laws relating to or affecting generally the enforcement of creditors' rights and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). DAMAGES: Any and all claims, causes of action, arbitrations, liabilities, damages, fines, penalties, deficiencies, losses, costs and expenses (including without limitation reasonable attorneys' fees and expenses). DISPUTE: As defined in Section 6.01(a). A-1 15 ENCUMBRANCE: Any mortgage, loan, security interest pledge, charge or other encumbrance. ENTITY: A corporation, partnership, limited liability company, joint venture, trust or unincorporated organization or association or other entity. ESTIMATED PRIVATE MARKET EQUITY VALUE: At any time the difference between (a) the sum of (i) the combined Net Working Capital of the Company, and (ii) the EBITDA of the Company, for the preceding four fiscal quarters most recently ended multiplied by 6.0, and (b) the outstanding Indebtedness of the Company. GOVERNMENTAL AUTHORITY(IES): The United States of America or any other foreign country or jurisdiction, any state, commonwealth, territory or possession thereof and any political subdivision of any of the foregoing, including but not limited to courts, departments, commissions, boards, bureaus, agencies or other instrumentalities. GUARANTEED DEBT: Of any Person means, without duplication, all Indebtedness of any other Person guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to, or in any other manner invest in, the debtor (including any agreement to pay for property or services to be acquired by such debtor irrespective of whether such property is received or such services are rendered), (iv) to maintain working capital or equity capital of the debtor, or otherwise to maintain the net worth, solvency or other financial condition of the debtor, or (v) otherwise to assure a creditor against loss; provided that the term "guarantee" shall not include endorsements for collection or deposit, in either case in the ordinary course of business, or any obligation or liability of such Person in respect of leasehold interests assigned by such Person to any other Person. INDEBTEDNESS: With respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade accounts payable and other accrued current liabilities incurred in the ordinary course of business other than payables or liabilities 60 days past due, (ii) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (iv) all Capitalized Lease Obligations of such Person, (v) all indebtedness referred to in (but not excluded from) clause (i), (ii), (iii), or (iv) above of other Persons, the payment of which is secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, (vi) all Guaranteed A-2 16 Debt of such Person, (vii) all Redeemable Capital Stock (other than the Series D Preferred Stock) that has any redemptions, dividend payments, or other obligations that are issued by such Person valued at the maximum redemption price plus all accrued and unpaid dividends thereon plus the maximum value of any other obligations thereunder and (viii) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i) through (vii) above. For purposes hereof, the "maximum redemption price" of any Redeemable Capital Stock that does not have a fixed redemption price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value to be determined in good faith by the Board of Directors of the issuer of such Redeemable Capital Stock based on the Estimated Private Market Equity Value. INITIAL PURCHASE PRICE: As defined in Section 2.02. IPO: As defined in the Recitals. ISSUE: As defined in Section 2.02. LEGAL REQUIREMENTS: Any law, statute, ordinance, decree, requirement, order, judgment, rule or regulation of, including the terms of any license or permit issued by, any Governmental Authority. LICENSE: License, permit, certificate, approval or authorization. LIEN: Any lien, mortgage, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement or other interest in property designed to secure repayment of a liability whether arising by agreement or under law, or otherwise means any mortgage, charge, pledge, lien, security interest, or encumbrance of any kind. MATERIAL ADVERSE EFFECT: As defined in Section 3.01(b). ORGANIZATIONAL DOCUMENTS: The charter, bylaws or other applicable organizational documents of an Entity. PERSON: Any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. PROSPECTUS: As defined in Section 3.04. PURCHASER: As defined in the introductory paragraph. A-3 17 REDEEMABLE CAPITAL STOCK: Of any Person means any Capital Stock of such Person that, either by its terms, by the terms of any Capital Stock or other security into which it is convertible or exchangeable or otherwise, (i), is, or upon the happening of an event or passage of time would be, required to be redeemed, or (ii) is redeemable at the option of the holder thereof, or (iii) is convertible into or exchangeable for debt securities. REGISTRATION STATEMENT: As defined in Section 3.04. SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. SERIES D PREFERRED STOCK. As defined in Section 2.02. A-4 18 SCHEDULE 3.02 Subject to the closing of the initial public offering pursuant to the Registration Statement, the Company will issue certain options, notes and warrants that are exercisable or convertible into shares of Common Stock. The Company will acquire interests in certain companies subject to the closing of the initial public offering as described in the Registration Statement and the Prospectus. EX-10.25 11 0011.txt FORM OF FINANCING AGREEMENT WITH CIT 1 EXHIBIT 10.25 AMENDED AND RESTATED FINANCING AGREEMENT THE CIT GROUP/BUSINESS CREDIT, INC. (AS LENDER AND AS SENIOR AGENT) AND BASIC ENERGY SERVICES, INC. (FORMERLY KNOWN AS SIERRA WELL SERVICE, INC.) (COMPANY) DATED AS OF: JUNE __, 2000 2 TABLE OF CONTENTS SECTION 1. Definitions...........................................................................................1 SECTION 2. Conditions Precedent.................................................................................13 SECTION 3. Revolving Loans......................................................................................17 SECTION 4. Term Loan............................................................................................19 SECTION 5. Letters of Credit....................................................................................20 SECTION 6. Collateral...........................................................................................22 SECTION 7. Representations, Warranties and Covenants............................................................25 SECTION 8. Interest, Fees and Expenses..........................................................................35 SECTION 9. Powers...............................................................................................40 SECTION 10. Events of Default and Remedies......................................................................40 SECTION 11. Termination.........................................................................................43 SECTION 12. Miscellaneous.......................................................................................43
EXHIBITS Exhibit A - Form of Term Loan Promissory Note Exhibit B - Form of Guaranty Agreement Exhibit C - Form of Pledge Agreement Exhibit D - Form of Security Agreement SCHEDULES Schedule 1 - Existing Liens Schedule 2 - Collateral Locations and Chief Executive Office i Amended and Restated Financing Agreement 3 AMENDED AND RESTATED FINANCING AGREEMENT Pursuant to this Amended and Restated Financing Agreement dated as of June ____, 2000, THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, as a lender and as senior agent (hereinafter "CITBC"), with offices located at 5420 LBJ Freeway, Suite 200, Dallas, Texas 75240, is pleased to confirm the terms and conditions under which CITBC shall make revolving loans, a term loan and other financial accommodations to BASIC ENERGY SERVICES, INC., a Delaware corporation formerly known as Sierra Well Service, Inc. (herein, the "Company"), a Delaware corporation with its chief executive office at 406 North Big Spring, Midland, Texas 79701. Whereas, the Company has entered into that certain Senior Loan Agreement dated as of March 31, 1999 among the Company, as Borrower, the Senior Lenders named in the Agreement, and Joint Energy Development Investments II Limited Partnership ("JEDI"), as Senior Agent, relating to a $24,408,000 Senior Loan Facility, as amended by the First Amendment to Loan Agreement effective as of March 21, 2000 ("EXISTING SENIOR DEBT"); Whereas, JEDI has transferred the Existing Senior Debt to ENA CLO I Holding Company I, L.P. ("HOLDING COMPANY'); Whereas, Holding Company has transferred the Existing Senior Debt to CITBC pursuant to that certain Assignment and Transfer of Debt and Liens dated the date hereof; Whereas, (a) the Existing Senior Debt is hereby amended, extended, consolidated, renewed, modified, superseded, replaced, and refinanced pursuant to this Financing Agreement which is intended to, and does hereby, amend, extend, consolidate, renew, modify, supersede, replace and refinance, the Existing Senior Debt in its entirety but does not extinguish the Existing Senior Debt; (b) the Line of Credit and the Term Loan (as hereinafter defined) amend, extend, consolidate, renew, modify, supersede, substitute for, and refinance in its entirety, but do not extinguish, the Existing Senior Debt; (c) this Financing Agreement and the transactions evidenced hereby do not constitute a novation; and (d) the security interests and liens securing payment and performance of the Existing Senior Debt shall extend to fully secure payment and performance of the Obligations, with the same priority. SECTION 1. DEFINITIONS In addition to the terms defined above, the following terms shall have the following respective meanings: ACCOUNTS shall mean, with respect to any Loan Party, all of that Loan Party's now existing and future: (a) accounts (as defined in the UCC) and any and all other receivables (whether or not specifically listed on schedules furnished to CITBC), including, without limitation, all accounts created by or arising from all of the Loan Party's sales of goods or rendition of services to its customers, and all accounts arising from sales or rendition of services made under any of the Loan Party's trade names or styles, or through any of the Loan Party's divisions; (b) any and all instruments (as defined in the UCC), documents (as defined in the UCC), contract rights and chattel paper (as defined in the UCC); (c) unpaid seller's rights (including rescission, replevin, reclamation and stoppage in transit) relating to the foregoing or arising therefrom; (d) rights to any goods represented by any of the foregoing, including rights to returned or repossessed goods; (e) reserves and Amended and Restated Financing Agreement 4 credit balances arising hereunder; (f) guarantees or collateral for any of the foregoing; (g) insurance policies or rights relating to any of the foregoing; and (h) cash and non-cash proceeds of any and all the foregoing. ACCOUNTS RECEIVABLE ADVANCE PERCENTAGE shall mean eighty-five percent (85%). ACQUISITIONS shall mean, collectively, the Asset Acquisition and the Stock Acquisition. ACQUISITION SUBSIDIARIES mean, collectively, the following: (i) Turn Around Trucking, Inc.; (ii) Sundown Operating, Inc. d/b/a Sundown Well Service; (iii) Eunice Well Servicing Co., Inc.; (iv) Gold Star Service Company, Inc.; (v) Harrison Well Service, Inc.; and (vi) Kerby Brothers, Inc. d/b/a Kerby Well Service. ADMINISTRATIVE MANAGEMENT FEE shall mean the sum of $40,000 which shall be paid to CITBC in accordance with SECTION 8, PARAGRAPH 17 hereof to offset the expenses and costs (excluding Out-of-Pocket Expenses) of CITBC in connection with record keeping, periodic examinations, analyzing and evaluating the Collateral. ANNIVERSARY DATE shall mean the date occurring three (3) years from the date hereof. ASSET ACQUISITION shall mean the acquisition of (i) the assets used in the business operated under the name Trinity Services pursuant to the Asset Purchase Agreement dated as of February 10, 2000, between the Company and William K. Durham d/b/a Trinity Services; and (ii) the assets of Gold Star SWD, Ltd., Co., a New Mexico limited liability company, pursuant to the Acquisition Agreement dated as of March 14, 2000, between the Company and the sellers named therein relating to the acquisition of the capital stock of Gold Star Service Company, Inc., a New Mexico corporation, and the assets of Gold Star SWD, Ltd. Co., a New Mexico limited liability company. AVAILABILITY shall mean at any time the excess (if any) of (a) the product of (i) Eligible Accounts Receivable; multiplied by (ii) the Accounts Receivable Advance Percentage; over (b) the sum of (x) the outstanding aggregate amount of all Obligations, including without limitation, all Obligations with respect to Revolving Loans and Letters of Credit, but excluding the Term Loan; and (y) the Availability Reserve. AVAILABILITY RESERVE shall mean any reserve which CITBC may require from time to time pursuant to this Financing Agreement, including, without limitation, reserves for Letters of Credit pursuant to SECTION 5, PARAGRAPH 5. BUSINESS DAY shall mean any day that CITBC is open for business in New York, New York and Dallas, Texas, which is not (i) a Saturday, Sunday or legal holiday in the state of New York or the State of Texas; or (ii) a day on which banking institution chartered by the state of New York, or the State of Texas or the United States are legally required to close. CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures of the Loan Parties during such period that in conformity with GAAP are required to be included in or reflected by the property, plant or equipment or similar fixed asset account reflected in the Consolidated Balance Sheet. CAPITAL IMPROVEMENTS shall mean operating Equipment and facilities (other than land) acquired or installed for use in any Loan Party's business operations. 2 Amended and Restated Financing Agreement 5 CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed) which, in conformity with GAAP, is accounted for as a capital lease or a Capital Expenditure on the Consolidated Balance Sheet. CHASE BANK RATE shall mean the rate of interest per annum announced by The Chase Manhattan Bank from time to time as its prime rate in effect at its principal office in the City of New York. The prime rate is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers. CHASE BANK RATE LOAN shall mean those Revolving Loans and Term Loan for which the Company has elected to use the Chase Bank Rate for interest rate computations. CITBC COMMITMENT LETTER shall mean the Commitment Letter dated May 24, 2000 issued by CITBC to, and accepted by, the Company. CLOSING DATE shall mean the date on or after the date hereof upon which (i) this Financing Agreement has been duly executed by the parties hereto and delivered to CITBC; and (ii) all Conditions Precedent set forth in SECTION 2 hereof have either been met to CITBC's satisfaction or waived by CITBC. COLLATERAL shall mean all present and future Accounts, Equipment, Inventory, Documents of Title, General Intangibles, Investment Property, Real Estate and Other Collateral of the Loan Parties. CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for the Company and its Subsidiaries eliminating all inter-company transactions and prepared in accordance with GAAP, subject to year-end adjustments. CONSOLIDATING BALANCE SHEET shall mean an individual balance sheet for each of the Loan Parties, showing all eliminations of inter-company transactions and prepared in accordance with GAAP, subject to year-end adjustments. CONTRACT RATE shall mean the applicable rate of interest computed as set forth in SECTION 8, PARAGRAPHS 1, 2, 3(a) and 4 of this Financing Agreement. CUSTOMARILY PERMITTED LIENS shall mean: (a) liens of local or state authorities for franchise or other like Taxes provided the aggregate amounts of such liens shall not exceed $100,000 in the aggregate at any one time; (b) statutory liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and other like liens imposed by law, created in the ordinary course of business and for amounts not yet due (or which are being contested in good faith by appropriate proceedings or other appropriate actions which are sufficient to prevent imminent foreclosure of such liens) and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (c) deposits made (and the liens thereon) in the ordinary course of business (including, without limitation, security deposits for leases, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations arising as a result of progress payments under government contracts; 3 Amended and Restated Financing Agreement 6 (d) easements (including, without limitation, reciprocal easement agreements and utility agreements), encroachments, minor defects or irregularities in title, variation and other restrictions, charges or encumbrances (whether or not recorded) affecting the Real Estate in the aggregate (x) do not materially interfere with the occupation, use or enjoyment by the Company in its business of the property so encumbered and (y) in the reasonable business judgment of CITBC do not materially and adversely affect the value of such Real Estate; (e) deposits made to secure liabilities to insurance carriers under insurance or self-insurance arrangements; (f) liens securing reimbursement obligations under letters of credit, provided in each case that such liens cover only the title documents and related goods and any proceeds thereof covered by the related letter of credit; and (g) except with respect to any Depository Account, banker's liens and rights of set-off and recoupment with respect to deposit accounts. DEBTOR LAWS means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar laws, whether state or federal, affecting creditors' rights. DEEDS OF TRUST shall mean those certain Deeds of Trust, Security Agreement, Fixture Filing, and Assignment of Rental executed by the Company and by , respectively, in favor of Jeffrey L. Curtis, as trustee, for the benefit of CITBC, to be recorded in the Real Property Records of certain counties the States of Texas and [New Mexico]. DEFAULT shall mean any event specified in PARAGRAPH 1 OF SECTION 10 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the lesser of (a) the Maximum Legal Rate; or (b) the sum of (i) two percent (2%), plus (ii) the applicable Contract Rate of interest based upon the applicable increment over the Chase Bank Rate as determined under SECTION 8 hereof, which CITBC shall be entitled to charge the Company on all Obligations due CITBC to the extent provided in SECTION 10, PARAGRAPH 2 of this Financing Agreement. DEPOSITORY ACCOUNTS shall have the meaning specified in SECTION 3, PARAGRAPH 4 hereof. DOCUMENTATION FEE shall mean (i) an amount equal to the fees and expenses (including legal fees and expenses of both in-house and outside attorneys) incurred by CITBC in documenting, in whole or in part, the initial transaction solely on behalf of CITBC, exclusive of Out-of-Pocket Expenses; and (ii) CITBC's standard fees relating to any and all modifications, waivers, releases, amendments or additional collateral with respect to this Financing Agreement, the Collateral and/or the Obligations. DOCUMENTS OF TITLE shall mean with respect to any Loan Party, all of that Loan Party's present and future documents (as defined in the UCC) including, without limitation all warehouse receipts, bills of lading, shipping documents, chattel paper, instruments and similar documents, all whether negotiable or not and all goods and Inventory relating thereto and all cash and non-cash proceeds of the foregoing. 4 Amended and Restated Financing Agreement 7 EARLY TERMINATION DATE shall mean the date on which the Company terminates this Financing Agreement or the Line of Credit, which date is prior to the Anniversary Date, or if this Financing Agreement is not terminated on the Anniversary Date, March 31, 2004. EARLY TERMINATION FEE shall: (i) mean the fee CITBC is entitled to charge in the event the Company terminates the Line of Credit or this Financing Agreement on a date prior to an Anniversary Date, or as applicable, March 31, 2004; and (ii) be determined by multiplying the Line of Credit by (x) three percent (3%) if the Early Termination Date occurs on or prior to one (1) year after the Closing Date; (y) two percent (2%) if the Early Termination Date occurs after one (1) year after the Closing Date but prior to two (2) years after the Closing Date; and (z) one percent (1%) if the Early Termination Date occurs at any time thereafter prior to the Anniversary Date, or as applicable, March 31, 2004. EBITDA shall mean, in any period, calculated on a consolidated basis in accordance with GAAP for the Company and its Subsidiaries, all net income or net loss of the Company and its Subsidiaries before all (i) interest and tax obligations; (ii) depreciation; and (iii) amortization for said period, all determined in accordance with GAAP on a basis consistent with the latest audited financial statements of the Company but excluding the effect of extraordinary and/or non-reoccurring gains or losses for such period. ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Trade Accounts Receivable that are subject to a valid, exclusive, fully perfected security interest in favor of CITBC and which conform to the warranties contained herein and at all times continue to be acceptable to CITBC in the exercise of its reasonable business judgment, less, without duplication, the sum of (a) any returns, discounts, claims, credits and allowances of any nature (whether issued, owing, granted or outstanding); and (b) reserves for: (i) sales to the United States of America or to any agency, department or division thereof; (ii) foreign sales other than sales; (x) secured by stand-by letters of credit (in form and substance satisfactory to CITBC) issued or confirmed by, and payable at, banks having a place of business in the United States of America and payable in United States currency; or (y) to customers residing in Canada provided such sales otherwise comply with all of the other criteria for eligibility hereunder, are payable in United States currency and such sales do not exceed [$__________] in the aggregate at any one time; (iii) accounts that remain unpaid more than ninety (90) days from invoice date; (iv) contras; (v) sales to Parent, any Subsidiary, or to any company affiliated with the Company or Parent in any way; (vi) bill and hold (deferred shipment) or consignment sales; (vii) sales to any customer which is (a) insolvent; (b) the debtor in any proceedings under any Debtor Laws; (c) negotiating, or has called a meeting of its creditors for purposes of negotiating, a compromise of its debts; or (d) financially unacceptable to CITBC or has a credit rating unacceptable to CITBC; (viii) all sales to any customer if fifty percent (50%) or more of either (x) all outstanding invoices; or (y) the aggregate dollar amount of all outstanding invoices, are unpaid more than ninety (90) days from invoice date; (ix) any other reasons deemed necessary by CITBC in its reasonable business judgment and which are customary either in the commercial finance industry or in the lending practices of CITBC; and (x) an amount representing, historically, returns, discounts, claims, credits and allowances. EQUIPMENT shall mean, with respect to any Loan Party, all of that Loan Party's present and hereafter acquired equipment (as defined in the UCC) including, without limitation, all machinery, equipment, furnishings and fixtures, and all additions, substitutions and replacements thereof, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto and all proceeds of whatever sort. ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended from time to time and the rules and regulations promulgated thereunder from time to time. 5 Amended and Restated Financing Agreement 8 EVENT(s) OF DEFAULT shall have the meaning provided for in SECTION 10 of this Financing Agreement. EXISTING SENIOR DEBT shall have the meaning assigned thereto in the recitals set forth above. FINANCING AGREEMENT shall mean this Amended and Restated Financing Agreement, as amended, modified, supplemented, or restated from time to time. FISCAL QUARTER shall mean each three (3) month period ending on March 31, June 30, September 30, and December 31of each year. FISCAL YEAR shall mean each twelve (12) month period commencing on January 1of each year and ending on the following December 31. FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio determined by dividing (i) the amount equal to the difference of: (a) EBITDA, minus (b) non-financed Capital Expenditures; by (ii) the sum of: (v) Interest Expense, plus (w) the principal component of obligations in respect of Capital Leases repaid or, if not repaid scheduled to be repaid, plus (x) the amount of principal repaid or, if not repaid, scheduled to be repaid, on the Term Loan, the Subordinated Debt, and Indebtedness secured by Permitted Encumbrances and Permitted Indebtedness of the type described in CLAUSE (VI) of the definition thereof, plus, (y) all federal, state, and local income tax expenses due and payable by the Company and its Subsidiaries, plus (z) all cash dividends paid or, if not paid, scheduled to be paid, on account of the Standby Preferred Stock. GAAP shall mean generally accepted accounting principles in the United States of America as in effect from time to time and for the period as to which such accounting principles are to apply. GENERAL INTANGIBLES shall have the meaning set forth in the UCC and shall include, with respect to each Loan Party, without limitation, all of that Loan Party's present and future right, title, and interest in and to all tradenames, Trademarks (together with the goodwill associated therewith), Patents, licenses, customer lists, distribution agreements, supply agreements, indemnification rights and tax refunds, together with all monies and claims for monies now or hereafter due and payable in connection with any of the foregoing or otherwise, and all cash and non-cash proceeds thereof. GOVERNMENTAL AUTHORITY shall mean any applicable (a) local, state, municipal, or federal judicial, executive, or legislative instrumentality; or (b) central bank. GUARANTORS shall mean each Subsidiary, and its permitted successors and assigns. GUARANTY AGREEMENT shall mean a guaranty agreement satisfactory in form and substance to CITBC, to be executed by each Guarantor. HOLDING COMPANY shall mean ENA CLO I Holding Company I, L.P. INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or otherwise, which are any of the following: (a) obligations in respect of borrowed money or for the deferred purchase price of property, services or assets, other than Inventory; or (b) lease obligations which, in accordance with GAAP, have been, or which should be capitalized. 6 Amended and Restated Financing Agreement 9 INTEREST EXPENSE shall mean, without duplication, total consolidated interest obligations (paid or accrued) of the Company and its Subsidiaries, determined in accordance with GAAP on a basis consistent with the latest audited statements of the Company. INVENTORY shall mean, with respect to any Loan Party, all of that Loan Party's present and hereafter acquired inventory (as defined in the UCC including, without limitation all merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods and materials used or usable in manufacturing, processing, packaging or shipping same; in all stages of production, from raw materials through work-in-process to finished goods, and all proceeds thereof of whatever sort. INVESTMENT PROPERTY shall mean, with respect to any Loan Party, all of that Loan Party's present and hereafter acquired investment property (as defined in the UCC), including, but not limited to, pledged stock of the Acquisition Subsidiaries and any other of the Loan Party's subsidiaries, and all additions, substitutions and replacements thereof, and all products and proceeds thereof of whatever sort. ISSUING BANK shall mean the bank issuing Letters of Credit for the Company. LEGAL REQUIREMENTS shall mean all applicable statutes, laws, treaties, ordinances, tariff requirements, rules, regulations, orders, writs, injunctions, decrees, judgments, opinions, or interpretations of any Governmental Authority. LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of CITBC by the Issuing Bank for or on behalf of the Company. LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the Issuing Bank of the Company's reimbursement obligation under the Issuing Bank's Reimbursement Agreement, Application for Letter of Credit or other like document. LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the Company under SECTION 8, PARAGRAPH 12 of this Financing Agreement for: (i) issuing the Letter of Credit Guaranty; or (ii) otherwise aiding the Company in obtaining Letters of Credit. LETTER OF CREDIT SUB-LINE shall mean $1,000,000 in the aggregate. LIBOR shall mean, at any time of determination, and subject to availability, for each applicable Libor Period, a rate of interest equal to at CITBC's election: (i) the applicable Libor quoted to CITBC by The Chase Manhattan Bank (or any successor thereof); or (ii) the rate of interest determined by CITBC at which deposits in U.S. dollars are offered for the relevant Libor Period based on information presented on Telerate Systems at Page 3750 as of 11:00 A.M. (London time) on the day which is two (2) Business Days prior to the first day of such Libor Period, provided that, if at least two such offered rates appear on the Telerate System at Page 3750 in respect of such Libor Period, the arithmetic mean of all such rates (as determined by CITBC) will be the rate used; divided by a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of Eurocurrency Reserve Requirements applicable to CITBC in effect on the day which is two (2) Business Days prior to the beginning of such Libor Period. LIBOR LOAN shall mean those Revolving Loans and Term Loan for which the Company has elected to use Libor for interest rate computations. 7 Amended and Restated Financing Agreement 10 LIBOR PERIOD shall mean: (a) with respect to any initial request by the Company for a Libor Loan, a one month, two month or three month period commencing on the borrowing or conversion date with respect to a Libor Loan and ending one, two or three months thereafter, as applicable; and (b) thereafter with respect to any continuation of, or conversion to, a Libor Loan, at the option of the Company, any one month, two month or three month period commencing on the last day of the immediately preceding Libor Period applicable to such Libor Loan and ending one, two or three months thereafter, as applicable; provided that, the foregoing provisions relating to Libor Periods are subject to the following: (i) If any Libor Period would otherwise end on a day which is not a Working Day, that Libor Period shall be extended to the next succeeding Working Day, unless the result of such extension would extend such payment into another calendar month in which event such Libor Period shall end on the immediately preceding Working Day; (II) Any Libor Period that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month, at the end of such Libor Period) shall end on the last Working Day of a calendar month; and (III) For purposes of determining the availability of Libor Periods, such Libor Periods shall be deemed available if (x) The Chase Manhattan Bank quotes an applicable rate or CITBC determines Libor, as provided in the definition of Libor, (y) the Libor determined by The Chase Manhattan Bank or CITBC will adequately and fairly reflect the cost of maintaining or funding its loans bearing interest at Libor, for such Libor Period, and (z) such Libor Period will end on or before the earlier of Anniversary Date or the last day of the then current term of this Financing Agreement. If a requested Libor Period shall be unavailable in accordance with the foregoing sentence, the Company shall continue to pay interest on the Obligations at the applicable per annum rate based upon the Chase Bank Rate. LINE OF CREDIT shall mean the commitment of CITBC to make Revolving Loans pursuant to SECTION 3 of this Financing Agreement and to assist the Company in opening Letters of Credit pursuant to SECTION 5 of this Financing Agreement, in an aggregate amount equal to $10,000,000. LINE OF CREDIT FEE shall mean the fee due CITBC at the end of each month for the Line of Credit calculated as the product of (a) one-half of one percent (.50%) multiplied by the quotient obtained from (i) the number of days in said month; divided by (ii) 360; multiplied by (b) the sum of (i) the Revolving Line of Credit; minus (ii) the sum, for said month; of (x) the average daily balance of Revolving Loans; plus (y) the average daily balance of Letters of Credit outstanding for said month. LOAN DOCUMENTS shall mean this Financing Agreement, the Security Documents, the Guaranty, the Subordination Agreement, the other closing documents and any other ancillary loan and security agreements executed from time to time in connection with this Financing Agreement, all as may be renewed, amended, extended, increased or supplemented from time to time. LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and pursuant to, the provisions of SECTION 8, PARAGRAPH 16 of this Financing Agreement. 8 Amended and Restated Financing Agreement 11 LOAN PARTIES shall mean, as of any date, the Company and each Guarantor, and Loan Party shall mean any one of the Loan Parties. MANDATORY PREPAYMENT shall: (i) mean the amount by which the Company must prepay the Term Loan on or before March 31st of the next succeeding Fiscal Year; and (ii) be determined as set forth in SECTION 4, PARAGRAPH 6 of this Financing Agreement. MAXIMUM LEGAL RATE shall mean the maximum lawful interest rate which may be contracted for, charged, taken, received or reserved under this Financing Agreement by CITBC in accordance with applicable state or federal law (whichever provides for the highest permitted rate), taking into account all items contracted for, charged or received in connection with the Obligations evidenced hereby which are treated as interest under the applicable state or federal law, as such rate may change from time to time. If the Laws of the State of Texas are applicable for purposes of determining the "Maximum Legal Rate" then that term means the "weekly ceiling" from time to time in effect under Texas Finance Code ss.303.305. Borrower agrees that Chapter 346 of the Texas Finance Code, as amended (which regulates certain revolving credit loan accounts and revolving triparty accounts), does not apply to the Obligations. OBLIGATIONS shall mean: (a) all loans and advances made or to be made by CITBC to any Loan Party or to others for any Loan Party's account under any Loan Document (including, without limitation, all Revolving Loans, Letters of Credit and Term Loan); and (b) any and all indebtedness and obligations which may at any time be owing by any Loan Party to CITBC howsoever arising, under any Loan Document, whether now in existence or incurred from time to time hereafter, whether secured by pledge, lien upon or security interest in any Loan Party's assets or property or the assets or property of any other person, firm, entity or corporation; in each case, irrespective of whether such indebtedness is absolute or contingent, joint or several, matured or unmatured, direct or indirect, and irrespective of whether any Loan Party is liable to CITBC for such indebtedness as principal, surety, endorser, guarantor or otherwise. Obligations shall also include indebtedness owing to CITBC: (a) under this Financing Agreement or under any other Loan Document now or hereafter entered into between any Loan Party and CITBC; (b) indebtedness or obligations incurred by, or imposed on, CITBC as a result of environmental claims (other than as a result of actions of CITBC) arising out of any Loan Party's operation, premises or waste disposal practices or sites; (c) any Loan Party's liability to CITBC as maker or endorser on any promissory note or other instrument for the payment of money issued under any Loan Document; (d) any Loan Party's liability to CITBC under any instrument of guaranty or indemnity, or arising under any guaranty, endorsement or undertaking which CITBC may make or issue to others for their account pursuant to any Loan Document, including any accommodation extended with respect to applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's endorsement of notes or other instruments for the a Loan Party's account and benefit. OPERATING LEASES shall mean all leases of property by any Loan Party (whether real, personal or mixed) other than Capital Leases. OTHER COLLATERAL shall mean, with respect to any Loan Party, all of that Loan Party's now owned and hereafter acquired deposits accounts maintained with any bank or financial institutions; all cash and other monies and property in the possession or control of CITBC; all books, records, ledger cards, disks and related data processing software at any time evidencing or containing information relating to any of the Collateral described herein or otherwise necessary or helpful in the collection thereof or realization thereon, and all cash and non-cash proceeds of the foregoing. 9 Amended and Restated Financing Agreement 12 OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future expenses incurred relative to this Financing Agreement, whether incurred heretofore or hereafter, which expenses shall include, without being limited to, the cost of record searches, all costs and expenses incurred by CITBC in opening bank accounts, depositing checks, receiving and transferring funds, and any charges imposed on CITBC due to "insufficient funds" of deposited checks and CITBC's standard fee relating thereto, any amounts paid by CITBC, incurred by or charged to CITBC by the Issuing Bank under the Letter of Credit Guaranty or the Company's Reimbursement Agreement, Application for Letter of Credit or other like document which pertain either directly or indirectly to such Letters of Credit, and CITBC's standard fees relating to the Letters of Credit and any drafts thereunder, reasonable travel, lodging and similar expenses of CITBC's personnel in inspecting and monitoring the Collateral from time to time hereunder reasonable local counsel fees, title insurance premiums, real estate survey costs, fees and taxes relative to the filing of financing statements, costs of preparing and recording mortgages/deeds of trust against the Real Estate and all expenses, costs and fees incurred pursuant to SECTION 10, PARAGRAPH 3 of this Financing Agreement. OVERADVANCE RATE shall mean a rate equal to the lesser of (i) the Maximum Legal Rate; and (ii) one-half of one percent (1/2%) per annum in excess of the applicable Contract Rate of interest determined for Chase Bank Rate Loans in accordance with SECTION 8, PARAGRAPH 1(a) of this Financing Agreement. PARENT shall mean collectively, Southwest Royalties Holdings, Inc. and Southwest Royalties, Inc. PATENTS shall mean with respect to any Loan Party, all of that Loan Party's present and hereafter acquired patents and/or patent rights of the Company and all cash and non-cash proceeds thereof. PERMITTED ENCUMBRANCES shall mean: (i) liens existing on the date hereof on specific items of Equipment and listed on SCHEDULE 1 hereto and other liens expressly permitted, or consented to, by CITBC; (ii) Purchase Money Liens; (iii) Customarily Permitted Liens; (iv) liens granted CITBC by the Company; (v) liens of judgment creditors provided such liens do not exceed, in the aggregate, at any time, $50,000 (other than liens bonded or insured to the reasonable satisfaction of CITBC); (vi) liens securing Taxes not yet due and payable or which are being diligently contested in good faith by any Loan Party by appropriate proceedings and which liens are not (x) other than with respect to Real Estate, senior to the liens of CITBC; or (y) for Taxes due the United States of America; and (vii) liens securing the Subordinated Debt. PERMITTED INDEBTEDNESS shall mean: (i) current indebtedness maturing in less than one year and incurred in the ordinary course of business for raw materials, supplies, equipment, services, Taxes or labor; (ii) the indebtedness secured by the Purchase Money Liens; (iii) Subordinated Debt; (iv) indebtedness arising under the Letters of Credit and this Financing Agreement; (v) deferred Taxes and other expenses incurred in the ordinary course of business; and (vi) other indebtedness existing on the date of execution of this Financing Agreement and listed in the proforma financial statement delivered to CITBC or the date hereof or otherwise disclosed to CITBC in writing. PLEDGE AGREEMENTS shall mean pledge agreements satisfactory in form and substance to CITBC, to be executed respectively by the Company and Gold Star Service Company, Inc. PREPAYMENT PREMIUM shall: (i) mean the amount due CITBC upon a voluntary prepayment of the Term Loan in whole or in part, prior to March 31, 2004; and (ii) be computed by multiplying the amount so prepaid by (x) three percent (3%) if the prepayment occurs on or before one (1) year after the Closing Date; (y) two percent (2%) if the prepayment occurs after one (1) year from the Closing Date but prior to two (2) years after the Closing Date; and (z) one percent (1%) if the prepayment occurs at any time thereafter. 10 Amended and Restated Financing Agreement 13 PUBLIC OFFERING shall mean an initial public offering of the common stock of the Company pursuant to a registration statement on Form S-1 (Reg. No. 333-33108) filed with the U. S. Securities and Exchange Commission. PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after the date of this Financing Agreement by any Loan Party provided that (i) each such lien shall attach only to the property to be acquired; (ii) a description of the property so acquired is furnished to CITBC; and (iii) the debt incurred in connection with such acquisitions of Equipment by the Loan Parties shall not exceed in the aggregate $6,000,000 in any Fiscal Year. REAL ESTATE shall mean each Loan Party's fee and/or leasehold interests in the real property which has been, or will be, encumbered, mortgaged, pledged or assigned to CITBC or its designee. REVOLVING LOANS shall mean the loans and advances made, from time to time, to or for the account of the Company by CITBC pursuant to SECTION 3 of this Financing Agreement. REVOLVING LOAN ACCOUNT shall have the meaning specified in SECTION 3, PARAGRAPH 6 hereof. SECURITY AGREEMENT shall mean a security agreement satisfactory in form and substance to CITBC, to be executed by each Guarantor. SECURITY DOCUMENTS shall mean the Pledge Agreements, Security Agreement, Deeds of Trust, and any other security agreement, pledge agreement, mortgage, deed of trust or other agreement or document, together with all related financing statements and stock powers, in form and substance satisfactory to CITBC and its legal counsel, executed and delivered by any individual or entity in connection with this Financing Agreement to create a lien or security interest in favor of CITBC on any of its real or personal property, as amended, supplemented or restated from time to time. STANDBY PREFERRED STOCK shall mean any shares of the Company's Series D Preferred Stock issued pursuant to the Subscription Agreement. STOCK shall mean all shares, general or limited partnership interests, membership interests, or other ownership interests (regardless of how designated) of or in a corporation, partnership, limited liability company, trust, or other entity, whether voting or non-voting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). STOCK ACQUISITION shall mean the Company's acquisition on the Closing Date of all of the issued and outstanding Stock of each of the Acquisition Subsidiaries pursuant to the Stock Acquisition Agreements. STOCK ACQUISITION AGREEMENTS shall mean (i) the Stock Purchase Agreement dated as of December 29, 1999, between the Company and the sellers named therein relating to the acquisition of the capital stock of Harrison Well Service, Inc., a Texas corporation; (ii) the Stock Purchase Agreement dated as of February 8, 2000, between the Company and Clyde R. Wilson, relating to the acquisition of Sundown Operating, Inc., d/b/a Sundown Well Service, a Texas corporation; (iii) the Stock Purchase Agreement dated as of February 20, 2000 between Rex Busby and Madie Walker, as the seller, relating to the acquisition of the capital stock of Eunice Well Servicing Co., Inc., a New Mexico corporation; (iv) the Stock Purchase Agreement dated as 11 Amended and Restated Financing Agreement 14 of March 1, 2000 between the Company and Thomas A. Best and Pam Taylor, Trustee of the Best Children's Trust, as the sellers, relating to the acquisition of the capital stock of Turn Around Trucking, Inc., a Texas corporation; (v) the Acquisition Agreement dated as of March 14, 2000, between the Company and the stock sellers named therein relating to the acquisition of the capital stock of Gold Star Service Company, Inc., a New Mexico corporation, and all of the assets of Gold Star SWD, Ltd. Co., a New Mexico limited liability company. SUBORDINATED DEBT shall mean the debt due a Subordinating Creditor (and the note evidencing such) which has been subordinated, by a Subordination Agreement, to the prior payment and satisfaction of the Obligations of the Loan Parties to CITBC (in form and substance satisfactory to CITBC). SUBORDINATING CREDITOR shall mean ENA CLO I Holding Company I L.P. SUBORDINATION AGREEMENT shall mean the agreement among the Company, a Subordinating Creditor (or its agent) and CITBC pursuant to which Subordinated Debt and all liens securing such Subordinated Debt are subordinated to the prior payment and satisfaction of the Company's Obligations to CITBC and all liens in favor of CITBC (in form and substance satisfactory to CITBC). SUBSCRIPTION AGREEMENT means the Subscription Agreement dated as of June 1, 2000 between the Company and Enron North America Corp. SUBSIDIARY means any entity of which more than 50% of the Voting Stock is owned of record or beneficially, directly or indirectly, by another entity. Unless otherwise specified or the context otherwise requires, "Subsidiary" refers to a Subsidiary of the Company and a Subsidiary of any other Subsidiary of the Company. SURPLUS CASH shall mean for any Fiscal Year the sum of the following of the Company and its Subsidiaries calculated on a consolidated basis: (i) EBITDA; less (ii) the sum of: (a) Interest Expense; (b) non-financed Capital Expenditures; (c) the amount of principal repaid, or if not repaid, scheduled to be repaid, on the Term Loan, the Subordinated Debt, and Indebtedness secured by Permitted Encumbrances and Permitted Indebtedness of the type described in CLAUSE (VI) of the definition thereof; (d) the principal component of obligations in respect of Capital Leases repaid or, if not repaid, scheduled to be repaid; (e) all federal, state, and local income tax expenses due and payable by the Company and its Subsidiaries; and (f) all cash dividends permitted to be paid hereunder with respect to the Standby Preferred Stock, and paid. TANGIBLE NET WORTH shall mean the following on a consolidated basis for the Company and its Subsidiaries, determined in accordance with GAAP, on a consistent basis with the latest audited statements of the Company and its Subsidiaries: consolidated shareholder's equity less the consolidated net book value of all assets that would be deemed "intangible" under GAAP. TAXES shall mean all federal, state, municipal and other governmental taxes, levies, charges, claims and assessments which are or may be due by the Loan Parties with respect to their respective business, operations, Collateral or otherwise. TERM LOAN PROMISSORY NOTE shall mean the promissory note in the form of EXHIBIT A hereto executed by the Company to evidence the Term Loan made by CITBC under SECTION 4 hereof. 12 Amended and Restated Financing Agreement 15 TERM LOAN shall mean a loan in the principal amount of $20,000,000 made by CITBC pursuant to, and repayable in accordance with, the provisions of SECTION 4 of this Financing Agreement. TRADE ACCOUNTS RECEIVABLE shall mean that portion of Accounts which arises from the sale of Inventory or the rendition of services in the ordinary course of business. TRADEMARKS shall mean, with respect to any Loan Party, all of that Loan Party's present and hereafter acquired trademarks and/or trademark rights (together with the goodwill associated therewith) and all cash and non-cash proceeds thereof. UCC shall mean the Uniform Commercial Code as in effect from time to time in the state of Texas. VEHICLES shall mean with respect to any Loan Party, all of that Loan Party's present and hereafter acquired owned or leased crew cabs, pick-ups, vans, trucks, automobiles, tractors, trailers and other mobile equipment. VOTING STOCK means Stock of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or persons performing similar functions). WHOLLY-OWNED SUBSIDIARY means any Subsidiary listed on SCHEDULE 7.1, with respect to which 100% of the issued and outstanding shares of Voting Stock of such Subsidiary is owned by the Company or another Subsidiary. WORKING CAPITAL shall mean the excess of Current Assets over Current Liabilities. WORKING DAY shall mean any Business Day on which dealings in foreign currencies and exchanges between banks may be transacted. SECTION 2. CONDITIONS PRECEDENT The obligation of CITBC to make loans hereunder is subject to the satisfaction of, or waiver of, immediately prior to or concurrently with the making of such loans, the following conditions precedent: (a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform Commercial Code searches satisfactory to CITBC for all locations presently occupied or used by the Loan Parties. (b) CASUALTY INSURANCE - CITBC shall have received evidence satisfactory to CITBC that casualty insurance policies listing CITBC as loss payee or mortgagee, as the case may be, are in full force and effect, all as set forth in SECTION 7, PARAGRAPH 5(a) of this Financing Agreement. (c) MORTGAGES/DEEDS OF TRUST - The applicable Loan Parties shall have executed and delivered to either CITBC or an agent of CITBC or of a title insurance company acceptable to CITBC such mortgages and deeds of trust as CITBC may reasonably require to obtain following recording thereof, valid, fully perfected, first liens on the Real Estate, subject to the Permitted Encumbrances. (d) UCC FILINGS - Any documents (including without limitation, financing statements) required to be filed in order to create, in favor of CITBC, a valid, exclusive, fully perfected security interest in the 13 Amended and Restated Financing Agreement 16 Collateral with respect to which a security interest may be perfected by a filing under the UCC, shall have been properly filed in each office in each jurisdiction required in order to create in favor of CITBC a perfected lien on the Collateral. CITBC shall have received acknowledgment copies of all such filings (or, in lieu thereof, CITBC shall have received other evidence satisfactory to CITBC that all such filings have been made); and CITBC shall have received evidence that all necessary filing fees and all Taxes or other expenses related to such filings have been paid in full. (e) SUBSIDIARY GUARANTY - The Guarantors shall have executed and delivered to CITBC the Guaranty Agreement guaranteeing all present and future Obligations. (f) SUBSIDIARY SECURITY AGREEMENT - the Subsidiaries shall have executed and delivered to CITBC the Security Agreement, securing the payment and performance of the Obligations. (g) OPINIONS - With respect to the Loan Documents, legal counsel for the Company and the Guarantors shall have delivered to CITBC opinions in form and substance satisfactory to CITBC and its counsel. In addition and with respect to the Subordination Agreement, legal counsel to the Subordinating Creditor shall have delivered to CITBC opinions in form and substance satisfactory to CITBC and its counsel. (h) PLEDGE AGREEMENT - The Company and Gold Star Service Company, Inc. shall (a) each execute and deliver to CITBC a Pledge Agreement pledging to CITBC as additional collateral for the Obligations all of the issued and outstanding Stock of all Subsidiaries owned by it; and (b) deliver to CITBC the stock certificates evidencing such Stock together with duly executed stock powers with respect thereto. (i) ADDITIONAL DOCUMENTS - The Loan Parties shall have executed and delivered to CITBC all Loan Documents necessary to consummate the lending arrangement contemplated between the Loan Parties and CITBC. (j) PUBLIC OFFERING - The Public Offering shall have been completed and the Company shall have received in one or more wire transfers, and contributed to its equity capital, not less than $49,500,000 as cash proceeds thereof and/or pursuant to the issuance and sale of Standby Preferred Stock pursuant to the Subscription Agreement, all to the reasonable satisfaction of CITBC. (k) SUBORDINATION AGREEMENT - The Subordinating Creditor shall have executed and delivered to CITBC a Subordination Agreement, in form and substance satisfactory to CITBC, subordinating the debt due the Subordinating Creditor by the Company to the prior payment and satisfaction of the Obligations of the Company to CITBC and subordinating any liens securing the Subordinated Debt to liens in favor of CITBC. (l) AMENDED SUBORDINATED DEBT DOCUMENTS - The Company and Subordinating Creditor shall have executed, and provided CITBC evidence of, an amendment to the Subordinated Debt documents in form and substance acceptable to CITBC. (m) BOARD RESOLUTIONS - CITBC shall have received a copy of the resolutions of the Board of Directors of each of the Company and the Guarantors (as the case may be) authorizing the execution, delivery and performance of (i) this Financing Agreement and the other Loan Documents to which it is a party; (ii) in the case of the Company, the Public Offering; (iii) in the case of the Company, the Acquisitions; and (iv) any related agreements, in each case certified by the Secretary or Assistant Secretary of each Loan Party as of the date hereof, together with a certificate of the Secretary of such Loan Party as to the incumbency and signature of the officers of such Loan Party executing such agreements and any certificate or other documents to be 14 Amended and Restated Financing Agreement 17 delivered by them pursuant hereto, together with evidence of the incumbency of such Secretary or Assistant Secretary. (n) CORPORATE ORGANIZATION - CITBC shall have received (i) a copy of the Articles or Certificate of Incorporation of each Loan Party certified by the Secretary of State of the state of its incorporation; and (ii) a copy of the By-Laws (as amended through the date hereof) of each Loan Party certified by the Secretary or Assistant Secretary thereof. (o) OFFICER'S CERTIFICATE - CITBC shall have received an executed Officer's Certificate of each Loan Party, satisfactory in form and substance to CITBC, certifying that (i) the representations and warranties contained herein are true and correct in all material respects on and as of the date hereof (except to the extent any representations and warranties speak to a specific date); (ii) the Loan Party is in compliance with all of the terms and provisions set forth in the Loan Documents; and (iii) no Default or Event of Default has occurred. (p) ABSENCE OF DEFAULT - No Default, Event of Default or material adverse change in the financial condition, business, profits, operations or assets of the Company shall have occurred. (q) ACQUISITIONS - The Company shall have fully consummated the Acquisitions, and the Company shall have delivered or made available to CITBC or its counsel, and CITBC shall be satisfied with, the documents governing the Acquisitions, including, without limitation, the purchase agreements, all other purchase and sale documentation, covenants not to compete, indemnities provided to the Company by the seller. In addition, the Acquisitions shall have been lawfully consummated without a waiver of any material terms and conditions with respect thereto and the Company shall have acquired good and indefeasible title, free and clear of all liens, claims and encumbrances to the Stock or assets covered thereby. In addition, all opinions delivered in connection with the Acquisitions (including, without limitation, opinions delivered by counsel to the Loan Parties) shall either be addressed to CITBC, or CITBC shall have received a letter from the applicable counsels permitting CITBC to rely on such opinions as though they were addressed to CITBC. (r) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this Financing Agreement and as of the date of any Loan hereunder, there shall be no (x) litigation, investigation or proceeding (judicial or administrative) pending or threatened against the Company or its assets, by any agency, division or department of any county, city, state or federal government arising out of, or related to, the Public Offering, the Acquisitions, or this Financing Agreement, (y) injunction, writ or restraining order restraining or prohibiting the Public Offering, the Acquisitions, or the consummation of the financing arrangements contemplated under this Financing Agreement or (z) suit, action, investigation or proceeding (judicial or administrative) pending or threatened against the Company or its assets, which, in the opinion of CITBC, if adversely determined could have a material adverse effect on the Company's business, operation, assets, financial condition or Collateral. (s) DISBURSEMENT AUTHORIZATION - The Company shall have delivered to CITBC all information necessary for CITBC to issue wire transfer instructions on behalf of the Company for the initial and subsequent loans and/or advances to be made under this Financing Agreement including, but not limited to, disbursement authorizations in form acceptable to CITBC. (t) EXAMINATION AND VERIFICATION - CITBC shall have completed to the satisfaction of CITBC an examination and verification of the Accounts, Inventory, books and records of the Loan Parties which examination shall indicate that, after giving effect to all loans, advances and extensions of credit to be made at closing, the Company shall have an opening additional Availability of $9,500,000, all as more fully required 15 Amended and Restated Financing Agreement 18 by the CITBC Commitment Letter. It is understood that such requirement contemplates that all debts, obligations and payables are current. (u) CASH BUDGET PROJECTIONS - CITBC shall have received, reviewed and be satisfied with a 12 month cash budget projection prepared by the Company in the form provided by CITBC. (v) DEPOSITORY ACCOUNTS - The Loan Parties shall have established a system of bank accounts with respect to the collection of Accounts and the deposit of proceeds of Inventory as shall be acceptable to CITBC in all respects. (w) EXISTING SENIOR DEBT - The Existing Senior Debt shall have been duly purchased by CITBC, and assigned, together with all liens and security interests relating thereto, to CITBC. (x) CERTIFICATES OF TITLE - Holding Company and the Loan Parties shall have executed and delivered to CITBC all documents that at this time can be executed to enable CITBC to perfect its security interest in the Vehicles in which a security interest is perfected by notation thereof on a certificate of title. (y) GOOD STANDING AND AUTHORITY - CITBC shall have received, with respect to the Company and each Subsidiary, certificates of the Secretaries of State or other appropriate governmental authorities, to the effect that the Company and each Subsidiary is in good standing with respect to the payment of franchise and similar Taxes, and is duly qualified to transact business in its jurisdiction or organization and in each jurisdiction where the nature and extent of their business and properties require due qualification and good standing (each of which jurisdictions is identified on SCHEDULE 2). (z) TERM LOAN PROMISSORY NOTE - CITBC shall have received the Term Loan Promissory Note executed by the Company payable to the order of CITBC, as contemplated in SECTION 4, PARAGRAPH 1. (AA) LIEN RELEASE - Payoff letters or other evidence of payoff amounts in form and substance reasonably acceptable to CITBC relating to the payoff of all Debt of the Company and any Subsidiary (other than Permitted Debt) or duly executed releases or assignments of Liens and financing statements in recordable form as may be requested by CITBC. (BB) CONSENTS, FILINGS, ETC. - Evidence satisfactory to CITBC and its counsel that the Company and each Subsidiary shall have received all approval, authorizations, consents, and waivers necessary or appropriate for the execution, delivery, and performance by the Company and any Subsidiary of the Loan Documents and all documents relating to the Public Offering and Acquisitions, including, without limitation, (i) all such approvals, authorizations, consents, and waivers disclosed in the Loan Documents or the documents relating to the Public Offering and Acquisition; and (ii) all filings, consents, or approvals necessary to enter into the Loan Documents or consummate the Public Offering and Acquisitions, or any other transactions contemplated by the Loan Documents, as applicable. (CC) PAYMENT OF FEES AND CLOSING FEES - The Company shall have paid to CITBC (i) all fees to be received by CITBC pursuant to this Financing Agreement or any other Loan Document; and (ii) an amount equal to the estimated costs and out-of-pocket expenses of Lender's counsel incurred in connection with the preparation, execution, and delivery of the Loan Document and the consummation of the transactions contemplated thereby. 16 Amended and Restated Financing Agreement 19 (DD) STANDBY PREFERRED STOCK SIDE LETTER - Enron North America Corp. shall have executed and delivered to CITBC that certain letter agreement addressing certain understandings related to the Standby Preferred Stock, in form and substance acceptable to CITBC and its counsel. Upon the execution of this Financing Agreement and the initial disbursement of loans hereunder, all of the above Conditions Precedent shall have been deemed satisfied except as the Company and CITBC shall otherwise agree herein or in a separate writing. If the foregoing Conditions Precedent have not been satisfied on or before July 31, 2000, all obligations of CITBC under this Financing Agreement shall terminate and be of no further force or effect. SECTION 3. REVOLVING LOANS 1. CITBC agrees, subject to the terms and conditions of this Financing Agreement, from time to time, and within (x) the Availability; and (y) the Line of Credit, but subject to CITBC's right to make "overadvances", to make loans and advances to the Company on a revolving basis (i.e. subject to the limitations set forth herein, the Company may borrow, repay and re-borrow Revolving Loans). Such loans and advances shall be in amounts not to exceed the lesser of (a) the Availability; and (b) the Line of Credit. Each request shall constitute, unless otherwise disclosed in writing to CITBC, a representation and warranty by the Company that (i) after giving effect to the requested advance, no Default or Event of Default has occurred; and (ii) such requested Revolving Loan is within the Line of Credit and Availability. All requests for loans and advances must be received by an officer of CITBC no later than 11:00 a.m., Dallas, Texas time, of the day on which such loans and advances are required. Should CITBC for any reason honor requests for advances in excess of the limitations set forth herein, such advances shall be considered Overadvances and shall be made in CITBC's sole discretion, subject to any additional terms CITBC deems necessary. 2. In furtherance of the continuing assignment and security interest in the Loan Parties' Accounts, upon the creation of Accounts, the Company will, and will cause each other Loan Party to, execute and deliver to CITBC in such form and manner as CITBC may reasonably require, solely for CITBC's convenience in maintaining records of collateral, such confirmatory schedules of Accounts as CITBC may reasonably request, and such other appropriate reports designating, identifying and describing the Accounts as CITBC may reasonably require. In addition, upon CITBC's request, the Company shall provide, and cause each other Loan Party to provide, CITBC with copies of agreements with, or purchase orders from, its customers, and copies of invoices to customers, proof of shipment or delivery and such other documentation and information relating to said Accounts and other collateral as CITBC may reasonably require. Failure to provide CITBC with any of the foregoing shall in no way affect, diminish, modify or otherwise limit the security interests granted herein or otherwise in favor of CITBC. The Company authorizes, and shall cause each other Loan Party to authorize, CITBC to regard their printed name or rubber stamp signature on assignment schedules or invoices as the equivalent of a manual signature by one of its authorized officers or agents. 3. The Company represents and warrants for itself and each other Loan Party, that: (a) each Trade Account Receivable is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by the Loan Party in the ordinary course of its business; (b) the goods and Inventory being sold and the Trade Accounts Receivable created are the exclusive property of the respective Loan Party and are not and shall not be subject to any lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever, other than the Permitted Encumbrances; (c) the invoices evidencing Eligible Accounts Receivable are in the name of the respective Loan Party; and the customers have accepted the related goods or services, owe and are obligated to pay the full amounts stated in the invoices according 17 Amended and Restated Financing Agreement 20 to their terms, without material dispute, offset, defense, counterclaim or contra, except for disputes and other matters arising in the ordinary course of business with respect to which the respective Loan Party has complied with the notification requirements of PARAGRAPH 5 of this SECTION 3; (d) any and all Taxes or fees relating to its business, its sales, the Accounts or goods relating thereto, are its sole responsibility and that same will be paid by the Loan Party as set forth in SECTION 7, PARAGRAPH 6; (e) that it is a duly and validly existing corporation and is qualified in all states where the failure to so qualify would have a adverse effect on its business or the ability of the Loan Party to enforce collection of Accounts due from its customers residing in that state. 4. Until CITBC has advised any Loan Party to the contrary after the occurrence and during the continuance of an Event of Default, the Company shall, and shall cause each other Loan Party to, enforce, collect and receive all amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at the Loan Party's expense; such privilege shall terminate automatically upon the institution by or against Loan Party of any proceeding under Debtor Laws or, at the election of CITBC, upon the occurrence of any other Event of Default and until such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction. Any checks, cash, notes or other instruments or property received by the Loan Party with respect to any Accounts shall be held by the Loan Party in trust for CITBC, separate from the Loan Party's own property and funds, and immediately turned over to CITBC with proper assignments or endorsements by deposit to the special depository accounts in CITBC's name designated by CITBC for such purposes (the "DEPOSITORY ACCOUNTS"). All amounts received by CITBC in payment of Accounts ("COLLECTIONS") will be credited to the Revolving Loan Account and applied to reduce the outstanding Revolving Loans one (1) Business Day after CITBC's receipt of "collected funds" at CITBC's bank account in New York, New York on the Business Day of receipt if received no later than 1:00 p.m. or on the next succeeding Business Day if received after 1:00 p.m. No checks, drafts or other instrument received by CITBC shall constitute final payment to CITBC unless and until such instruments have actually been collected. 5. The Company shall notify, and shall cause each other Loan Party to notify, CITBC promptly of any matters materially affecting the value, enforceability or collectibility of any Account and of all material customer disputes, offsets, defenses, counterclaims, returns, rejections and all reclaimed or repossessed merchandise or goods. The Company shall, and shall cause each other Loan Party to, issue credit memoranda promptly (with duplicates to CITBC upon request after the occurrence of an Event of Default) upon accepting returns or granting allowances, which returns and allowances may continue to be accepted until CITBC has notified the respective Loan Party that an Event of Default has occurred and that all future credits or allowances are to be made only after CITBC's prior written approval. Upon the occurrence of an Event of Default and until such time as such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction and on notice from CITBC, the Company shall, and shall cause each other Loan Party to, set aside all returned, reclaimed or repossessed merchandise or goods, marked with CITBC's name and held for CITBC's account as owner and assignee. 6. CITBC shall maintain a separate account on its books in the Company's name (the "REVOLVING LOAN ACCOUNT") in which the Company will be charged with loans and advances made by CITBC to it or for its account, and with any other Obligations, including any and all costs, expenses and reasonable attorney's fees which CITBC may incur in connection with the exercise by or for CITBC of any of the rights or powers herein conferred upon CITBC, or in the prosecution or defense of any action or proceeding to enforce or protect any rights of CITBC in connection with this Financing Agreement or the Collateral assigned hereunder, or any Obligations owing to CITBC by the Company. The Company will be credited with all amounts received by CITBC from the Company or from others for the Company's account, including, as above set forth, all amounts received by CITBC in payment of assigned Accounts and such amounts will be applied to 18 Amended and Restated Financing Agreement 21 payment of the Obligations. In no event shall prior recourse to any Accounts or other security granted to or by the Company be a prerequisite to CITBC's right to demand payment of any Obligation. Further, it is understood that CITBC shall have no obligation whatsoever to perform in any respect any of the Company's contracts or obligations relating to the Accounts. 7. After the end of each month, CITBC shall promptly send the Company a statement showing the accounting for the charges, loans, advances and other transactions occurring between CITBC and the Company during that month. The monthly statements shall be deemed correct and binding upon the Company and shall constitute an account stated between the Company and CITBC unless CITBC receives a written statement of the exceptions within thirty (30) days of the date of the monthly statement. 8. If the sum of (i) the outstanding balance of Revolving Loans; plus (ii) outstanding balance of Letters of Credit exceeds (x) the maximum amount thereof available under SECTIONS 3 AND 5 hereof; or (y) the Line of Credit (herein the amount of any such excess shall be referred to as the "EXCESS") such Excess shall be due and payable to CITBC immediately upon CITBC's demand therefor. SECTION 4. TERM LOAN 1. The Company hereby agrees to execute and deliver to CITBC the Term Loan Promissory Note, in the form of EXHIBIT A attached hereto, to evidence the Term Loan to be extended by CITBC. 2. Upon receipt of such Term Loan Promissory Note, CITBC hereby agrees to extend to the Company the Term Loan in the principal amount of $20,000,000. 3. The principal amount of the Term Loan shall be repaid to CITBC by the Company by: (i) forty-four (44) equal monthly principal installments of $303,030 each; and (ii) one (1) final installment of all remaining unpaid principal, together with all accrued and unpaid interest on March 31, 2004. The first installment shall be due and payable on the sixtieth (60th) day following the Closing Date and the subsequent installments shall be due and payable on the first Business Day of each month thereafter until paid in full. 4. In the event this Financing Agreement or the Line of Credit is terminated by either CITBC or the Company for any reason whatsoever, the Term Loan shall become due and payable on the effective date of such termination notwithstanding any provision to the contrary in the Term Loan Promissory Note or this Financing Agreement. 5. The Company may prepay at any time, at its option, in whole or in part, the Term Loan, provided that on each such prepayment, the Company shall pay: (i) accrued interest on the principal so prepaid to the date of such prepayment; and (ii) the Prepayment Premium, if any. 6. In the event the Company has Surplus Cash in any Fiscal Year beginning with the Fiscal Year ending December 31, 2000, then on or before the March 31 of the next succeeding Fiscal Year, the Company must make a Mandatory Prepayment of the Term Loan by an amount equal to fifty percent (50%) of said Surplus Cash. No prepayment premium shall be due or payable with respect to any Mandatory Prepayment under this SECTION 4, PARAGRAPH 6. 7. Each prepayment shall be applied to the then last maturing installments of principal of the Term Loan. 19 Amended and Restated Financing Agreement 22 8. The Company hereby authorizes CITBC to charge its Revolving Loan Account with the amount of all amounts due under this SECTION 4 as such amounts become due; provided, however, that such authorization shall not constitute CITBC's obligation or commitment to make such charges. SECTION 5. LETTERS OF CREDIT In order to assist the Company in establishing or opening standby Letters of Credit with an Issuing Bank to cover the purchase of inventory, equipment or otherwise, the Company has requested CITBC to join in the applications for such Letters of Credit, and/or guarantee payment or performance of such Letters of Credit and any drafts or acceptances thereunder through the issuance of the Letters of Credit Guaranty, thereby lending CITBC's credit to the Company and CITBC has agreed to do so. These arrangements shall be handled by CITBC subject to the terms and conditions set forth below. 1. Within the Line of Credit and Availability, CITBC shall assist the Company in obtaining Letter(s) of Credit in an amount not to exceed the Letter of Credit Sub-Line in the aggregate outstanding at any one time. CITBC's assistance for amounts in excess of the limitation set forth herein shall at all times and in all respects be in CITBC's sole discretion. It is understood that the form and purpose of each Letter of Credit must be acceptable to CITBC in its reasonable business judgment. Notwithstanding anything herein to the contrary, upon the occurrence of a Default and/or Event of Default, CITBC's assistance in connection with the Letter of Credit Guaranty shall be in CITBC's sole discretion unless such Default and/or Event of Default is cured to CITBC's satisfaction or waived by CITBC in writing. Any and all outstanding Letters of Credit shall be reserved dollar for dollar from Availability as an Availability Reserve. 2. CITBC shall have the right, without notice to the Company, to charge the Company's Revolving Loan Account on CITBC's books with the amount of any and all indebtedness, liability or obligation of any kind incurred by CITBC under the Letters of Credit Guaranty at the earlier of (a) payment by CITBC under the Letters of Credit Guaranty; or (b) the occurrence of an Event of Default. Any amount charged to Company's Revolving Loan Account shall be deemed a Revolving Loan hereunder and shall incur interest at the rate provided in SECTION 8, PARAGRAPH 1(a) of this Financing Agreement. 3. The Company unconditionally indemnifies CITBC and holds CITBC harmless from any and all loss, claim or liability incurred by CITBC arising from any transactions or occurrences relating to Letters of Credit established or opened for the Company's account, the collateral relating thereto and any drafts or acceptances thereunder, and all Obligations thereunder, including any such loss or claim due to any action taken by any Issuing Bank, other than for any such loss, claim or liability arising out of the gross negligence, unlawful acts or willful misconduct by CITBC under the Letters of Credit Guaranty. The Company further agrees to hold CITBC harmless from any errors or omission, negligence or misconduct by the Issuing Bank. The Company's unconditional obligation to CITBC hereunder shall not be modified or diminished for any reason or in any manner whatsoever, other than as a result of CITBC's gross negligence, unlawful acts or willful misconduct. The Company agrees that any charges incurred by CITBC for the Company account by the Issuing Bank shall be conclusive on CITBC and may be charged to the Company's account. 4. CITBC shall not be responsible for: the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by any documents; any difference or variation in the character, quality, quantity, condition, packing, value or delivery of the goods from that expressed in the documents; the validity, sufficiency or genuineness of any documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; the time, place, manner or order in which shipment is made; partial or incomplete shipment, or 20 Amended and Restated Financing Agreement 23 failure or omission to ship any or all of the goods referred to in the Letters of Credit or documents; any deviation from instructions; delay, default, or fraud by the shipper and/or anyone else in connection with the Collateral or the shipping thereof; or any breach of contract between the shipper or vendors and the Company. Furthermore, without being limited by the foregoing, CITBC shall not be responsible for any act or omission with respect to or in connection with any Collateral. 5. The Company agrees that any action taken by CITBC, if taken in good faith, or any action taken by any Issuing Bank, under or in connection with the Letters of Credit, the guarantees, the drafts or acceptances, or the Collateral, shall be binding on the Company and shall not put CITBC in any resulting liability to the Company. In furtherance thereof, CITBC shall have the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute any and all steamship or airways guaranties (and applications therefore), indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from CITBC, all without any notice to or any consent from the Company. 6. Without CITBC's express consent and endorsement in writing, the Company agrees: (a) not to execute any and all applications for steamship or airway guaranties, indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances or documents; or to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; and (b) after the occurrence of an Event of Default which is not cured within any applicable grace period, if any, or waived by CITBC, not to (i) clear and resolve any questions of non-compliance of documents; or (ii) give any instructions as to acceptances or rejection of any documents or goods. 7. The Company agrees that any necessary import, export or other licenses or certificates for the import or handling of the Collateral will have been promptly procured; all foreign and domestic Legal Requirements in regard to the shipment and importation of the Collateral, or the financing thereof will have been promptly and full complied with; and any certificates in that regard that CITBC may at any time request will be promptly furnished. In this connection, the Company warrants and represents that all shipments made under any such Letters of Credit are in accordance with the Legal Requirements of the countries in which the shipments originate and terminate, and are not prohibited by any such Legal Requirements. The Company assumes all risk, liability and responsibility for, and agrees to pay and discharge, all present and future local, state, federal or foreign Taxes, duties, or levies. Any Legal Requirements where the Collateral is or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the Company's risk, liability and responsibility. 8. Upon any payments made to the Issuing Bank under the Letter of Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies, duties or obligations granted or undertaken by the Company to the Issuing Bank in any application for Letters of Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have been granted to CITBC and apply in all respects to CITBC and shall be in addition to any rights, remedies, duties or obligations contained herein. 21 Amended and Restated Financing Agreement 24 SECTION 6. COLLATERAL 1. As security for the prompt payment in full of all loans and advances made and to be made to the Company from time to time by CITBC pursuant hereto, as well as to secure the payment in full of the other Obligations, the Company hereby pledges and grants to CITBC a continuing security interest and general lien upon its: (a) Inventory; (b) Equipment (other than Equipment subject to validly perfected, enforceable, first priority Purchase Money Liens); (c) Accounts; (d) Documents of Title; (e) Investment Property; (f) General Intangibles; (g) Real Estate; and (h) Other Collateral. 2. The security interests granted hereunder shall extend and attach to: (a) All Collateral which is presently in existence and which is owned by the Company or in which the Company has any interest, whether held by the Company or others for its account, and, if any Collateral is Equipment, whether the Company's interest in such Equipment is as owner or lessee or conditional vendee; (b) All Equipment whether the same constitutes personal property or fixtures, including, but without limiting the generality of the foregoing, all Vehicles, dies, jigs, tools, benches, tables, accretions, component parts thereof and additions thereto, as well as all accessories, motors, engines and auxiliary parts used in connection with or attached to the Equipment; and (c) All Inventory and any portion thereof which may be returned, rejected, reclaimed or repossessed by either CITBC or the Company from the Company's customers, as well as to all supplies, goods, incidentals, packaging materials, labels and any other items which contribute to the finished goods or products manufactured or processed by the Company, or to the sale, promotion or shipment thereof. 3. The Company agrees to safeguard, protect and hold all Inventory for CITBC's account and make no disposition thereof except in the regular course of the business of the Company as herein provided. Until CITBC has given the Company notice to the contrary, as provided for below, any Inventory may be sold and shipped by the Company to its customers in the ordinary course of the Company's business, for cash or on open account and on terms currently being extended by the Company to its customers, provided that all proceeds of all sales (including cash, accounts receivable, checks, notes, instruments for the payment of money and similar proceeds) are forthwith transferred, endorsed, and turned over and delivered to CITBC in accordance with SECTION 3, PARAGRAPH 4 of this Financing Agreement. CITBC shall have the right to 22 Amended and Restated Financing Agreement 25 withdraw this permission at any time upon the occurrence and during the continuation of an Event of Default and until such time as such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction, in which event no further disposition shall be made of the Inventory by the Company without CITBC's prior written approval. Cash sales or sales of Inventory not in the ordinary course of business in which a lien upon, or security interest in, Inventory is retained by the Company shall be made by the Company only with the approval of CITBC, and the proceeds of such sales or sales of inventory for cash shall not be commingled with the Company's other property, but shall be segregated, held by the Company in trust for CITBC as CITBC's exclusive property, and shall be delivered immediately by the Company to CITBC in the identical form received by the Company by deposit to the Depository Accounts. Upon the sale, exchange, or other disposition of Inventory, as herein provided, the security interest in the Company's Inventory provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sale, exchange or disposition. As to any such sale, exchange or other disposition, CITBC shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. Notwithstanding the foregoing, the Company may make cash sales of Inventory, and any Equipment that becomes Inventory, provided that (i) the aggregate amount thereof for the Company during any Fiscal Year does not exceed $100,000 for such Fiscal Year and as to any Equipment that becomes Inventory, dispose thereof pursuant to PARAGRAPH 4 below; and (ii) the proceeds of such sales are turned over to CITBC by deposit in the Depository Accounts. 4. The Company agrees at its own cost and expense to keep the Equipment in as good and substantial repair and condition as the same is now or at the time the lien and security interest granted herein shall attach thereto, reasonable wear and tear excepted, making any and all repairs and replacements when and where necessary. The Company also agrees to safeguard, protect and hold all Equipment for CITBC's account and make no disposition thereof unless the Company first obtains the prior written approval of CITBC, provided that the Company, as lessor, may enter into short-term leases of the Equipment from time to time in the ordinary course of business, and the Company may sell Equipment in each Fiscal Year having an aggregate book value of up to $500,000. Any other sale, exchange or other disposition of any Equipment shall only be made by the Company with the prior written approval of CITBC and the proceeds of any such sales shall not be commingled with the Company's other property, but shall be segregated, held by the Company in trust for CITBC as CITBC's exclusive property, and shall be delivered immediately by the Company to CITBC in the identical form received by the Company by deposit to the Depository Accounts. Upon the sale, exchange, or other disposition of the Equipment, as herein provided, the security interest provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sales, exchange or disposition. As to any such sale, exchange or other disposition, CITBC shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. Notwithstanding anything hereinabove contained to the contrary and in addition to the dispositions of Equipment permitted pursuant to the proviso to the second sentence of this PARAGRAPH 4, the Company may sell, exchange or otherwise dispose of obsolete Equipment or Equipment no longer needed in the Company's operations, provided, however, that (a) the then book value of the Equipment so disposed of does not exceed $100,000 in the aggregate in any Fiscal Year; and (b) the proceeds of such sales or dispositions are delivered to CITBC in accordance with the foregoing provisions of this paragraph, except that the Company may retain and use such proceeds to purchase forthwith replacement Equipment which the Company determines in its reasonable business judgment to have a collateral value at least equal to the Equipment so disposed of or sold, provided, however, that the aforesaid right shall automatically cease upon the occurrence and during the continuance of an Event of Default which is not cured within any applicable grace period or waived. 23 Amended and Restated Financing Agreement 26 5. The rights and security interests granted to CITBC hereunder are to continue in full force and effect, notwithstanding the termination of this Financing Agreement or the fact that the account maintained in the Company's name on the books of CITBC may from time to time be temporarily in a credit position, until the final payment in full to CITBC of all Obligations and the termination of this Financing Agreement. Any delay, or omission by CITBC to exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed a waiver of any other right, unless such waiver be in writing and signed by CITBC. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. 6. To the extent that the Obligations are now or hereafter secured by any assets or property other than the Collateral or by the guarantee, endorsement, assets or property of any other person, then CITBC shall have the right in its sole discretion to determine which rights, security, liens, security interests or remedies CITBC shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of them, or any of CITBC's rights hereunder. 7. Any reserves or balances to the credit of the Company and any other property or assets of the Company in the possession of CITBC may be held by CITBC as security for any Obligations and applied in whole or partial satisfaction of such Obligations when due. The liens and security interests granted herein and any other lien or security interest CITBC may have in any other assets of the Company, shall secure payment and performance of all now existing and future Obligations. CITBC may in its discretion charge any or all of the Obligations to the Revolving Loan Account of the Company when due. 8. This Financing Agreement and the obligation of the Company to perform all of its covenants and obligations hereunder are further secured by a mortgage(s), deed(s) of trust or assignment(s) on the Real Estate. 9. The Company shall give to CITBC from time to time such mortgage(s), deed(s) of trust or assignment(s) on the Real Estate or real estate acquired after the date hereof as CITBC shall require to obtain a valid first lien thereon subject only to Permitted Encumbrances. 10. The Company shall give to CITBC, and/or shall cause the appropriate party to give to CITBC, from time to time such pledge or security agreements with respect to General Intangibles and Stock of the Company and any and all of its subsidiaries as CITBC shall require to obtain valid, exclusive, fully perfected security interests and liens thereon. SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 1. The Company hereby warrants and represents for itself, and each of the other Loan Parties, that: (a) On the date of each requested advance hereunder, and after giving effect to the transactions contemplated by the Loan Documents, Public Offering, and the Acquisitions, and the incurrence of any Indebtedness permitted herein: (i) the fair value of each Loan Party's assets exceeds the book value of its liabilities; (ii) each Loan Party is generally able to pay its debts as they become due and payable; and 24 Amended and Restated Financing Agreement 27 (iii) each Loan Party does not have unreasonably small capital to carry on its business as it is currently conducted absent extraordinary and unforeseen circumstances. (b) Except for the Permitted Encumbrances, the security interests granted herein constitute and shall at all times constitute valid, exclusive, fully perfected security interests on the Collateral in favor of CITBC. (c) Except for the Permitted Encumbrances, each Loan Party is or will be at the time additional Collateral is acquired by it, the absolute owner of the Collateral with full right to pledge, sell, consign, transfer and create a security interest therein, free and clear of any and all claims or liens in favor of others. (d) Each Loan Party will at its expense forever warrant and, at CITBC's request, defend the same from any and all claims and demands of any other person other than the Permitted Encumbrances. (e) Each Loan Party will neither grant, nor create or permit to exist, any lien upon or security interest in the Collateral, or any proceeds thereof, in favor of any other person other than the holders of Permitted Encumbrances. (f) The Equipment of any Loan Party does not comprise a part of the Inventory of that Loan Party, except any such Equipment leased or sold as permitted in this Financing Agreement, and that the Equipment is and will only be used by the Loan Party in its business and will not be held for sale or lease, used in or located in any states other than Texas, New Mexico, Oklahoma, or Louisiana, or otherwise disposed of by the Loan Party without the prior written approval of CITBC, except as otherwise permitted in SECTION 6, PARAGRAPH 4 of this Financing Agreement or in the Security Agreement. (g) After giving effect to the Stock Acquisition, each of the Acquisition Subsidiaries is a Wholly-Owned Subsidiary of the Company and all issued and outstanding Voting Stock of each of the Acquisition Subsidiaries is owned, beneficially and of record, by the party set forth on SCHEDULE 2. SCHEDULE 2 attached hereto sets forth: (a) all of the Company's direct and indirect Subsidiaries; (b) all the Loan Parties; (c) every name or trade name used by each Loan Party during the five-year period before the date of this Financing Agreement; (d) every change of each Loan Party's name during the four-month period before the date of this Financing Agreement; (e) the principal place of business or chief executive office, and location of books and records, of each Loan Party; (f) the percentage of shares of outstanding capital stock (or similar voting interests) of each Subsidiary held by a Loan Party; (g) the Loan Party holding such stock (or similar voting interests); and (h) each Loan Party's Collateral locations. All of the outstanding shares of capital stock (or similar voting interests) of the Company's Subsidiaries will be as of the Closing Date (a) duly authorized, validly issued, fully paid, and nonassessable; and (b) owned of record and beneficially as described in that schedule, free and clear of any security interests and liens other than Permitted Encumbrances. (h) As of the Closing Date, all outstanding securities (as defined in the Securities Act of 1933, as amended, or any successor thereto, and the rules and regulations of the Securities and Exchange Commission thereunder) of the Company have been offered, issued, sold and delivered in compliance with all applicable Legal Requirements. (i) The Company will use all proceeds of each advance or loan hereof for one or more of the following: (a) to purchase the Existing Senior Debt existing as of the Closing Date in the approximate principal amount of $24,408,000; plus accrued and unpaid interest; (b) to refinance a portion of certain of the Loan Parties' other Indebtedness; (c) to finance, in part, the Acquisitions; (d) to redeem certain preferred stock; 25 Amended and Restated Financing Agreement 28 (e) for working capital of Company and its Subsidiaries; and (f) for general corporate purposes of Company and its Subsidiaries. No Loan Party 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" within the meaning of Regulation U. No part of the proceeds of any advance or loan will be used, directly or indirectly, for a purpose which violates any Legal Requirement, including, without limitation, the provisions of Regulations T, U, or X (as enacted by the Board of Governors of the Federal Reserve System, as amended). (j) No authorization, consent, approval, waiver, license, or formal exemptions from, nor any filing, declaration, or registration with, any Governmental Authority (federal, state, or local), non-governmental entity, or other entity under the terms of contracts or otherwise, is required by reason of or in connection with the execution and performance of the Loan Documents, or consummation of the Public Offering, or the Acquisitions, except (i) as shall have been obtained on or prior to, or will become effective concurrently with, the Closing Date; (ii) the filing of UCC-1 and UCC-3 financing statements and the recordation of the Deeds of Trust; or (iii) routine corporate filings after the Closing Date. (k) The Company has (or will have upon consummation thereof) all necessary consents and approvals of any individual entity or Governmental Authority required to be obtained in order to effect the Public Offering, or the Acquisitions and any other asset transfer, change of control, merger, or consolidation permitted by the Loan Documents. (l) There are no formal complaints, suits, claims, investigations, or proceedings initiated at or by any Governmental Authority pending or threatened by or against any Loan Party relating to the Public Offering or the Acquisitions, the transactions evidenced by the Loan Documents, or which could reasonably be expected to have a material adverse effect on the business or operation of the Company and its Subsidiaries taken as a whole, nor any judgments, decrees, or orders of any Governmental Authority outstanding against any Loan Party that could reasonably be expected to have a material adverse effect. (m) No Default or Event of Default exists or will arise as a result of the execution delivery, and performance of the Loan Documents, of any borrowing hereunder, or the consummation of the Public Offering or the Acquisitions. (n) The Asset Acquisition Agreement and the Stock Acquisition Agreements have been executed and delivered by all parties thereto and represent the valid and binding agreement of the parties thereto, enforceable against the parties thereto in all material respects in accordance with its terms (except as enforceability may be limited by Debtor Laws). On and as of the Closing Date to the best knowledge of the Company: (i) The execution and delivery by each individual or entity party thereto (or their predecessors in interest) of the Asset Acquisition Agreement and the Stock Acquisition Agreements and the performance of their respective obligations thereunder: (1) are within the corporate or organizational power of such entity (or its predecessors in interest), (2) have been duly authorized by all necessary corporate, partnership, or limited liability company action on the part of such company (or its predecessors in interest), (3) require no action by, or in respect of, or filing with, any Governmental Authority, which action or filing has not been taken or made on or prior to the Closing Date, (4) do not violate any provision of their charter, bylaws, limited liability company agreement, partnership agreement, or other organizational documents, (5) do not violate any Legal Requirements applicable to it, (6) do not violate any material agreements to which it is (or its predecessors in interest are) a party, (7) do not result in the creation or imposition of any lien or security interest on any asset 26 Amended and Restated Financing Agreement 29 of any Company or their predecessors in interest (other than Permitted Encumbrances), and (8) immediately prior to, and after giving pro forma effect thereto, no Default or Event of Default exists or arises under the Loan Documents; (ii) The Company and Acquisition Subsidiaries (or their predecessors in interest) have obtained all necessary consents and approvals of any entity or Governmental Authority required to be obtained in order to effectuate the Public Offering and the Acquisitions and the transactions contemplated thereby; (iii) All conditions precedent to the parties' obligations to consummate such Acquisitions have been satisfied; and (iv) The Acquisitions shall have been consummated. (o) With respect to the Existing Senior Debt being purchased with a portion of the proceeds of the initial advance: (i) As of the Closing Date, the outstanding principal balance under and accrued interest on the Existing Senior Debt will be $24,408,000; (ii) To the best knowledge of the Company, Holding Company, is the owner of the Existing Senior Debt, and all promissory notes related thereto, or evidencing the same, and has not transferred, assigned, or pledged to any third party any interest therein or in the liens and security interests securing the same; and (iii) Company has no defenses, set-offs or counterclaims with respect to the Senior Existing Debt, and it is valid, binding, and enforceable in accordance with its terms, except as limited by Debtor Laws and general principles of equity. 2. The Company shall, and shall cause each of the other Loan Parties to: (a) maintain books and records pertaining to the Collateral in such detail, form and scope as CITBC shall reasonably require; (b) permit CITBC or its agents access upon their premises at any time during normal business hours, and from time to time, for the purpose of inspecting the Collateral, and any and all records pertaining thereto; (c) afford CITBC prior written notice of any change in the location of any Collateral, other than to locations, that as of the date hereof, are known to CITBC, including, without limitation, the States of Texas, New Mexico, Louisiana, and Oklahoma, and at which CITBC has filed financing statements or otherwise fully perfected its liens thereon; and (d) advise CITBC promptly, in sufficient detail, of any material adverse change relating to the type, quantity or quality of the Collateral or on the security interests granted to CITBC therein. 3. [LEFT INTENTIONALLY BLANK.] 4. The Company shall, and shall cause each of the other Loan Parties to: (a) comply with all Legal Requirements in order to grant to CITBC valid, exclusive, fully perfected security interests in the Collateral, subject only to the Permitted Encumbrances; (b) do whatever CITBC may reasonably request, from time to time, by way of: (i) filing notices of liens; (ii) financing statements, amendments, renewals and continuations thereof; (iii) cooperating with CITBC's custodians; (iv) keeping stock records; (v) transferring proceeds of Collateral to CITBC's possession; and (vi) performing such further acts as CITBC may reasonably require in order to effect the purposes of this Financing Agreement. CITBC is hereby authorized to file any 27 Amended and Restated Financing Agreement 30 financing statements covering the Collateral whether or not the Company's or Subsidiaries' signature appears thereon. 5. (a) The Company shall, and shall cause each of the other Loan Parties to maintain insurance on the Real Estate, Equipment and Inventory under such policies of insurance, with such insurance companies, in such reasonable amounts and covering such insurable risks as are at all times reasonably satisfactory to CITBC. All policies covering the Real Estate, Equipment and Inventory are, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, to be made payable to CITBC, in case of loss, under a standard non-contributory "mortgagee", "lender" or "secured party" clause and are to contain such other provisions as CITBC may require to fully protect CITBC's interest in the Real Estate, Inventory and Equipment and to any payments to be made under such policies. Certificates of insurance, (premium prepaid, with the loss payable endorsement in CITBC's favor), are to be delivered to CITBC on or before the Closing Date and shall provide for not less than thirty (30) days prior written notice to CITBC of the exercise of any right of cancellation. If such insurance is not maintained, CITBC may arrange for such insurance, but at the Company's expense and without any responsibility on CITBC's part for: obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims. Upon the occurrence and during the continuance of an Event of Default which is not waived or cured to CITBC's satisfaction, CITBC shall, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, have the sole right, in the name of CITBC or the Loan Party, to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. (b) (i) In the event of any loss or damage by fire or other casualty, insurance proceeds for such damage or other casualty (the "INSURANCE PROCEEDS") relating to Inventory shall first reduce the Revolving Loan, then the Term Loan; (ii) In the event any part of the Real Estate or Equipment is damaged by fire or other casualty and the Insurance Proceeds are less than or equal to $250,000, CITBC shall promptly apply such Insurance Proceeds to reduce the outstanding balance in the Revolving Loan Account. (iii) As long as an Event of Default has not occurred (which, if it has occurred, has not been cured to CITBC's satisfaction), and the Insurance Proceeds are in excess of $250,000, the Loan Party may elect (by delivering written notice to CITBC) to replace, repair or restore Real Estate or Equipment to substantially the equivalent condition prior to such fire or other casualty as set forth herein. If the Loan Party does not, or cannot, elect to use the Insurance Proceeds as set forth above, CITBC may, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, apply the Insurance Proceeds to the payment of the Obligations in such manner and in such order as CITBC may reasonably elect. (iv) If the Loan Party elects to use the Insurance Proceeds for the repair, replacement or restoration of any Real Estate and/or Equipment, and there is then no Event of Default; (a) Insurance Proceeds of insurance on Equipment and/or Real Estate in excess of $250,000 will be applied to the reduction of the Revolving Loans; and (b) CITBC may set up a reserve against Availability for an amount equal to the proceeds referred to in CLAUSE (a) hereof. The reserve will be reduced dollar-for-dollar upon receipt of non-cancelable executed purchase orders, delivery receipts or contracts for the replacement, repair or restoration of Equipment and/or the Real Estate and 28 Amended and Restated Financing Agreement 31 disbursements in connection therewith. Prior to the commencement of any restoration, repair or replacement of Real Estate, the Loan Party shall provide CITBC with a restoration plan and a total budget certified by an independent third party experienced in construction costing. If there are insufficient Insurance Proceeds to cover the cost of restoration as so determined, the Loan Party shall be responsible for the amount of any such insufficiency, prior to the commencement of restoration and shall demonstrate evidence of such before the reserve will be reduced. Completion of restoration shall be evidenced by a final, unqualified certification of the design architect employed, if any; an unconditional Certificate of Occupancy, if applicable; such other certification as may be required by law; or if none of the above is applicable, a written good faith determination of completion by the Loan Party (herein, collectively, the "Completion"). Upon Completion, any remaining reserve as established hereunder will be automatically released. (v) The Company agrees to pay any reasonable costs, fees or expenses which CITBC may reasonably incur in connection herewith. 6. The Company shall, and shall cause each of the other Loan Parties to, pay, when due, all Taxes lawfully levied or assessed upon the Loan Party or the Collateral. CITBC may pay such Taxes, and the amount thereof shall be an Obligation secured hereby and due to CITBC on demand if: (i) such Taxes remain unpaid after the date fixed for the payment thereof unless such Taxes are being diligently contested in good faith by appropriate proceedings; or (ii) if any lien shall be claimed thereunder for Taxes due the United States of America or which, in CITBC's opinion, might create a valid obligation having priority over the rights granted to CITBC in the Loan Documents. 7. The Company shall, and shall cause each of the other Loan Parties to: (a) comply with all Legal Requirements in which the failure to comply would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of its business; provided that such acts, rules, regulations, orders and directions of such bodies or officials may be contested in any reasonable manner which will not, in CITBC's reasonable opinion, materially and adversely effect CITBC's rights or priority in the Collateral; and (b) comply with all environmental statutes, acts, rules, regulations or orders as presently existing or as adopted or amended in the future, applicable to the ownership and/or use of its real property and operation of its business, in which the failure to comply would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of its business; (c) indemnify CITBC and defend and hold CITBC harmless from and against any and all loss, damage, claim, liability, injury or expense which CITBC may sustain or incur, INCLUDING ANY OF THE FOREGOING ARISING FROM CITBC'S ORDINARY OR CONTRIBUTORY NEGLIGENCE, IT BEING THE INTENTION OF THE PARTIES THAT CITBC SHALL BE INDEMNIFIED FOR ITS ORDINARY, SOLE, OR CONTRIBUTORY NEGLIGENCE (but excluding its gross negligence, unlawful acts, or willful misconduct) other than as a result of actions of CITBC) in connection with: (i) any claim or expense asserted against CITBC as a result of any environmental pollution, hazardous material or environmental clean-up of any Loan Party's real property; or (ii) any claim or expense which results from any Loan Party's operations (including, but not limited to, any Loan Party's off-site disposal practices). This indemnification shall survive termination of this Financing Agreement as well as the payment of all Obligations or amounts payable hereunder. Prior to the termination of this Financing Agreement, CITBC may establish such reasonable Availability Reserves with respect thereto as it may deem advisable under the circumstances and, upon any termination hereof, hold such reserves as cash reserves for any such contingent liabilities. 8. Until termination of the Financing Agreement and payment and satisfaction of all Obligations due hereunder, the Company agrees that, unless CITBC shall have otherwise consented in writing, the Company will furnish to CITBC: 29 Amended and Restated Financing Agreement 32 (a) Within ninety (90) days after the end of each Fiscal Year of the Company, a copy of the form 10-K (including all financial statements contained therein) filed by the Company as of the end of and for such Fiscal Year then ended, together with an Consolidated Balance Sheet, together with statements of profit and loss, cash flow and reconciliation of surplus of the Company and all Subsidiaries, audited by independent public accountants selected by the Company and satisfactory to CITBC, for such year, and an unaudited Consolidating Balance Sheet as at the close of such year; (b) Within forty-five (45) days after the end of each Fiscal Quarter of the Company, a copy of the form 10-Q (including all financial statements contained therein) filed by the Company as of the end of and for such Fiscal Quarter then ended, together with a Consolidated Balance Sheet and Consolidating Balance Sheet (if not included in the 10-Q) as at the end of such period and statements of profit and loss, cash flow and surplus of the Company and all Subsidiaries of each, certified by an authorized financial or accounting officer of the Company; (c) Within thirty (30) days after the end of each month, a Consolidated Balance Sheet as at the end of such period and consolidated statements of profit and loss, cash flow and surplus of the Company and all Subsidiaries for such period, certified by an authorized financial or accounting officer of the Company; (d) Within fifteen (15) days after the end of each month, a month-end aging of all Trade Accounts Receivable of each Loan Party and accounts payable by each Loan Party; (e) As soon as available, one copy of each (if any) financial statement, report, notice or proxy statement sent by the Company to its stockholders or other security holders generally, one copy of each (if any) regular, periodic or special report (including, without limitation, reports on forms 10-K, 10-Q and 8-K), registration statement or prospectus filed by the Company with any securities exchange or the Securities and Exchange Commission or any successor agency and one copy of each press release or other statement made by the Company to the public containing material developments relating to its business, operations or prospects; (f) from time to time, such further information regarding the business affairs and financial condition of the Company and/or any Subsidiary as CITBC may reasonably request, including without limitation (i) the accountant's management practice letter; and (ii) annual cash flow projections in form satisfactory to CITBC; (g) on or before each January 31, commencing January 31, 2001, a 12 month cash budget projection prepared by the Company in form and substance acceptable to CITBC; and (h) on or before each April 30, commencing April 30, 2001, annual appraisals of the Equipment by an independent appraiser approved by CITBC; PROVIDED, HOWEVER, that if the Company's utilization of its rig fleet is less than an average of 55% (based on a 55-hour utilization standard per week) for any Fiscal Quarter, CITBC may (at its option and sole discretion) require more frequent such appraisals of the Equipment at any time during the next three Fiscal Quarters. Each financial statement under (a) , (b) or (c) above which the Company is required to submit hereunder must be accompanied by an officer's certificate, signed by the President, Vice President, Controller, or Treasurer, pursuant to which any one such officer must certify that: (i) the financial statement(s) fairly and accurately represent(s) the Company's financial condition at the end of the particular accounting period, as well as the Company's operating results during such accounting period, subject to year-end audit adjustments; 30 Amended and Restated Financing Agreement 33 (ii) during the particular accounting period: (x) there has been no Default or Event of Default under this Financing Agreement, provided, however, that if any such officer has knowledge that any such Default or Event of Default, has occurred during such period, the existence of and a detailed description of same shall be set forth in such officer's certificate; and (y) the Company has not received any notice of cancellation with respect to its property insurance policies; and (iii) the exhibits attached to the financial statements provided in CLAUSE (a) or (b) above shall contain detailed calculations showing compliance with all financial covenants contained in this Financing Agreement. 9. Until termination of the Financing Agreement and payment and satisfaction of all Obligations due hereunder, the Company shall not, nor will it permit any other Loan Party to, without the prior written consent of CITBC: (a) Mortgage, assign, pledge, transfer or otherwise permit any lien, charge, security interest, encumbrance or judgment, (whether as a result of a purchase money or title retention transaction, or other security interest, or otherwise) to exist on any of its assets or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for the Permitted Encumbrances; (b) Incur or create any Indebtedness other than the Permitted Indebtedness; (c) Borrow any money on the security of the Collateral from sources other than CITBC; (d) Sell, lease, assign, transfer or otherwise dispose of (i) Collateral, except as otherwise specifically permitted by this Financing Agreement or a Security Document; or (ii) all or substantially all of its or their assets, which do not constitute Collateral; (e) merge or consolidate with any other person or entity except any merger or consolidation of a Subsidiary with or into a Wholly-Owned Subsidiary or into the Company; (f) Alter or modify its corporate name, principal place of business, structure (except as permitted in SUB-PARAGRAPH (e) above), status or existence, or enter into or engage in any operation or activity materially different from that presently being conducted; except that a Loan Party may change its corporate name or address, provided that, (x) CITBC is given thirty (30) days prior written notice thereof, and (y) the Loan Party so changing its corporate name and address shall execute and deliver prior to or simultaneously with any such action any and all documents and agreements requested by CITBC (including, without limitation, any and all UCC financing statements) to confirm the continuation and preservation of all security interests and liens granted to CITBC hereunder; (g) Except for Permitted Indebtedness, assume, guarantee, endorse, or otherwise become liable upon the obligations of any person, firm, entity or corporation, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (h) To declare or pay any dividend (excluding dividends solely payable in its Stock) of any kind on, or purchase, acquire, redeem or retire, any of its Stock or equity interest, of any class whatsoever, whether now or hereafter outstanding, except for the following: (i) any Subsidiary may declare or pay any dividend of any kind on, or purchase, acquire, redeem, or retire, any of its Stock or equity interest, of any class whatsoever; whether now or hereafter outstanding; 31 Amended and Restated Financing Agreement 34 (ii) the Company may declare and pay dividends on its Standby Preferred Stock, in accordance with the terms of the designation of the Standby Preferred Stock SO LONG AS at the time of such declaration and payment, no Default or Event of Default has occurred, or would occur after giving effect to such payment; and (iii) the Company may redeem all or any portion of its Standby Preferred Stock SO LONG AS (a) at the time of such redemption no Default or Event of Default has occurred or would occur after giving effect to such redemption; and (b) such redemption is made solely from the proceeds of the issuance of the Company's common Stock. (i) Make any advance or loan to, or any investment in, any firm, entity, person or corporation, except investments by the Company in its Subsidiaries, and other advances, loans, or any investment in other persons or entities not exceeding $500,000 in the aggregate, or form or create any Subsidiary unless CITBC shall have received, in form and substance satisfactory to CITBC, such documents and instruments as it shall require to evidence the following: (i) a valid, exclusive, fully perfected pledge of all the Stock of such entity; (ii) an absolute and unconditional guaranty of the payment and performance of all the Obligations by the Subsidiary so formed or created; and (iii) a valid, exclusive, fully perfected security interest and lien in favor CITBC in such Subsidiary's assets; and (j) Pay management, consulting or other similar fees to Parent, provided that (x) the aggregate amount of such fees during any Fiscal Year shall not exceed $100,000 and (y) no such fees shall be paid if a Default or Event of Default has occurred or would occur after giving effect to any such payment. (k) With respect to any Subsidiary, sell, assign or otherwise dispose of (a) any of its Stock; (b) any securities exchangeable for or convertible into or carrying any rights to acquire any of its Stock; or (c) any option, warrant or other right to acquire any of its Stock, in each case to any person other than to the Company. All such Stock of the Subsidiaries, securities, options, warrants and other rights issued, sold, assigned or otherwise disposed of shall be, and shall continue to be, subject to a valid, exclusive, fully perfected security interest and lien in favor of CITBC security for the payment and performance of the Obligations. 10. Until termination of the Financing Agreement and payment and satisfaction in full of all Obligations hereunder, the Company shall: (a) maintain at all times during the periods set forth below Tangible Net Worth of not less than the amount set forth below for the applicable period: PERIOD TANGIBLE NET WORTH For the Fiscal Quarters ending September 30, 2000 and December 31, 2000 $18,400,000 For the Fiscal Quarter ending March 31, 2001 $19,300,000 For the Fiscal Quarter ending June 30, 2001 $20,300,000 For the Fiscal Quarter ending September 30, 2001 $21,700,000 For the Fiscal Quarter ending December 31, 2001 $22,900,000 32 Amended and Restated Financing Agreement 35 For the Fiscal Quarter ending March 31, 2002 $24,000,000 For the Fiscal Quarter ending June 30, 2002 $25,200,000 For the Fiscal Quarter ending September 30, 2002 $26,400,000 For the Fiscal Quarter ending December 31, 2002 $27,600,000 For the Fiscal Quarter ending March 31, 2003 $28,800,000 For the Fiscal Quarter ending June 30, 2003 $29,900,000 For the Fiscal Quarter ending September 30, 2003 $30,400,000 For the Fiscal Quarter ending December 31, 2003 $30,900,000 For the Fiscal Quarter ending March 31, 2004 $31,400,000 and thereafter (b) maintain at the end of each Fiscal Quarter during the periods set forth below a Fixed Charge Coverage Ratio of not less than the ratio set forth below for the applicable period: PERIOD RATIO For the Fiscal Quarter ending September 30, 2000 1.1 to 1.0 For the six-month period ending December 31, 2000 1.1 to 1.0 For the nine-month period ending March 31, 2001 1.1 to 1.0 For the four Fiscal Quarters ending June 30, 2001 and each four 1.1 to 1.0 Fiscal Quarters thereafter 11. Without the prior written consent of CITBC, no Loan Party shall: (a) enter into any Operating Lease if after giving effect thereto the aggregate obligations with respect to Operating Leases of the Loan Party during any Fiscal Year would exceed $250,000.00;or (b) contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur obligations with respect to Capital Expenditures (whether subject to a security interest or otherwise) during any period below in the aggregate amount in excess of the amount set forth for such period: (a) $5,100,000 for the two (2) Fiscal Quarters ending December 31, 2000; (b) $11,800,000 for the Fiscal Year ending December 31, 2001; (c) $10,000,000 for the Fiscal Year ending December 31, 2002; (d) $10,000,000 for the Fiscal Year ending December 31, 2003; (e) $2,500,000 for the Fiscal Quarter ending March 31, 2004, and for each Fiscal Year thereafter. 33 Amended and Restated Financing Agreement 36 12. The Company agrees to advise CITBC in writing of: (a) all expenditures (actual or anticipated) in excess of $150,000 for (x) environmental clean-up; (y) environmental compliance; or (z) environmental testing and the impact of said expenses on the Company's Working Capital; and (b) any notices any Loan Party receives from any local, state or federal authority advising any Loan Party of any environmental liability (real or potential) stemming from any Loan Party's operations, its premises, its waste disposal practices, or waste disposal sites used by any Loan Party and to provide CITBC with copies of all such notices if so required. 13. Except as permitted by SECTION 7, PARAGRAPH 9(g) or (i), without the prior written consent of CITBC, the Company shall not, nor will it permit any other Loan Party to, enter into any transaction, including, without limitation, any purchase, sale, lease, loan or exchange of property with an affiliate of the Company that is not a Guarantor, other than transactions in the ordinary course of business and upon fair and reasonable terms no less favorable than could be obtained in an arm's-length transaction with a person or entity that was not its affiliate. 14. The Company shall, and shall cause each other Loan Party to, take all action reasonably necessary to assure that their computer-based systems are able to effectively process date-sensitive data functions. The Company represents and warrants that the "Year 2000" problem (that is, the inability of certain computer applications to recognize and properly perform date-sensitive functions involving certain dates subsequent to December 31, 1999) will not result in a material adverse effect on the Company's and its Subsidiaries' business, assets or operations, taken as a whole. The Company reasonably anticipates that all computer applications which are material to the business of the Company and its Subsidiaries' will, on a timely basis, be able to properly perform date-sensitive functions for all dates on and after January 1, 2000. Upon CITBC's request from time to time, the Company shall provide to CITBC assurances that the Company's and its Subsidiaries' computer systems and software are or will be Year 2000 compliant on a timely basis, all in form and substance reasonably satisfactory to CITBC. SECTION 8. INTEREST, FEES AND EXPENSES 1(a) Interest on the Revolving Loan shall be payable monthly as of the end of each month and shall be an amount equal to the lesser of: (a) (i) for Chase Bank Rate Loans, the sum of one-half of one percent (.50%) plus the Chase Bank Rate per annum on the daily average of the net balances owing by the Company to CITBC in the Company's Revolving Loan Account during such month on balances other than Libor Loans, or (as applicable); (ii) for Libor Loans, the sum of three percent (3.0%) plus the applicable Libor on any Libor Loan, on a per annum basis, on the daily average of the net balances owing by the Company to CITBC in the Company's Revolving Loan Account during such month; and (b) interest computed in accordance with the provisions of CLAUSE (a) but at the Maximum Legal Rate. In the event of any change in said Chase Bank Rate, the rate under CLAUSE (i) above shall change, as of the first of the month following any change, so as to remain one-half of one percent (.50 %) above the Chase Bank Rate. The rate hereunder shall be calculated based on a 360-day year (unless such calculations would result in the interest on the Chase Bank Rate Loan exceeding the Maximum Legal Rate, in which event such interest shall be calculated on the basis of a year of 365 or 366 days as the case may be). CITBC shall be entitled to charge the Company's Revolving Loan Account at the rate provided for herein when due until all Obligations have been paid in full. (b) Notwithstanding any provision to the contrary contained in this SECTION 8, in the event that the sum of the outstanding balance of (i) Revolving Loans; and (ii) Letters of Credit exceeds the lesser of (x) the maximum amount thereof available under SECTIONS 3 AND 5 of this Financing Agreement; or (y) the Line of Credit: (A) as a result of Revolving Loans and/or Letters of Credit advanced by CITBC at the request of the Company (herein "REQUESTED OVERADVANCES"), for any one (1) or more days in any month hereafter; 34 Amended and Restated Financing Agreement 37 or (B) for any other reason whatsoever (herein "OTHER OVERADVANCES") and such Other Overadvances continue for five (5) or more consecutive days in any month hereafter, the average net balance of all Revolving Loans owing by the Company to CITBC for such month shall bear interest at the Overadvance Rate. Upon and after the occurrence of an Event of Default and the giving of any required notice by CITBC in accordance with the provisions of SECTION 10, PARAGRAPH 2 hereof, all Obligations shall bear interest at the Default Rate of Interest. 2. Interest on the Term Loan shall be payable monthly on the first Business Day of each month on the unpaid balance or on payment in full prior to maturity in an amount equal to the lesser of (a) the sum of (i) one and one-quarter percent (1.25%) plus the Chase Bank Rate per annum on balances other than Libor Loans; and (ii) the sum of three and three quarters percent (3.75%) plus the applicable Libor on any Libor Loan, on a per annum basis, on the average of the net balance of Term Loan owing by the Company to CITBC at the close of each day during such month; or (b) interest computed in accordance with CLAUSE (a) but at the Maximum Legal Rate. In the event of any change in said Chase Bank Rate, the rate under CLAUSE (i) above shall change, as of the first of the month following any change, so as to remain one and one-quarter percent (1.25%) above the Chase Bank Rate. The rate hereunder shall be calculated based on a 360 day year unless such calculation would result in the interest on the Chase Bank Rate Loans exceeding the Maximum Legal Rate, in which event such interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be). CITBC shall be entitled to charge the Company's Revolving Loan Account at the rate provided for herein when due until all Obligations have been paid in full. 3. The Company may request Libor Loans on the following terms and conditions: (a) The Company may elect, subsequent to the Closing Date and from time to time thereafter (i) to request any loan made hereunder to be a Libor Loan as of the date of such loan; or (ii) to convert Chase Bank Rate Loans to Libor Loans, and may elect from time to time to convert Libor Loans to Chase Bank Rate Loans by giving CITBC at least three (3) Working Days' prior irrevocable notice of such election, provided that any such conversion of Libor Loans to Chase Bank Rate Loans shall only be made, subject to the second following sentence, on the last day of an Libor Period with respect thereto. Should the Company elect to convert Chase Bank Rate Loans to Libor Loans, it shall give CITBC at least three (3) Working Days' prior irrevocable notice of such election. If the last day of an Libor Period with respect to a loan that is to be converted is not a Working Day, then such conversion shall be made on the next succeeding or Working Day, as the case may be, and during the period from such last day of an Libor Period to such succeeding Business Day, as the case may be, such loan shall bear interest as if it were an Chase Bank Rate Loan. All or any part of outstanding Chase Bank Rate Loans then outstanding with respect to Revolving Loans may be converted to Libor Loans as provided herein, provided that partial conversions shall be in multiples in an aggregate principal amount of $1,000,000 or a greater integral multiple of $1,000,000. (b) Any Libor Loans may be continued as such upon the expiration of an Libor Period, provided the Company so notifies CITBC, at least three (3) Working Days' prior to the expiration of said Libor Period, and provided further that no Libor Loan may be continued as such upon the occurrence of any Default or Event of Default under this Financing Agreement, but shall be automatically converted to a Chase Bank Rate Loan on the last day of the Libor Period during which occurred such Default or Event of Default. Absent such notification, Libor Rate Loans shall convert to Chase Bank Rate Loans on the last day of the applicable Libor Period. Each notice of election, conversion or continuation furnished by the Company pursuant hereto shall specify whether such election, conversion or continuation is for a one, two, or three month period. Notwithstanding anything to the contrary contained herein, CITBC (or any participant, if applicable) shall not be required to purchase United States Dollar deposits in the London interbank market or from any other applicable Libor market or source or otherwise "match fund" to fund Libor Loans, but any and all provisions 35 Amended and Restated Financing Agreement 38 hereof relating to Libor Loans shall be deemed to apply as if CITBC (and any participant, if applicable) had purchased such deposits to fund any Libor Loans. (c) The Company may request a Libor Loan, convert any Chase Bank Rate Loan into a LIBOR Loan or continue any Libor Loan but only if: (i) the interest rate for such loan will not exceed the Maximum Rate; and (ii) provided there is then no Default or Event of Default in effect. 4. If all or a portion of the outstanding principal amount of the Obligations shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such outstanding amount, to the extent it is a Libor Loan, shall be converted to a Chase Bank Rate Loan at the end of the last Libor Period therefor. 5. The Company may not have more than five (5) Libor Loans outstanding at any given time. 6(a) Interest in respect of the Libor Loans shall be calculated on the basis of a 360 day year and shall be payable as of the end of each month. (b) CITBC shall, at the request of the Company, deliver to the Company a statement showing the quotations given by The Chase Manhattan Bank and the computations used in determining any interest rate pursuant to PARAGRAPHS 1 or 2 of SECTION 8 hereof. 7. In the event that CITBC shall have determined in the exercise of its reasonable business judgement (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the interbank Libor market, adequate and reasonable means do not exist for ascertaining Libor applicable for any Libor Period with respect to: (a) a proposed loan that the Company has requested be made as a Libor Loan; (b) a Libor Loan that will result from the requested conversion of a Chase Bank Rate Loan into a Libor Loan; or (c) the continuation of Libor Loans beyond the expiration of the then current Libor Period with respect thereto, CITBC shall forthwith give written notice of such determination to the Company at least one day prior to, as the case may be, the requested borrowing date for such Libor Loan, the conversion date of such Chase Bank Rate Loan or the last day of such Libor Period. If such notice is given (i) any requested Libor Loan shall be made as a Chase Bank Rate Loan; (ii) any Chase Bank Rate Loan that was to have been converted to a Libor Loan shall be continued as a Chase Bank Rate Loan; and (iii) any outstanding Libor Loan shall be converted, on the last day of then current Libor Period with respect thereto, to a Chase Bank Rate Loan. Until such notice has been withdrawn by CITBC, no further Libor Loan shall be made nor shall the Company have the right to convert a Chase Bank Rate Loan to a Libor Loan. 8. If any payment on a Libor Loan becomes due and payable on a day other than a Business Day or Working Day, the maturity thereof shall be extended to the next succeeding Business Day or Working Day unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Business Day or Working Day. 9. Notwithstanding any other provisions herein, if any law, regulation, treaty or directive or any change therein or in the interpretation or application thereof, shall make it unlawful for CITBC to make or maintain Libor Loans as contemplated herein, the then outstanding Libor Loans, if any, shall be converted automatically to Chase Bank Rate Loans as of the end of such month, or within such earlier period as required by law. The Company hereby agrees promptly to pay CITBC, upon demand, any additional amounts necessary to compensate CITBC for any costs incurred by CITBC making any conversion in accordance with this SECTION 8 including, but not limited to, any interest or fees payable by CITBC to lenders of funds obtained by CITBC in order to make or maintain Libor Loans hereunder. 36 Amended and Restated Financing Agreement 39 10. The Company agrees to indemnify and to hold CITBC harmless from any loss or expense which CITBC or such participant may sustain or incur as a consequence of: (a) Default by the Company in payment of the principal amount of or interest on any Libor Loans, as and when the same shall be due and payable in accordance with the terms of this Financing Agreement, including, but not limited to, any such loss or expense arising from interest or fees payable by CITBC or such participant to lenders of funds obtained by either of them in order to maintain the Libor Loans hereunder; (b) default by the Company in making a borrowing or conversion after the Company has given a notice in accordance with PARAGRAPH 3 of SECTION 8 hereof; (c) any prepayment of Libor Loans on a day which is not the last day of the Libor Period applicable thereto, including, without limitation, prepayments arising as a result of the application of the proceeds of Collateral to the Revolving Loans; and (d) default by the Company in making any prepayment after the Company had given notice to CITBC thereof. The determination by CITBC of the amount of any such loss or expense, when set forth in a written notice to the Company, containing CITBC's calculations thereof in reasonable detail, shall be conclusive on the Company in the absence of manifest error. Calculation of all amounts payable under this paragraph with regard to Libor Loans shall be made as though CITBC had actually funded the Libor Loans through the purchase of deposits in the relevant market and currency, as the case may be, bearing interest at the rate applicable to such Libor Loans in an amount equal to the amount of the Libor Loans and having a maturity comparable to the relevant Libor Period; provided, however, that CITBC may fund each of the Libor Loans in any manner CITBC sees fit and the foregoing assumption shall be used only for calculation of amounts payable under this paragraph. In addition, notwithstanding anything to the contrary contained herein, CITBC shall apply all proceeds of Collateral and all other amounts received by it from or on behalf of the Company (i) initially to the Chase Bank Rate Loans; and (ii) subsequently to Libor Loans; provided, however, (x) upon the occurrence and during the continuance of an Event of Default; or (y) in the event the aggregate amount of outstanding Libor Loans exceeds Availability or the applicable maximum levels set forth therefor, CITBC may apply all such amounts received by it to the payment of Obligations in such manner and in such order as CITBC may elect in its reasonable business judgment. In the event that any such amounts are applied to Revolving Loans which are Libor Loans, such application shall be treated as a prepayment of such loans and CITBC shall be entitled to indemnification hereunder. This covenant shall survive termination of this Financing Agreement and payment of the outstanding Obligations. 11. Notwithstanding anything to the contrary in this Agreement, in the event that, by reason of any Regulatory Change (for purposes hereof "REGULATORY CHANGE" shall mean, with respect to CITBC, any change after the date of this Financing Agreement in United States federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to CITBC of or under any United States federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), CITBC either (a) incurs any material additional costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such bank which includes deposits by reference to which the interest rate on Libor Loans is determined as provided in this Financing Agreement or a category of extensions of credit or other assets of CITBC which includes Libor Loans; or (b) becomes subject to any material restrictions on the amount of such a category of liabilities or assets which it may hold, then, if CITBC so elects by notice to the Company, the obligation of CITBC to make or continue, or to convert Chase Bank Rate Loans into Libor Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect. 12. In consideration of the Letter of Credit Guaranty of CITBC, the Company shall pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal to one and one-half percent (1.5%) per annum, payable monthly, in advance, on the face amount of each Letter of Credit less the amount of any and all amounts previously drawn under such Letter of Credit. 37 Amended and Restated Financing Agreement 40 13. Any charges, fees, commissions, costs and expenses charged to CITBC for the Company's account by any Issuing Bank in connection with or arising out of Letters of Credit issued pursuant to this Financing Agreement or out of transactions relating thereto will be charged to the Company's account in full when charged to or paid by CITBC and when made by any such Issuing Bank shall be conclusive on CITBC. 14. The Company shall reimburse or pay CITBC, as the case may be, for: (i) all Out-of-Pocket Expenses of CITBC; and (ii) any applicable Documentation Fee. 15. Upon the last Business Day of each month, commencing with the last day of the month in which this Financing Agreement is executed the Company shall pay CITBC the Line of Credit Fee. 16. To induce CITBC to enter into this Financing Agreement and to extend to the Company the Revolving Loan, Term Loan, and Letter of Credit Guaranty, the Company shall pay to CITBC a Loan Facility Fee payable upon execution of this Financing Agreement in the amount set forth in the Commitment Letter. 17. Upon the date hereof and on each annual anniversary hereof the Company shall pay to CITBC the Administrative Management Fee, which shall be fully earned and not refundable or rebateable when due. 18. The Company shall pay CITBC's standard charges for, and the fees and expenses of, the CITBC personnel used by CITBC for reviewing the books and records of the Company and for verifying, testing, protecting, safeguarding, preserving or disposing of all or any part of the Collateral provided, however, that the foregoing (other than Out-of-Pocket Expenses) shall not be payable until the occurrence of an Event of Default if the Company is paying an Administrative Management Fee. 19. In no event shall the rates of interest hereunder exceed the Maximum Legal Rate. In the event that the Contract Rate computed under this SECTION 8 would exceed the Maximum Legal Rate, the rates of interest under this Financing Agreement for any such period shall be limited to the Maximum Legal Rate, but any subsequent reductions in the Contract Rate shall not reduce the rates of interest under the Financing Agreement below the Maximum Legal Rate until the total amount of interest charged hereunder equals the amount of interest that would have been charged had the Contract Rate been charged at all times. 20. The Company hereby authorizes CITBC to charge the Company's Revolving Loan Account with CITBC with the amount of all payments due hereunder as such payments become due. The Company confirms that any charges which CITBC may so make to the Company's account as herein provided will be made as an accommodation to the Company and solely at CITBC's discretion. SECTION 9. POWERS The Company hereby constitutes CITBC or any person or agent CITBC may designate as its attorney-in-fact, at the Company's cost and expense, to exercise all of the following powers, which being coupled with an interest, shall be irrevocable until all of the Company's Obligations to CITBC have been paid in full: (a) To receive, take, endorse, sign, assign and deliver, all in the name of CITBC or the Company, any and all checks, notes, drafts, and other documents or instruments relating to the Collateral; (b) To receive, open and dispose of all mail addressed to the Company and to notify postal authorities to change the address for delivery thereof to such address as CITBC may designate; 38 Amended and Restated Financing Agreement 41 (c) To request from customers indebted on Accounts at any time, in the name of CITBC or the Company or that of CITBC's designee, information concerning the amounts owing on the Accounts; (d) To transmit to customers indebted on Accounts notice of CITBC's interest therein and to notify customers indebted on Accounts to make payment directly to CITBC for the Company's account; and (e) To take or bring, in the name of CITBC or the Company, all steps, actions, suits or proceedings deemed by CITBC necessary or desirable to enforce or effect collection of the Accounts. Notwithstanding anything hereinabove contained to the contrary, the powers set forth in (b), (d) AND (e) above may only be exercised during the occurrence of an Event of Default and until such time as such Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction. In addition, the powers set forth in (c) above will only be exercised in the name of the Company or a certified public accountant designated by CITBC prior to the occurrence of such Event of Default. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 1. Notwithstanding anything hereinabove to the contrary, CITBC may terminate this Financing Agreement immediately upon the occurrence of any of the following (herein "EVENTS OF DEFAULT"): (a) cessation of the business of any Loan Party (except as permitted hereunder) or the calling of a meeting of the creditors of any Loan Party for purposes of compromising the debts and obligations of any Loan Party; (b) the failure of any Loan Party to generally meet debts as they mature; (c) the commencement by or against any Loan Party of any proceedings under any Debtor Laws, provided that in the event of any involuntary proceeding commenced against any Loan Party such proceeding is not dismissed or discharged within thirty (30) days after commencement thereof; (d) breach by any Loan Party of any warranty, representation or covenant contained herein (other than those referred to in SUB-PARAGRAPH (e) below) or in any Loan Document or other written agreement between any Loan Party or CITBC, provided that such breach by any Loan Party of any of the warranties, representations or covenants referred in this CLAUSE (d) shall not be deemed to be an Event of Default unless and until such breach shall remain unremedied to CITBC's satisfaction for a period of ten (10) days from the date of such breach; (e) any representation or warranty by any Loan Party is untrue or misleading in any material respect, or breach by any Loan Parties of any covenant contained in SECTION 3, PARAGRAPHS 3 (other than the third sentence of PARAGRAPH 3) and 4; SECTION 6, PARAGRAPHS 3 and 4 (other than the first sentence of PARAGRAPH 4); SECTION 7, PARAGRAPHS 1,5,6, 8 through 11; (f) failure of any Loan Parties to pay any of the Obligations within five (5) Business Days of the due date thereof, provided that nothing contained herein shall prohibit CITBC from charging such amounts to any Loan Party's Revolving Loan Account on the due date thereof; (g) any Loan Party shall (i) engage in any "prohibited transaction" as defined in ERISA; (ii) have any "accumulated funding deficiency" as defined in 39 Amended and Restated Financing Agreement 42 ERISA; (iii) have any Reportable Event as defined in ERISA; (iv) terminate any Plan, as defined in ERISA; or (v) be engaged in any proceeding in which the Pension Benefit Guaranty Corporation shall seek appointment, or is appointed, as trustee or administrator of any Plan, as defined in ERISA, and with respect to this SUB-PARAGRAPH (g) such event or condition (x) remains uncured for a period of thirty (30) days from date of occurrence; and (y) could, in the reasonable opinion of CITBC, subject any Loan Party to any tax, penalty or other liability material to the business, operations or financial condition of any Loan Party; (h) without the prior written consent of CITBC, the Company shall (x) amend or modify the Subordinated Debt except as provided or permitted in the Subordination Agreement, (y) make any payment on account of the Subordinated Debt except as permitted in the Subordination Agreement, or (z) or modify the Certificate of Designations, Preferences and Rights of Series D Cumulative Preferred Stock, a copy of which is attached to the Subscription Agreement, except to decrease the dividend rate or defer, reduce, forgive, or postpone any date for any dividend or redemption payment; (i) the occurrence of any default or event of default (after giving effect to any applicable grace or cure periods) under any instrument or agreement evidencing (x) Subordinated Debt; or (y) any other Indebtedness of any Loan Party having a principal amount in excess of $250,000; or (j) The individuals who, as of the date of this Financing Agreement, constitute the members of the Company's board of directors (for purposes of this SUBPARAGRAPH, the "INCUMBENT BOARD") do not constitute or cease for any reason to constitute at least 66 2/3% of the Company's board of directors. For purposes of this SUBPARAGRAPH, any individual who becomes a member of the board of directors or comparable body or who obtains a voting interest after the date of this Financing Agreement and whose appointment to the board, or nomination for election, was (i) approved or ratified by a vote of the individuals comprising at least 50% of the then incumbent board; or (ii) who was appointed by the chairman of the board, shall thereafter be deemed to be a member of the incumbent board. 2. Upon the occurrence of a Default and/or an Event of Default, at the option of CITBC, all loans, advances and extensions of credit provided for in SECTIONS 3, 4, AND 5 of this Financing Agreement shall be thereafter in CITBC's sole discretion and the obligation of CITBC to make Revolving Loans, open Letters of Credit shall cease unless such Default or Event of Default is waived in writing by CITBC or cured to CITBC's satisfaction, and at the option of CITBC upon the occurrence of and during an Event of Default: (i) CITBC may declare all Obligations shall become immediately due and payable, whereupon they shall be due and payable; (ii) CITBC may charge the Company the Default Rate of Interest on all then outstanding or thereafter incurred Obligations in lieu of the interest provided for in SECTION 8 of this Financing Agreement provided that, with respect to this CLAUSE (II), (a) CITBC has given the Company written notice of the Event of Default, provided, however, that no notice is required if the Event of Default is the event listed in PARAGRAPH 1(c) of this SECTION 10); and (b) the Company has failed to cure the Event of Default within ten (10) days after (x) CITBC deposited such notice in the United States mail; or (y) the occurrence of the Event of Default listed in PARAGRAPH 1(c) of this SECTION 10; and (iii) CITBC may immediately terminate this Financing Agreement upon notice to the Company, provided, however, that no notice of termination is required if the Event of Default is the Event listed in PARAGRAPH 1(c) of this SECTION 10. The exercise of any option is not exclusive of any other option which may be exercised at any time by CITBC. 3. Immediately upon the occurrence, and during the continuance, of any Event of Default, CITBC may to the extent permitted by law: (a) remove from any premises where same may be located any and all documents, instruments, files and records, and any receptacles or cabinets containing same, relating to the Accounts, or CITBC may use, at the Company's expense, such of the Company's personnel, supplies 40 Amended and Restated Financing Agreement 43 or space at the Loan Parties' places of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (b) bring suit, in the name of applicable Loan Party or CITBC, and generally shall have all other rights respecting said Accounts, including without limitation the right to: accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the applicable Loan Party or CITBC; (c) sell, assign and deliver the Collateral and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at CITBC's sole option and discretion, and CITBC may bid or become a purchaser at any such sale, free from any right of redemption, which right is hereby expressly waived by the Company and other Loan Parties; (d) foreclose the security interests in the Collateral created herein by any available judicial procedure, or take possession of any or all of the Inventory, Equipment and/or Other Collateral without judicial process, and enter any premises where any Inventory, Equipment and/or Other Collateral may be located for the purpose of taking possession of or removing the same; and (e) exercise any other rights and remedies provided in law, in equity, by contract or otherwise. CITBC shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose of all or any part of the Collateral whether in its then condition or after further preparation or processing, in the name of the applicable Loan Party or CITBC, or in the name of such other party as CITBC may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as CITBC in its sole discretion may deem advisable, and CITBC shall have the right to purchase at any such sale. If any Inventory and Equipment shall require rebuilding, repairing, maintenance or preparation, CITBC shall have the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting the Inventory and Equipment in such saleable form as CITBC shall deem appropriate. Each Loan Party agrees, at the request of CITBC, to assemble the Inventory and Equipment and to make it available to CITBC at premises of the applicable Loan Party or elsewhere and to make available to CITBC the premises and facilities of the applicable Loan Party for the purpose of CITBC's taking possession of, removing or putting the Inventory and Equipment in saleable form. However, if notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) days notice shall constitute reasonable notification and full compliance with the law. The net cash proceeds resulting from CITBC's exercise of any of the foregoing rights, (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by CITBC to the payment of the Company's Obligations, whether due or to become due, in such order as CITBC may elect, and the Company shall remain liable to CITBC for any deficiencies, and CITBC in turn agrees to remit to the Company or its successors or assigns, any surplus resulting therefrom. The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. The Security Documents shall govern the rights and remedies of CITBC thereto. SECTION 11. TERMINATION Except as otherwise permitted herein, the Company or CITBC may voluntarily terminate this Financing Agreement and the Line of Credit only as of the Anniversary Date or, if this Financing Agreement is not terminated on the Anniversary Date, then March 31, 2004, and then only by giving the other at least sixty (60) days prior written notice of termination. Notwithstanding the foregoing CITBC may terminate the Financing Agreement in compliance with SECTION 10, PARAGRAPH 2 upon the occurrence and continuance of an Event of Default, provided, however, that if the Event of Default is an event listed in PARAGRAPH 1(c) of SECTION 10 of this Financing Agreement, CITBC may regard the Financing Agreement as terminated and notice to that effect is not required. This Financing Agreement, unless terminated as herein provided, shall automatically continue from the Anniversary Date to March 31, 2004. Notwithstanding the foregoing, the Company may terminate this Financing Agreement, and the Line of Credit prior to the Anniversary Date, or if this Financing Agreement is not terminated on the Anniversary Date, prior to March 31, 2004, upon sixty 41 Amended and Restated Financing Agreement 44 (60) days' prior written notice to CITBC, provided that the Company pays to CITBC immediately on demand, an Early Termination Fee and the Prepayment Premium, if applicable. All Obligations shall become due and payable as of any termination hereunder or under SECTION 10 hereof and, pending a final accounting, CITBC may withhold any balances in the Company's account (unless supplied with an indemnity satisfactory to CITBC) to cover all of the Company's Obligations, whether absolute or contingent. All of CITBC's rights, liens and security interests shall continue after any termination until all Obligations have been paid and satisfied in full. SECTION 12. MISCELLANEOUS 1. Each Loan Party waives diligence, demand, presentment and protest and any notices thereof as well as notice of nonpayment, notice of dishonor, notice of intent to accelerate and notice of acceleration. No delay or omission by any party to exercise any right or remedy hereunder, whether before or after the happening of any Event of Default, shall impair any such right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single or partial exercise by CITBC of any right or remedy precludes any other or further exercise thereof, or precludes any other right or remedy. 2. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. 3. It is the intent of each Loan Party and CITBC to strictly conform to all applicable state and federal usury laws. All agreements between the Company and CITBC whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity hereof or otherwise, shall the amount (including, without limitation, any fee charged hereunder or the retention of any amount) contracted for, charged or received by CITBC for the use, forbearance, or detention of the money loaned hereunder or otherwise, or for the payment or performance of any covenant or obligation contained herein or in any other Loan Document which may be legally deemed to be for the use, forbearance or detention of money, exceed the maximum amount which the Company is legally entitled to contract for, charge or collect under applicable state or federal law. If, from any circumstances whatsoever, fulfillment of any provision of any Loan Document, at the time performance of such provision shall be due, shall transcend the limit of validity prescribed by law, then the obligation to be fulfilled shall be automatically reduced to the limit of such validity, and if from any such circumstance CITBC shall ever receive as interest or otherwise an amount in excess of the maximum that can be legally collected, then such amount which would be excessive interest shall be applied to the reduction of the principal indebtedness hereof and any other amounts due with respect to the Obligations evidenced hereby, but not to the payment of interest, and if such amount which would be excess interest exceeds the Obligations and all other non-interest indebtedness described above, then such additional amount shall be refunded to the Company. In determining whether or not all sums paid or agreed to be paid by the Company for the use, forbearance or detention of the Obligations of the Company to CITBC, under any specific contingency, exceeds the maximum amount permitted by applicable law, the Company and CITBC shall, to the maximum extent permitted under applicable law, (a) treat all Obligations as but a single extension of credit; (b) characterize any nonprincipal payment as an expense, fee or premium rather than as sums paid or agreed to be paid by the Company for the use, forbearance or detention of the Obligations of the Company to CITBC; (c) exclude voluntary prepayments and the effect thereof; and (d) amortize, prorate, allocate and spread in equal parts, the total amount of such sums paid or agreed to be paid by the Company for the use, forbearance or detention of the Obligations of the Company to CITBC throughout the entire contemplated term of the Obligations so that the interest rate is 42 Amended and Restated Financing Agreement 45 uniform through the entire term of the Obligations. The terms and provisions of this paragraph shall control and supersede every other provision hereof and all other agreements between the Loan Parties and CITBC. 4. If any provision of any Loan Document is held to be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions of the applicable Loan Document shall remain in full force and effect and shall not be affected or impaired by such provision's severance. Furthermore, in lieu of any such provision, there shall be added automatically as a part of the applicable Loan Document a legal and enforceable provision as similar in terms to the severed provision as may be possible. 5. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH LOAN PARTY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF ANY LOAN DOCUMENT. EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. 6. Except as otherwise provided in a Loan Document, any notice or other communication required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) at the time when hand delivered; (ii) the next Business Day if delivered by a nationally recognized overnight courier after the date of timely deposit guaranteed next-day delivery or if delivered by facsimile; or (iii) three (3) Business Days after deposit in the United States mail, with proper first class postage prepaid and addressed to the party to be notified as follows: (a) if to CITBC, at: The CIT Group/Business Credit, Inc. 5420 LBJ Freeway Suite 200 Dallas, Texas 75240 Attn: Regional Credit Manager Fax No.: 972/455-1690 With a courtesy copy of any material notice to CITBC's counsel at: Haynes and Boone, LLP 901 Main Street Suite 3100 Dallas, Texas 75202 Attn: Jeffrey L. Curtis Fax No.: 214/200-0720 (b) if to any Loan Party at: Basic Energy Services, Inc. 406 North Big Spring Midland, Texas 79701 Attn: Kenneth V. Huseman, President Fax No.: 915/570-0437 43 Amended and Restated Financing Agreement 46 With a courtesy copy of any material notice to the Company's counsel at: Andrews & Kurth L.L.P. 600 Travis Street, Suite 4200 Houston, Texas 77002 Attn: Robert V. Jewell Fax No.: 713/220-4265 or to such other address as any party may designate for itself by like notice. 7. UNLESS OTHERWISE STATED IN ANY LOAN DOCUMENT, THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THE LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT CHAPTER 346 OF THE TEXAS FINANCE CODE, AS AMENDED, SHALL NOT APPLY TO THE LOANS AND ADVANCES MADE HEREUNDER OR OTHERWISE. 8. This Financing Agreement can be amended only by a writing signed by both the Company and CITBC. Each Loan Document shall bind and benefit the parties to it, and their respective successors and assigns. The Loan Documents are not intended to give or confer any rights to any person other than CITBC and the Loan Parties. No other parties are intended to be third party beneficiaries of the Loan Documents. 9. Any Loan Document may be executed in a number of identical counterparts (including, at CITBC's discretion, counterparts or signature pages executed and transmitted by fax) with the same effect as if all signatories had signed the same document. All counterparts must be construed together to constitute one and the same instrument. 10. CITBC hereby appoints itself Senior Agent as its nominee and agent to act in its name and on its behalf for purposes of entering into the Subordination Agreement, and any other Loan Documents in which CITBC purports to act in a nominee or agency capacity. 11. The parties hereto agree that, after all conditions precedent set forth in SECTION 2 have been satisfied or waived: (a) the Obligations (as defined herein) represent, among other things, the amendment, extension, consolidation, and modification of the Existing Senior Debt; (b) this Financing Agreement is intended to, and does hereby, restate, consolidate, renew, extend, amend, modify, supersede, and replace the Existing Senior Debt in its entirety; (c) the Line of Credit and the Term Loan amend, renew, extend, modify, replace, substitute for, and supersede in their entirety but do not extinguish, the Existing Senior Debt; (d) the entering into and performance of their respective obligations under this Financing Agreement and the transactions evidenced hereby do not constitute a novation; and (e) the security interests and liens securing payment and performance of the Existing Senior Debt shall extend to fully secure payment and performance of the Obligations, with the same priority. [REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS] 44 Amended and Restated Financing Agreement 47 IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be executed and delivered by their proper and duly authorized officers as of the date set forth above. This Financing Agreement shall take effect as of the date set forth above after being accepted below by an officer of CITBC after which, CITBC shall forward to the Company a fully executed original for its files. BASIC ENERGY SERVICES, INC. THE CIT GROUP/BUSINESS CREDIT, INC. By By ------------------------------- ------------------------------ Name: Kenneth V. Huseman Name: ________________________ Title: President Title: Vice President SIGNATURE PAGE TO AMENDED AND RESTATED FINANCING AGREEMENT 48 EXHIBIT A TERM LOAN PROMISSORY NOTE June ___, 2000 $20,000,000 FOR VALUE RECEIVED, the undersigned, BASIC ENERGY SERVICES, INC., a Delaware corporation (the "COMPANY"), promises to pay to the order of THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation (herein "CITBC"), at its office located at Dallas, Texas, in lawful money of the United States of America and in immediately available funds, the principal amount of Twenty Million and No/100 Dollars ($20,000,000) in accordance with the terms and provisions of that certain Financing Agreement executed between the Company and CITBC, until this note is paid in full. The Company further agrees to pay interest at said office, in like money, on the unpaid principal amount owing hereunder from time to time from the date hereof on the date, and at the interest rate specified in SECTION 8, PARAGRAPH 2 of the Financing Agreement. Capitalized terms used herein and defined in the Financing Agreement shall have the same meanings as set forth therein unless otherwise specifically defined herein. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. This note is the Term Loan Promissory Note referred to in the Financing Agreement, evidences the Term Loan thereunder, and is subject to, and entitled to, all provisions and benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. This note incorporates by reference the principal and interest payment terms in the Financing Agreement, including, without limitation, the final maturity date. This Note also incorporates by reference all other provisions in the Financing Agreement applicable to this note, such as provisions for disbursement of principal, applicable interest rates before and after Default or Event of Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of rights, payment of attorney's fees, courts costs, and other costs of collection, certain waivers by the Company, assurances and security, choice of Texas and United States Federal Law, usury savings, and other matters applicable to Loan Documents under the Financing Agreement. Upon the occurrence of any one or more of the Events of Default specified in the Financing Agreement or upon termination of the Financing Agreement, all amounts then remaining unpaid on this Note may become, or be declared to be, at the sole election of CITBC, immediately due and payable as provided in the Financing Agreement. BASIC ENERGY SERVICES, INC. By ----------------------------------- Name: Kenneth V. Huseman, Title: President 49 SCHEDULE 1 - EXISTING LIENS
Filing Filing Secured Location Debtor Number Date Party Collateral
50 SCHEDULE 2 - COLLATERAL LOCATIONS AND CHIEF EXECUTIVE OFFICES COMPANY AND SUBSIDIARY TABLE
- ------------------------------------------------------------------------------------------------------------------------------------ NAME OF LOAN PARTY STATES IN WHICH NAME CHANGES IN % OWNED AND PLACE OF BUSINESS OR STATE OF QUALIFIED OTHER NAMES USED THE PAST % OWNED BY BY A CHIEF EXECUTIVE OFFICE INCORPORATION TO DO BUSINESS IN PAST FIVE YEARS FOUR MONTHS THE COMPANY SUBSIDIARY - ------------------------------------------------------------------------------------------------------------------------------------ Basic Energy Services, Inc. Delaware Oklahoma Sierra Well Service, Inc. N/A N/A N/A 406 North Big Spring New Mexico Midland, Texas 79701 Louisiana - ------------------------------------------------------------------------------------------------------------------------------------ Turn Around Trucking, Inc. Texas Texas N/A N/A 100% 0% 406 North Big Spring Midland, Texas 79701 - ------------------------------------------------------------------------------------------------------------------------------------ Sundown Operating, Inc. Texas Texas Chemical Weed Control, Inc. N/A 100% 0% 406 North Big Spring 1989 - 1999 Midland, Texas 79701 - ------------------------------------------------------------------------------------------------------------------------------------ Eunice Well Servicing Co., Inc. Texas Texas N/A N/A 100% 0% 406 North Big Spring New Mexico Midland, Texas 79701 - ------------------------------------------------------------------------------------------------------------------------------------ Harrison Well Service, Inc. Texas Texas N/A N/A 100% 0% 406 North Big Spring Midland, Texas 79701 - ------------------------------------------------------------------------------------------------------------------------------------ Gold Star Service Company, Inc. New Mexico New Mexico N/A N/A 100% 0% 406 North Big Spring Texas Midland, Texas 79701 - ------------------------------------------------------------------------------------------------------------------------------------ Kerby Brothers, Inc. New Mexico New Mexico N/A N/A 0% 1000% 406 North Big Spring Midland, Texas 79701 - ------------------------------------------------------------------------------------------------------------------------------------
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