-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dkjApaHqzG8AlyoTW+REGfsV1ptuvkSktnaDDZBIp/5zomj1W1UOeHiVTjAfm2YN I5JehK/dnj9xXT1ZK9kgGQ== 0000950129-95-000606.txt : 19950601 0000950129-95-000606.hdr.sgml : 19950601 ACCESSION NUMBER: 0000950129-95-000606 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950413 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950531 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO CENTRAL INDEX KEY: 0000864328 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 630084140 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10570 FILM NUMBER: 95543518 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 713-462-4239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 8-K/A 1 BJ SERVICES 8-K/A DATED 04/13/95 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 13, 1995 BJ SERVICES COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 1-10570 63-0084140 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER OF INCORPORATION) IDENTIFICATION NO.)
5500 Northwest Central Drive Houston, Texas 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (713) 462-4239 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. 2 3 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE WESTERN COMPANY OF NORTH AMERICA In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of The Western Company of North America and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 7 to the consolidated financial statements, The Western Company of North America changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards No. 109 in 1993. Also in 1993, The Western Company of North America adopted Statement of Financial Accounting Standards No. 106, discussed in Note 8, and accordingly changed its method of accounting for postretirement benefits other than pensions. PRICE WATERHOUSE LLP Houston, Texas February 22, 1995 3 4 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES)
DECEMBER 31, ----------------------- 1994 1993 ---------- -------- ASSETS CURRENT ASSETS: Cash (including cash equivalents of $10,459 in 1994 and $134,467 in 1993) ....................... $ 12,650 $141,279 Marketable securities ............................. -- 18,868 Receivables (less allowances of $4,273 in 1994 and $4,373 in 1993) ......................... 74,080 63,853 Inventories ....................................... 20,065 16,887 Assets held for sale, net - discontinued operations ....................................... 35,060 -- Other current assets .............................. 5,154 9,464 -------- -------- Total current assets ............................ 147,009 250,351 -------- -------- PROPERTY AND EQUIPMENT, AT COST: Pressure pumping equipment ........................ 199,720 183,172 Offshore drilling equipment ....................... -- 69,668 Buildings and other ............................... 56,395 45,098 Construction in progress .......................... 6,676 8,775 -------- -------- 262,791 306,713 Less - Accumulated depreciation and amortization ................................... 76,696 77,897 -------- -------- 186,095 228,816 -------- -------- OTHER ASSETS ........................................ 20,597 9,218 -------- -------- $353,701 $488,385 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ................. $ -- $ 97,784 Accounts payable .................................. 29,996 33,112 Accrued liabilities ............................... 38,389 51,184 --------- -------- Total current liabilities ....................... 68,385 182,080 --------- -------- LONG-TERM DEBT ...................................... 90,909 90,910 --------- -------- OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS .... 15,258 14,948 --------- -------- STOCKHOLDERS' EQUITY: Common stock -- par value $.10; authorized 50,000,000 shares, issued 18,279,914 and 18,198,285 shares at December 31, 1994 and 1993, respectively ........................... 1,828 1,820 Additional paid-in capital ........................ 193,991 193,451 Cumulative translation adjustment ................. (317) -- Retained earnings (accumulated deficit), since May 12, 1989 ............................... (16,353) 5,176 --------- -------- 179,149 200,447 --------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 6) $ 353,701 $488,385 ========= ========
The accompanying notes are an integral part of these balance sheets. 4 5 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1994 1993 1992 ---------- ---------- ---------- REVENUES: Pressure pumping ............................. $ 307,511 $ 294,073 $ 225,353 Production chemicals ......................... 34,990 -- -- ---------- ---------- ---------- 342,501 294,073 225,353 ---------- ---------- ---------- OPERATING COSTS AND EXPENSES: Pressure pumping ............................. 270,737 250,471 200,532 Production chemicals ......................... 31,027 -- -- Depreciation and amortization ................ 18,814 14,589 14,887 General and administrative ................... 8,846 9,022 8,076 ---------- ---------- ---------- 329,424 274,082 223,495 ---------- ---------- ---------- Operating income ........................... 13,077 19,991 1,858 ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense, net of interest capitalized (10,032) (13,505) (10,407) Interest income .............................. 1,236 4,653 1,059 Merger related expenses ...................... (21,118) -- -- Writedown of pressure pumping assets and other -- (7,132) -- ---------- ---------- ---------- Total other income (expense) ............... (29,914) (15,984) (9,348) ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY LOSSES .......................... (16,837) 4,007 (7,490) Provision for income taxes ................... 495 627 353 ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY LOSSES ................... (17,332) 3,380 (7,843) DISCONTINUED OPERATIONS ........................ (4,197) 35,321 9,510 EXTRAORDINARY LOSSES ........................... -- (25,713) (1,223) ---------- ---------- ---------- NET INCOME (LOSS) .............................. $ (21,529) $ 12,988 $ 444 ========== ========== ========== EARNINGS (LOSS) PER SHARE: Primary: Income (loss) from continuing operations before extraordinary losses .................................... $ (0.95) $ 0.18 $ (0.44) Discontinued operations .................... (0.23) 1.90 0.53 Extraordinary losses ....................... -- (1.38) (0.07) ---------- ---------- ---------- Net income (loss) .......................... $ (1.18) $ 0.70 $ 0.02 ========== ========== ========== Fully diluted: Income (loss) from continuing operations before extraordinary losses ............... $ * $ * $ * Discontinued operations .................... * 1.48 * Extraordinary losses ....................... * * * ---------- ---------- ---------- Net income (loss) .......................... $ * $ * $ * ========== ========== ==========
* Fully diluted computation is not reflected because per share effect is antidilutive The accompanying notes are an integral part of these statements. 5 6 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- CASH FLOWS ASSOCIATED WITH OPERATING ACTIVITIES: Net income (loss) ................................... $ (21,529) $ 12,988 $ 444 Reconciliation of net income (loss) to net cash provided by operating activities -- Depreciation and amortization ..................... 22,846 24,294 26,891 (Gains)/losses on sales of offshore drilling rigs .................................... 4,818 (59,161) -- Writedown of offshore drilling rigs ............... -- 18,328 -- Writedown of pressure pumping assets .............. -- 3,500 -- Extraordinary losses .............................. -- 25,713 1,223 Non-cash provision for income taxes ............... -- 6,630 825 Provision for doubtful accounts receivable ........ (207) (450) -- Other, net ........................................ 1,439 2,146 457 Changes in assets and liabilities -- Accounts receivable .............................. 1,721 10,935 (3,177) Inventory ........................................ (1,319) (4,689) 1,869 Accounts payable ................................. (5,778) 5,077 (2,066) Accrued interest payable ......................... (1,049) (448) 572 Accrued merger related expenses .................. 10,386 -- -- Other, net ....................................... 1,523 (246) (2,512) ---------- ---------- ---------- Net cash provided by operating activities ...... 12,851 44,617 24,526 ---------- ---------- ---------- CASH FLOWS ASSOCIATED WITH INVESTING ACTIVITIES: Additions to property and equipment ................. (21,313) (53,312) (38,773) Acquisitions, net of cash acquired .................. (27,535) (10,400) -- Proceeds from sales of offshore drilling rigs ....... 5,340 169,250 -- Disposition costs for rig sales ..................... -- (4,406) -- Proceeds from sales of marketable securities ........ 18,711 153,458 -- Purchases of marketable securities .................. -- (173,687) -- Other, net .......................................... 964 347 367 ---------- ---------- ---------- Net cash provided (used) in investing activities (23,833) 81,250 (38,406) ---------- ---------- ---------- CASH FLOWS ASSOCIATED WITH FINANCING ACTIVITIES: Debt incurred ....................................... 7,000 7,000 114,801 Debt payments ....................................... (124,946) (7,000) (106,118) Proceeds from exercise of stock options ............. 486 2,243 -- Other, net .......................................... (187) (10) (307) ---------- ---------- ---------- Net cash provided (used) by financing activities (117,647) 2,233 8,376 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ............................ (128,629) 128,100 (5,504) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR ......... 141,279 13,179 18,683 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS - END OF YEAR ............... $ 12,650 $ 141,279 $ 13,179 ========== ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid, net of interest capitalized .......... $ 11,007 $ 14,182 $ 10,577 Income taxes paid ................................... 1,804 1,965 1,345
NONCASH INVESTING AND FINANCING ACTIVITIES (NOTES 1, 3, 4 AND 8) The accompanying notes are an integral part of these statements. 6 7 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK RETAINED PAR VALUE $.10 ADDITIONAL CUMULATIVE EARNINGS ------------------------- PAID-IN TRANSLATION (ACCUMULATED SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL ---------- ---------- ----------- ----------- ------------ ---------- BALANCE DECEMBER 31, 1991 .............. 17,741 $ 1,774 $ 180,618 -- $ (8,256) $ 174,136 Net income ........................... -- -- -- -- 444 444 Realization of pre-reorganization net operating losses .................... -- -- 825 -- -- 825 Other, net ........................... 1 -- -- -- -- -- ------- -------- --------- ------ --------- ---------- BALANCE DECEMBER 31, 1992 .............. 17,742 1,774 181,443 -- (7,812) 175,405 Net income ........................... -- -- -- -- 12,988 12,988 Realization of pre-reorganization net operating losses .................... -- -- 6,013 -- -- 6,013 Exercise of stock options ............ 455 46 5,374 -- -- 5,420 Tax benefit of stock options exercised -- -- 617 -- -- 617 Other, net ........................... 1 -- 4 -- -- 4 ------- -------- --------- ------ --------- ---------- BALANCE DECEMBER 31, 1993 .............. 18,198 1,820 193,451 -- 5,176 200,447 Net loss ............................. -- -- -- -- (21,529) (21,529) Exercise of stock options ............ 90 9 539 -- -- 548 Cumulative translation adjustment .... -- -- -- (317) -- (317) Other, net ........................... (9) (1) 1 -- -- -- ------- -------- --------- ------ --------- ---------- BALANCE DECEMBER 31, 1994 .............. 18,279 $ 1,828 $ 193,991 $ (317) $ (16,353) $ 179,149 ======= ======== ========= ====== ========= ==========
The accompanying notes are an integral part of these statements. 7 8 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all accounts of The Western Company of North America and its wholly-owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated in consolidation. PLAN OF REORGANIZATION On February 2, 1988, The Western Company of North America ("WCNA") filed a voluntary petition for reorganization under chapter 11 of the federal Bankruptcy Code. On May 12, 1989 the WCNA Third Amended Plan of Reorganization was consummated. The Company adopted reorganization accounting to record the effects of consummating the Plan of Reorganization. REVENUE RECOGNITION Revenue related to pressure pumping, production chemicals and offshore drilling services and sales of pressure pumping and production chemical products are recognized as services are provided and products are shipped or delivered. The Company uses the percentage-of-completion method for equipment sales contracts to recognize revenues and expenses as the earnings process progresses. CONCENTRATION OF CREDIT RISK The Company's customers consist primarily of major integrated international oil companies and independent oil and gas companies, including companies owned in whole or in part by foreign governments. The Company performs ongoing credit evaluations of its customers and generally does not require material collateral. The Company maintains reserves for potential credit losses, and historically such losses have been within its expectations. No single customer accounted for 10% or more of the Company's consolidated revenues during 1994, 1993 and 1992. CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash equivalents represent highly liquid investments with a maturity of three months or less. Marketable securities represent highly liquid investments with a maturity in excess of three months but less than one year. Cash equivalents and marketable securities are carried at cost, which approximates market value at December 31, 1994 and 1993. During 1994, proceeds from the sales of marketable securities classified as available for sale totaled $18.7 million. Loss on the sales of these securities was immaterial. INVENTORIES Inventories are comprised principally of materials and supplies and are stated at lower of cost or market. Cost is determined using the first-in, first-out method for pressure pumping inventories and the average cost method for production chemicals and offshore drilling rig inventories. 8 9 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Except for offshore drilling rigs and associated equipment and a well stimulation vessel and associated equipment, property and equipment is depreciated or amortized using the straight-line method over their estimated useful lives. The Company uses the units-of-service method to calculate depreciation expense associated with offshore drilling rigs and its well stimulation vessel. Under this method, depreciation is reduced to 20% of its normal rate while the rigs and the well stimulation vessel are not being utilized. The Company capitalizes renewals and improvements which significantly enhance the value or extend the useful life of an asset. Expenditures for normal maintenance and repairs are charged to expense as incurred. The cost of pressure pumping equipment retired or sold and related accumulated depreciation are removed from the accounts, and gains and losses are reflected in operations. Normal retirements of offshore drilling equipment are reflected in accumulated depreciation accounts; gains or losses arising from unusual retirements are reflected in earnings, and asset cost and related accumulated depreciation are removed from the accounts. INTEREST EXPENSE The Company capitalizes interest expense applicable to significant capital projects which require a period of time to construct. In 1994, 1993 and 1992, total interest incurred was $10.0 million, $19.3 million and $14.0 million, respectively, and interest of $5.8 million in 1993 and $2.3 million in 1992 was capitalized. No interest was capitalized in 1994. Included in the 1992 income from discontinued operations is $1.3 million of interest expense associated with certain rig debt. IMPAIRMENT OF LONG-LIVED ASSETS An impairment writedown on long-lived assets is recorded whenever events or changes in circumstances indicate that market value is less than net book value. Market value is determined by either independent appraisals or calculation of future undiscounted net cash flows. A 1993 writedown of pressure pumping assets and other included a $3.5 million writedown of older pressure pumping equipment and idle facilities to net realizable value in anticipation of disposal. GOODWILL Goodwill represents the excess of cost of acquisitions over the fair value of identifiable assets acquired less liabilities assumed. Goodwill is included as a component of other assets and is amortized on a straight-line basis over 15 years. As of December 31, 1994 and 1993, goodwill was $18.4 million and $1.2 million, respectively, net of accumulated amortization of $1.4 million and $0.2 million, respectively. Impairment of goodwill is evaluated in the same manner as other long-lived assets. 9 10 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACCRUED LIABILITIES At December 31, 1994 and 1993, accrued liabilities included the following:
1994 1993 -------- ------- (In thousands) Accrued extraordinary loss (see Note 5).................. $ -- $23,408 Accrued merger related expenses.......................... 10,386 -- Accrued payroll and related expenses..................... 11,371 10,356 Income taxes payable..................................... 4,495 5,806 Accrued interest......................................... 3,127 4,022
ENVIRONMENTAL COSTS Environmental costs that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of an environmental evaluation or the Company's commitment to a formal plan of action. At December 31, 1994 and 1993, liabilities for environmental costs were $2.6 million and $2.4 million, respectively. INTEREST RATE SWAP During 1993, the Company entered into an interest rate swap agreement to manage its interest rate exposure. This agreement involves the exchange of fixed rate interest payments for floating rate interest payments based on the six month London Interbank Offering Rate ("LIBOR"). The estimated differential to be paid or received at each semiannual settlement date is charged or credited to interest expense as interest rates change. This agreement was entered into with a major financial institution. Management believes the risk of incurring losses related to nonperformance by the financial institution is remote and any such losses would be immaterial. FOREIGN CURRENCY TRANSLATION The financial statements of certain foreign operations are translated from the functional currencies to U.S. dollars. Adjustments resulting from the translation process totaled $0.3 million in 1994 and are reflected as a cumulative translation adjustment in stockholders' equity. EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share is based on the weighted average number of shares of Common Stock, $.10 par value ("Common Stock") and Common Stock equivalent shares (when dilutive) outstanding during the year. Common stock equivalent shares relate to options to purchase shares under various stock option plans (see Note 9). Additionally, the fully diluted earnings per share computation assumes the conversion of the Company's 7 1/4% Convertible Subordinated Debentures (see Note 5). 10 11 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The weighted average number of shares used in computing earnings (loss) per share are as follows:
1994 1993 1992 ---- ---- ---- (In thousands) Primary........................................ 18,236 18,591 17,757 Fully diluted.................................. 23,958 23,794 23,136
RESEARCH AND DEVELOPMENT During the years ended December 31, 1994, 1993 and 1992, expenditures classified as research and development costs incurred by the Company were $8.4 million, $6.5 million and $5.5 million, respectively. RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial statements and notes thereto have been reclassified to conform to the current year's presentation including the presentation of discontinued operations. NOTE 2 - MERGER In November 1994, the Company and BJ Services Company ("BJ Services") entered into a definitive merger agreement. Subject to certain conditions and to appraisal rights under Delaware law, this agreement provides that stockholders of the Company will receive $20 in cash or in shares of BJ Services common stock for each outstanding share of Company Common Stock they own. Additionally, for each share of Common Stock they hold, each stockholder will receive .2 of a five-year warrant to purchase one share of BJ Services common stock for $30 per share. Pursuant to the merger agreement, stockholders may elect to receive any proportion of cash and BJ Services common stock, provided that the total number of shares of Common Stock for which such elections are made will be adjusted so that the total shares for which each type of election is made will be approximately equal. The transaction is subject to the approval of both companies' stockholders, antitrust review and other customary closing conditions, and is expected to close during the first half of 1995. Merger related expenses of $21.1 million represent costs associated with the expected merger with BJ Services and include investment banker, legal and accounting fees, certain severance costs and other miscellaneous expenses. In addition to the expenses recorded in 1994, additional legal fees and other expenses related to the merger are expected to be incurred and recorded in 1995. NOTE 3 - ACQUISITIONS The Company completed the acquisitions, in February 1994, of substantially all of the assets of the production and process chemical business of Unichem International, Inc. ("Unichem") for $19.8 million in cash and in June 1994, of substantially all of the oilfield chemicals business and assets of Betz Energy Chemicals, Inc. ("Betz") for $4.8 million in cash. The businesses acquired from Unichem and Betz are substantially the same. In July 1994, the Company completed the 11 12 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) acquisition of the coiled tubing business of Coiltech, Inc. ("Coiltech") for $3.1 million in cash. All three acquisitions were accounted for using the purchase method of accounting. Goodwill associated with these transactions totaled $18.4 million (see Note 1). The Unichem, Betz and Coiltech results of operations have been included in the consolidated financial statements since January 1994, July 1994 and July 1994, respectively. In April 1993, the Company completed a $10.4 million cash acquisition of the assets of the Smith Energy Services division of Allied Products Corporation. This acquisition was accounted for using the purchase method of accounting. NOTE 4 - DISCONTINUED OPERATIONS The Company formalized a plan in November 1994 (the "Measurement Date") to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the offshore drilling segment has been reclassified in the consolidated statements of operations as discontinued operations. The results of the discontinued operations were as follows:
1994 1993 1992 --------- --------- --------- (In thousands) Revenues ..................................... $ 22,609 $ 64,676 $ 89,613 ========= ========= ========= Income from discontinued operations: Operating income ........................... $ 2,429 $ 4,161 $ 13,919 Other income (loss): Gains on sales of offshore drilling rigs .................................... -- 59,161 -- Writedowns of offshore drilling rigs ..... -- (18,328) -- Interest expense ......................... -- -- (1,333) --------- --------- --------- Income from discontinued operations before income taxes .............................. 2,429 44,994 12,586 Provision for income taxes ................. 152 9,673 3,076 --------- --------- --------- 2,277 35,321 9,510 --------- --------- --------- Loss on disposal, net of income tax benefit in 1994 of $(152) .............................. (6,474) -- -- --------- --------- --------- $ (4,197) $ 35,321 $ 9,510 ========= ========= =========
The loss on disposal includes operating results subsequent to the Measurement Date including shut-down expenses and gain (loss) from the disposal of the two semi-submersible offshore drilling rigs, ALASKAN STAR and PACESETTER IV. In December 1994, the Company completed the sale of the ALASKAN STAR for $11.8 million, of which $6.3 million is a bankers' acceptance drawn on a U.S. bank due within one year. This rig sale resulted in a gain of $0.3 million. In December 1994, the Company signed a letter of intent to sell the PACESETTER IV. The Company completed the sale in early February 1995 for $37.2 million which resulted in a loss of $6.7 million (see Note 13). At December 31, 1994, Assets held for sale, net - discontinued operations primarily consists of the net realizable value of the PACESETTER IV. 12 13 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Income from discontinued operations includes operating results prior to the Measurement Date. Income from discontinued operations during 1993 included the following sales of offshore drilling rigs and writedowns of offshore drilling rigs. In March 1993, the Company completed the sale of the TRITON III jack-up drilling rig for $17.8 million in cash. This sale resulted in a gain of $9.1 million. In July 1993, the Company completed the sale of the DELTA jack-up drilling rig for $1.5 million in cash which resulted in a gain of $0.4 million. In October 1993, the Company completed the sale of nine jack-up drilling rigs and associated equipment and inventories for $150.0 million cash that resulted in a 1993 fourth quarter gain of $49.7 million. The rigs sold were: APOLLO I, APOLLO II, APOLLO IV, NIKE I, POLARIS I, POLARIS II, TRITON I, TRITON II and TRITON IV. In March 1993, the Company wrote down the net book value of its three mat-supported jack-up rigs by $8.8 million. This writedown reflected the low utilization experienced by these types of rigs and the expectation of lower future utilization for them. In December 1993, the Company wrote down the net book value of the ALASKAN STAR semi-submersible drilling rig by $9.5 million. This writedown reflected the Company's lower expectation of future operating cash flow opportunities for second generation semi-submersibles like the ALASKAN STAR. Included in the 1992 income from discontinued operations is $1.3 million of interest expense associated with certain rig debt. NOTE 5 - LONG-TERM DEBT At December 31, 1994 and 1993, long-term debt consisted of the following:
1994 1993 -------- --------- (In thousands) Senior Unsecured: 12 7/8% Senior Notes................................ $ 2,212 $ 100,000 Subordinated Unsecured: 7 1/4% Convertible Subordinated Debentures.......... 88,746 88,746 -------- --------- 90,958 188,746 Less: Unamortized portion of original issue discount.. 49 52 -------- --------- 90,909 188,694 Less: Current portion................................. -- 97,784 -------- --------- $ 90,909 $ 90,910 ======== =========
The 12 7/8% Senior Notes, Due 2002 (the "Notes"), are unsecured and were issued in November 1992 in the face amount of $100 million. During March 1994, the Company purchased, through a tender offer, and retired $97.8 million face amount of the Notes. The aggregate purchase price of these Notes was $117.3 million, resulting in an extraordinary loss of $25.7 million ($1.38 per share) including unamortized original debt issuance costs of $3.2 million, unamortized original issue discount of $2.3 million and offering costs of $0.7 million. This extraordinary loss was recognized in December 1993. The carrying value of the Notes represents the face amount less unamortized original issue discount. Interest at 12 7/8% per annum is payable semiannually. The effective interest rate associated with the Notes, after considering amortization of original issue discount, is 13.33%. 13 14 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Notes mature December 1, 2002, and there are no sinking fund requirements. The indenture governing the Notes contains restrictions and requirements relating to mergers. During the fourth quarter of 1992, the Company issued the Notes and used the net proceeds to prepay secured debt totaling $94.6 million associated with bank loan facilities, ship financing bonds and a note relating to an offshore drilling rig. As a result, it incurred a $1.2 million ($0.07 per share) extraordinary loss primarily representing prepayment penalties and the write-off of unamortized debt issuance costs. In 1990, the Company issued $90 million face amount of 7 1/4% Convertible Subordinated Debentures, due January 15, 2015 (the "Debentures"). Interest at 7 1/4% per annum is payable semiannually. Annual payments equal to 5% of the principal amount of the Debentures commence in 2001; such payments are calculated to retire 70% of principal prior to maturity. The Debentures, unless previously redeemed, are convertible into Common Stock at $17 per share at the option of the holder at any time prior to maturity. The indenture governing the Debentures contains restrictions and requirements relating to mergers. The Company has a $30 million revolving credit facility which had no borrowings outstanding at December 31, 1994 and 1993. Borrowings under this revolving credit facility are secured by the Company's accounts receivable and are limited to a percentage of such receivables. The revolving credit facility bears interest at 1 1/2% over LIBOR or 1/2% over prime and matures December 31, 1995. Commitment fees on the unused portion of the revolving credit facility are 1/2% per annum. The revolving credit facility contains restrictions and requirements relating to, among other things, mergers and maintenance of certain financial ratios. The Company has entered into an interest rate swap agreement which effectively changes fixed-rate debt into floating-rate debt. Under the agreement, the Company receives a fixed rate of 5.26% on a notional principal amount of $100 million and pays a floating rate based on LIBOR, as determined in six month intervals. On June 1, 1995 the notional principal amount will be reduced from $100 million to $75 million until the agreement expires on June 1, 1996. The Company may elect from time to time to terminate the swap agreement. Had it elected to do so at December 31, 1994, it would have been required to make a termination payment of $4.1 million. At December 31, 1994, there were no required principal payments associated with long-term debt until 2001. 14 15 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1994, the fair value of the Company's long-term debt, determined based on quoted market prices, was as follows:
Amount -------------- (In thousands) 12 7/8% Senior Notes............................................ $ 2,349 7 1/4% Convertible Subordinated Debentures...................... 91,519 --------- $ 93,868 =========
Such market prices are subject to changing market conditions; therefore, the fair value of the Company's long-term debt at December 31, 1994 is not indicative of future fair market value. NOTE 6 - COMMITMENTS AND CONTINGENCIES The Company's operating leases include rental commitments associated with office buildings, equipment and vehicles. As of December 31, 1994, the Company had lease commitments for future minimum rental payments as follows:
Amount -------------- (In thousands) 1995.............................................................. $ 7,570 1996.............................................................. 5,281 1997.............................................................. 3,070 1998.............................................................. 1,791 1999.............................................................. 1,528 Thereafter........................................................ 5,452 ------- $24,692 =======
Rental expense for the years ended December 31, 1994, 1993 and 1992 was approximately $9 million, $7 million and $7 million, respectively. At December 31, 1994, the Company was contingently liable for outstanding letters of credit, not reflected in the accompanying consolidated financial statements, in the amount of $3.5 million. Actions for well damage and loss of oil and gas production alleging negligence, breach of contract and fraud, under common law as well as state and federal statutes, are incidental to the pressure pumping business. Actions for personal injury are also incidental to that business and the offshore drilling business where federal statutes permit employees who work on rigs to sue their employers instead of pursuing workmen's compensation remedies. Increasingly, plaintiffs in both property damage and personal injury litigation allege damages for which insurance coverage generally does not exist or is prohibited, such as punitive damages, treble damages or damages for breach of contract. Numerous such incidental lawsuits are pending against the Company which include claims covered by insurance and which are being defended by the Company's insurance carriers. To the extent a plaintiff is ultimately successful on an uninsured portion of a claim, the Company would be responsible for satisfying such judgment. To date, the Company has not, by judgment or through 15 16 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) settlement, incurred a material uninsured liability arising out of personal injury or property damage litigation. From time to time it has been alleged by competitors of the Company that the use by the Company of certain products or methods to perform particular pressure pumping services constitutes infringement of patents they hold. Such claims could result in payment by the Company of damages or royalties and the Company could be enjoined from performing services in which such products or services are used. To date, the Company has not experienced a material reduction in revenues or incurred a material loss as a result of such allegations. Shortly after the public announcement by BJ Services in September 1994 of a proposal to acquire the Company ("BJS Proposal"), four actions were commenced against the Company and its directors in the Delaware Court of Chancery styled CROYDEN ASSOCIATES VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13740, filed September 13, 1994, REGGIE P. JUDICE VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13742, filed September 14, 1994, WILLIAM T. HENDERSON VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13743, filed September 14, 1994, and RUSS SEGER VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13769, filed September 27, 1994. The allegations in these lawsuits, all of which were filed as class action complaints, are substantially the same and relate to the rejection of the BJS Proposal by the Company's Board of Directors. The purported class of plaintiffs on whose behalf the class action complaints were filed is all stockholders of the Company. It is claimed in these lawsuits, INTER ALIA, that by failing to accept the BJS Proposal the Company and its directors breached their fiduciary duties to the stockholders of the Company. The plaintiffs seek equitable relief to compel the Company and its directors to perform their fiduciary duties, as such are construed by the plaintiffs, and unspecified damages. The Company believes the allegations in these lawsuits are untrue and that the claims they assert are totally without merit. A motion to consolidate the four actions is pending. 16 17 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - INCOME TAXES Components of the provision for income taxes consisted of the following:
1994 1993 1992 ------- ------- ------ (In thousands) Current tax expense: U.S. federal................................ $ -- $ -- $ -- Foreign..................................... 495 241 353 ------- ------- ------ 495 241 353 ------- ------- ------ Noncash tax expense: U.S. federal................................ -- 386 -- Foreign..................................... -- -- -- ------- ------- ------ -- 386 -- ------- ------- ------ $ 495 $ 627 $ 353 ======= ======= ======
The non-cash taxes are due primarily to the utilization of prereorganization tax benefits which are recorded directly to stockholders' equity and, therefore, are not reflected as a reduction of income tax expense. The total provision for income taxes is reflected in the consolidated statements of operations under the following components:
1994 1993 1992 ------- ------- ------ (In thousands) Continuing operations......................... $ 495 $ 627 $ 353 Discontinued operations........................ -- 9,673 3,076 ------- ------- ------ $ 495 $10,300 $3,429 ======= ======= ======
The deferred tax assets (liabilities) consisted of the following:
December 31, ----------------- January 1, 1994 1993 1993 -------- -------- ------- (In thousands) Gross deferred tax assets: Loss carryforwards.......................... $144,388 $129,346 $157,080 Stock of foreign affiliates................. 28,055 23,247 20,625 Property and equipment...................... 7,433 6,202 5,800 Inventory reserves.......................... 3,201 4,818 5,637 Allowances for doubtful accounts receivable. -- -- 5,449 Other....................................... 16,010 13,566 10,614 -------- -------- ------- 199,087 177,179 205,205 Gross deferred tax liabilities: Property and equipment...................... (13,569) (10,301) (27,050) Deferred tax asset valuation allowance......... (185,518) (166,878) (178,155) -------- -------- -------- $ -- $ -- $ -- ======== ======== ========
17 18 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The differences between the provision for income taxes and income taxes computed using the U.S. federal income tax rate and income (loss) from continuing operations before provision for income taxes and extraordinary losses were as follows:
1994 1993 1992 ------- ------ -------- (In thousands) Income taxes computed using the U.S. federal rate.. $(5,893) $ 1,402 $(2,547) Losses not receiving income tax benefits........... 2,350 -- 2,491 Foreign taxes, net of foreign tax deduction taken.. 327 159 233 Merger related costs not deductible................ 2,720 -- -- Noncash taxes due to carryover tax benefits recorded directly to stockholders' equity......... -- 386 -- Net benefit of operating loss carryforwards........ -- (1,605) -- Other, net......................................... 991 285 176 ------- ------ ------- $ 495 $ 627 $ 353 ======= ======= =======
In 1993, current taxable income was reduced by $84.5 million of net operating loss carryforwards. The financial statement impact was limited to $14.2 million due to the change in deferred tax assets and liabilities. The net change in the deferred tax asset valuation allowance was an increase of $18.6 million in 1994 and a decrease of $11.3 million in 1993. The portion of the deferred tax asset valuation allowance which, if realized, will be recorded directly to stockholders' equity was $114 million at December 31, 1994, $114 million at December 31, 1993 and $120 million at January 1, 1993. The Company has net operating loss carryforwards for federal income tax purposes of $372 million. If not utilized, these carryforwards will expire between 2001 and 2009. As a result of the Company having experienced changes in control as defined in Internal Revenue Code Section 382 in prior years, the usage of approximately $219 million of these carryforwards is subject to an annual limitation. The entire $372 million of carryforwards could be subject to an annual limitation due to the pending merger with BJ Services (see Note 2). For United Kingdom income tax purposes, the Company at December 31, 1994 had tax attribute carryforwards amounting to (pound)43 million which are not subject to an annual limitation. However, these United Kingdom tax benefits will be reduced substantially as a result of the sale of the PACESETTER IV in 1995 (see Note 13). Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The Company elected to adopt SFAS 109 prospectively. The initial adoption did not materially affect results of operations. 18 19 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Income (loss) before provision for income taxes and extraordinary items consisted of the following:
1994 1993 1992 --------- --------- --------- (In thousands) Domestic income (loss)...................... $ (13,303) $ 37,245 $ (20,457) Foreign income (loss)....................... (7,731) 11,756 25,553 --------- --------- --------- $ (21,034) $ 49,001 $ 5,096 ========= ========= =========
NOTE 8 - RETIREMENT AND OTHER BENEFIT PROGRAMS PENSION PLAN The Company has a defined benefit pension plan (the "Pension Plan") covering all employees with one year of service. Pension benefits are based on years of service and average compensation for each employee's five consecutive highest paid years during the last ten years worked. Pension benefits are fully vested after five years of service. Generally, the Company makes annual contributions to the Pension Plan to the extent they are tax deductible and, at a minimum, funds the amount necessary to meet minimum funding requirements under the Employees' Retirement Income Security Act, as amended. Net pension expense for 1994, 1993 and 1992 included the following components:
1994 1993 1992 ------- ------- ------ (In thousands) Service cost - benefits earned during the period ...................................... $ 1,309 $ 1,153 $ 1,240 Interest cost on projected benefit obligation.. 2,822 2,697 2,513 Actual return on plan assets................... 448 (3,485) (1,614) Net gain (loss) deferred....................... (3,132) 1,106 (566) ------- ------- ------- $ 1,447 $ 1,471 $ 1,573 ======= ======= =======
Assumptions used in determining 1994, 1993 and 1992 net pension expense were:
1994 1993 1992 ---- ---- ---- Discount rate..................................... 7.0% 7.75% 8.0% Rate of increase in compensation levels........... 5.0% 5.0% 5.0% Expected long-term rate of return on assets....... 9.0% 9.0% 9.0%
Pension Plan assets consist primarily of government debt securities, corporate equities, money market instruments and long-term corporate debt obligations, both domestic and foreign. The following table sets forth as of December 31, 1994 and 1993 the Pension Plan's estimated funded status, amounts recognized in the Company's consolidated balance sheets and actuarial present value of benefit obligations. The discount rates used to determine all benefit obligations at December 31, 1994 and 1993 were 8.00% and 7.00%, respectively. 19 20 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1994 1993 -------- -------- (In thousands) Projected benefit obligation............................. $ 37,849 $ 39,732 Pension Plan assets at fair value........................ 28,994 29,675 -------- -------- Projected benefit obligation in excess of Pension Plan assets .................................... 8,855 10,057 Net unrecognized prior service cost and gain/loss from past experience......................................... (1,608) (1,879) -------- -------- Accrued pension liability................................ $ 7,247 $ 8,178 ======== ======== Accumulated benefit obligation, including vested benefits of $33.4 million in 1994 and $36.5 million in 1993...... $ 34,684 $ 37,416 ======== ========
POSTRETIREMENT BENEFITS The Company provides postretirement life insurance and medical benefits to retired employees between the ages of 55 and 65. Certain life insurance benefits are also provided to retired employees over 65 years of age. The life insurance is funded by insurance premiums paid entirely by the Company. The medical benefits are funded by a capped self insurance program with contributions made by retirees for themselves and their covered dependents. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires the accrual method of accounting for the expected costs of providing such benefits. Under such accounting method, the future costs of postretirement benefits are recorded during the years employees render service to earn eligibility for such benefits. Net periodic postretirement benefit cost for 1994 and 1993 included the following components:
1994 1993 ------ ------ (In thousands) Service cost - benefits attributed to service during the period............................................ $ 282 $ 232 Actual return on plan assets............................. -- -- Interest cost on accumulated postretirement benefit obligation........................................ 349 336 Amortization of transition obligation.................... 99 117 Other, net............................................... 21 214 ------ ------ $ 751 $ 899 ====== ======
The discount rates used to determine postretirement benefit costs were 7% in 1994 and a weighted average of 7.75% in 1993. 20 21 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table sets forth the status of postretirement benefit obligations at December 31, 1994 and 1993:
1994 1993 ------ ------- (In thousands) Accumulated postretirement benefit obligation Retirees.............................................. $ 1,741 $ 1,746 Other fully eligible participants..................... 1,160 1,134 Other active participants............................. 2,180 2,237 ------- ------- Total accumulated postretirement benefit obligation...... 5,081 5,117 Unrecognized actuarial loss.............................. (44) (546) Unrecognized transition obligation....................... (1,782) (1,881) Plan assets at fair value................................ -- -- ------- ------- Accrued postretirement benefit cost...................... $ 3,255 $ 2,690 ======= =======
The discount rate used to determine postretirement benefit obligations at December 31, 1994 and 1993 were 8% and 7%, respectively. There were no plan assets. For measurement purposes, a 9% annual rate of increase for covered health care benefits was assumed for 1994. The rate is assumed to decrease gradually to 5% by 2026 and remain at that level thereafter. Increasing the health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $279,000 and the aggregate of the service and interest cost components of net postretirement health care cost for fiscal year 1994 by $59,000. NON-EMPLOYEE DIRECTOR RETIREMENT PLAN During 1994, the Company adopted an unfunded retirement plan for non-employee directors. To be eligible for benefits under the plan, a director must have retired from the Board of Directors after having served for at least 10 consecutive years and reached the age of 65. Benefits are payable for 10 years and at December 31, 1994, the Company accrued $250,000 related to the plan. RETIREMENT SAVINGS PLAN All employees with one year of service are eligible to participate in the Company's Retirement Savings Plan. Subject to certain Internal Revenue Code limitations, participants may contribute up to 15% of their annual compensation. Effective March 1, 1994, the Company began matching employee contributions to the Plan up to 6% of compensation at the rate of 25 cents for each dollar the employee contributes. In addition, the Company has the option of providing an additional match at the end of each year at the rate of 1 cent to 25 cents for each dollar the employee has contributed to the Plan during the year up to 6% of compensation. In February 1995, the Company elected to make an additional match at the 25 cents level for the 1994 plan year. Matching contributions made or accrued in 1994 were $656,000. 21 22 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) POSTEMPLOYMENT BENEFITS Effective January 1, 1994, the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" which requires accrual accounting for postemployment benefits such as disability-related and workers' compensation payments. The effect of this adoption on 1994 operating income was immaterial, as the Company has historically accrued for most of these costs incurred by the Company. At December 31, 1994, the Company's liability for these benefits was $5.1 million. NOTE 9 - STOCK INCENTIVE PLANS The Company maintains a long-term management incentive plan and a non-employee Director stock option plan. Up to 1,837,500 shares of Common Stock may be or have been issued under this long-term management incentive plan. Of such number, 1,112,500 shares were allocated to an employee stock option plan, 375,000 shares were allocated for restricted stock awards and 350,000 shares were allocated for performance share awards. Under the non-employee Director stock option plan, 75,000 shares of Common Stock were reserved for issuance. Under the employee stock option plan, shares of Common Stock may be purchased at a price determined by the Executive Development and Compensation Committee (the "Committee") of the Board of Directors, but in no case less than 90% of market price on date of grant for nonqualified options and 100% of market price on date of grant for incentive stock options. Options which have been granted expire up to ten years after date of grant and are exercisable on a cumulative basis equal to either 25% or 33% for each year outstanding or such other basis as may be determined by the Committee. At December 31, 1994, options to purchase 693,538 shares were outstanding under this plan at option prices ranging from $4.50 to $19.00 per share. Under the non-employee Director stock option plan, shares of Common Stock may be purchased at 100% of market price on date of grant. During 1989, options to purchase 2,500 shares were granted to each non-employee Director, thereafter, pursuant to the plan options to purchase 1,250 shares have been granted to each Director at each annual meeting of the Company's stockholders. This plan is, in most other respects, similar in its operation to the employee stock option plan discussed above. At December 31, 1994, options to purchase 37,500 shares were outstanding under this plan at option prices ranging from $4.00 to $15.38 per share; options to purchase 18,750 shares were exercisable at that date. As a result of the merger agreement signed by BJ Services and the Company (see Note 2), all stock options outstanding under the long-term management incentive plan became fully vested and exercisable for a period of ninety days. At the end of the ninety day period, all options still outstanding will revert back to the original terms of the option plans until consummation of the merger, at which time they will again become fully vested and exercisable. 22 23 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of transactions relating to these stock option plans during 1994, 1993 and 1992 is as follows:
Number of Total Option Options Price --------- ------------ (In thousands) Outstanding at December 31, 1991........................ 320,700 $ 3,472 Granted ($4.00 to $7.00 per share)................... 251,125 1,257 Cancelled ($5.88 to $19.13 per share)................ (96,450) (1,348) -------- -------- Outstanding at December 31, 1992........................ 475,375 3,381 Granted ($4.88 to $12.13 per share).................. 338,500 3,114 Exercised ($4.50 to $9.00 per share)................. (155,937) (898) Cancelled ($7.00 to $18.25 per share)................ (11,281) (101) -------- -------- Outstanding at December 31, 1993........................ 646,657 5,496 Granted ($12.50 to $14.50 per share)................. 238,500 3,076 Exercised ($4.50 to $12.13 per share)................ (69,994) (425) Cancelled ($4.50 to $15.50 per share)................ (84,125) (777) -------- -------- Outstanding at December 31, 1994........................ 731,038 $ 7,370 ======== ========
The number of shares of Common Stock available for future granting of options under these stock option plans was 178,406, 332,781 and 60,000 at December 31, 1994, 1993 and 1992, respectively. In addition to the stock options included in the preceding table, an executive of the Company was granted an option to purchase 268,750 shares of Common Stock at a price of $3.02 per share in connection with his employment in 1987. Compensation associated with these options was recorded pursuant to reorganization accounting. The option agreement expires December 31, 1998. At December 31, 1994, such option was outstanding and exercisable for 248,750 shares. During 1989, the 375,000 shares of Common Stock reserved for restricted stock awards were issued. Compensation associated with such awards was recorded pursuant to reorganization accounting. With one exception, 50% of the shares issued were issued without forfeiture restrictions, and, generally, the remaining restrictions lapsed as to 12.5% of the shares awarded on each of the first four anniversaries of the date the restricted stock awards were issued. At December 31, 1994, no shares remained subject to forfeiture restrictions. The 350,000 performance shares were awarded during 1989 subject to vesting over four years upon the attainment of specified performance objectives or at earlier dates under certain conditions relating to the reduction of principal and interest outstanding under a long-term debt agreement. During 1990, the performance share awards became vested and 140,000 shares of Common Stock were issued. The remainder of the performance share awards were converted into options to purchase 298,945 shares of Common Stock based on the value of such performance share awards. During 1993, all 298,945 options were exercised. This resulted in a 1993 non-cash reclassification of the difference between $4.50, the exercise price, and the value of the share awards when vested from other long-term liabilities to additional paid-in capital. 23 24 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - STOCKHOLDER PROTECTION RIGHTS PLAN In March 1990, the Company's Board of Directors (the "Board") adopted a Stockholder Protection Rights Plan (the "Rights Plan") designed to protect against attempts to acquire control of the Company that the Board believes are not in the best interest of the stockholders. The Rights Plan provides for the distribution of one Right for each outstanding share of Common Stock. Such Rights will separate from the Common Stock upon the earlier of (i) the date any person or group becomes the beneficial owner of 15% or more outstanding Common Stock, or (ii) the tenth business day (or a later date designated by the Board) after any person makes a tender or exchange offer for 15% or more of outstanding Common Stock. Upon separation from Common Stock, each Right will entitle the holder thereof to purchase 1/100th share of Participating Preferred Stock at an exercise price of $70, subject to adjustment (the "Exercise Price"). Each 1/100th share of the Participating Preferred Stock is the economic and voting equivalent to one share of Common Stock. Additionally, if any person or group becomes the beneficial owner of 15% or more of outstanding Common Stock, each Right will entitle the holder thereof to purchase, for the Exercise Price, Common Stock having a value of twice the Exercise Price. Rights held by such person or group would become void. Under certain circumstances, without action by the holders of Rights, the Board may exchange each Right for one share of Common Stock or 1/100th share of Participating Preferred Stock. The Board can terminate the Rights anytime before a person or group acquires 15% or more of outstanding Common Stock. The Company amended the Rights Plan in November 1994 to provide that BJ Services would not be a beneficial owner of Company securities for purposes of the Rights Plan by reason of entering into the merger agreement with the Company or consummating the transactions contemplated therein (see Note 2). 24 25 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS Following is a summary of the Company's domestic and foreign operations by business segment:
PRESSURE PRODUCTION OFFSHORE ELIMINA- PUMPING CHEMICALS DRILLING TIONS CONSOLIDATED -------- ---------- -------- ------- ------------ (In thousands) 1994 REVENUES: Domestic .................................... $ 291,441 $ 34,990 $ -- $ -- $ 326,431 Foreign and export sales .................... 16,070 -- -- -- 16,070 Intersegment sales .......................... -- 963 -- (963) -- ---------- --------- ---------- ---------- ---------- $ 307,511 $ 35,953 $ -- $ (963) $ 342,501 ========== ========= ========== ========== ========== OPERATING INCOME: Domestic .................................... $ 29,258 $ 1,861 $ -- $ -- $ 31,119 Foreign and export sales .................... (8,086) -- -- -- (8,086) ---------- --------- ---------- ---------- ---------- $ 21,172 $ 1,861 $ -- $ -- 23,033 ---------- --------- ---------- ---------- General and administrative .................. (9,956) ---------- Operating income ............................ 13,077 Interest expense, net of interest capitalized ................................ (10,032) Interest income ............................. 1,236 Merger related expenses ..................... (21,118) ---------- Loss from continuing operations before provision for income taxes ................. $ (16,837) ========== IDENTIFIABLE ASSETS: Domestic .................................... $ 234,031 $ 29,112 $ -- $ -- $ 263,143 Foreign ..................................... 25,517 -- 39,655 -- 65,172 ---------- --------- ---------- ----------- ---------- $ 259,548 $ 29,112 $ 39,655 $ -- 328,315 ---------- --------- ---------- ----------- Corporate assets ............................ 25,386 ---------- $ 353,701 ========== 1993 REVENUES: Domestic..................................... $ 278,131 $ -- $ -- $ -- $ 278,131 Foreign and export sales..................... 15,942 -- -- -- 15,942 ---------- --------- ---------- ---------- ---------- $ 294,073 $ -- $ -- $ -- $ 294,073 ========== ========= ========== ========== ========== OPERATING INCOME: Domestic .................................... $ 35,409 $ -- $ -- $ -- $ 35,409 Foreign and export sales .................... (5,744) -- -- -- (5,744) ---------- --------- ---------- ---------- ---------- $ 29,665 $ -- $ -- $ -- 29,665 ---------- --------- ---------- ---------- General and administrative ................ (9,674) ---------- Operating income .......................... 19,991 Interest expense, net of interest capitalized .............................. (13,505) Interest income ........................... 4,653 Writedown of pressure pumping assets and other ................................ (7,132) ----------- Income from continuing operations before provision for income tax and extraordinary loss ....................... $ 4,007 ========== IDENTIFIABLE ASSETS: Domestic .................................. $ 157,031 $ -- $ 894 $ -- $ 157,925 Foreign ................................... 96,932 -- 62,311 -- 159,243 ---------- --------- ---------- ---------- ---------- $ 253,963 $ -- $ 63,205 $ -- 317,168 ---------- --------- ---------- ---------- Corporate assets .......................... 171,217 ---------- $ 488,385 ==========
25 26 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS - (CONTINUED)
PRESSURE PRODUCTION OFFSHORE ELIMINA- PUMPING CHEMICALS DRILLING TIONS CONSOLIDATED ---------- ---------- ---------- ---------- ------------ (In thousands) 1992 REVENUES: Domestic................................... $ 211,576 $ -- $ -- $ -- $ 211,576 Foreign and export sales................... 13,777 -- -- -- 13,777 ---------- --------- ---------- ---------- ---------- $ 225,353 $ -- $ -- $ -- $ 225,353 ========== ========= ========== ========== ========== OPERATING INCOME: Domestic................................... $ 10,640 $ -- $ -- $ -- $ 10,640 Foreign and export sales................... 23 -- -- -- 23 ---------- --------- ---------- ---------- ---------- $ 10,663 $ -- $ -- $ -- 10,663 ---------- --------- ---------- ---------- General and administrative ................ (8,805) ---------- Operating income........................... 1,858 Interest expense, net of interest.......... capitalized.............................. (10,407) Interest income............................ 1,059 ---------- Loss from continuing operations before provision for income taxes and extraordinary loss....................... $ (7,490) ========== IDENTIFIABLE ASSETS: Domestic................................... $ 145,828 $ -- $ 27,990 $ -- $ 173,818 Foreign.................................... 64,969 -- 166,648 -- 231,617 ---------- --------- ---------- ---------- ---------- $ 210,797 $ -- $ 194,638 $ -- 405,435 ---------- --------- ---------- ---------- Corporate assets........................... 26,535 ---------- $ 431,970 ==========
26 27 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS - (CONTINUED) In November 1994, the Company formalized a plan to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the business segment data for 1993 and 1992 has been restated to exclude the offshore drilling segment (see Note 4). The results of operations for the offshore drilling segment for 1993 and 1992 were as follows:
1993 1992 ------- ------- (In thousands) Revenues................................................... $64,676 $89,613 ------- ------- Operating income........................................... $ 4,161 $13,919 Interest expense........................................... -- (1,333) Gains on sales of offshore drilling rigs................... 59,161 -- Writedowns of offshore drilling rigs....................... (18,328) -- ------- ------- Income before income taxes and extraordinary losses........ $44,994 $12,586 ======= =======
1994 1993 1992 ------------------------------ ------------------------------ ----------------------------- DEPRECIATION CAPITAL DEPRECIATION CAPITAL DEPRECIATION CAPITAL AND AMORTIZATION EXPENDITURES AND AMORTIZATION EXPENDITURES AND AMORTIZATION EXPENDITURES ---------------- ------------ ---------------- ------------ ---------------- ------------ (In thousands) Pressure pumping ................... $ 15,601 $ 21,353 $ 13,937 $ 50,166 $ 14,158 $ 29,921 Production chemicals ............... 2,103 5,722 -- -- -- -- Offshore drilling .................. -- 66 -- 11,526 -- 8,765 Corporate .......................... 1,110 861 652 2,020 729 87 -------- -------- -------- -------- -------- -------- $ 18,814 $ 28,002 $ 14,589 $ 63,712 $ 14,887 $ 38,773 ======== ======== ======== ======== ======== ========
27 28 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS - (CONTINUED) Amounts reported above for 1994, 1993 and 1992 foreign and export sales include operations in the following geographic areas:
1994 1993 1992 ---------- ---------- ---------- (In thousands) Revenues: Northwest Europe .......... $ 1,130 $ 434 $ -- West Africa ............... 3,280 3,995 5,997 South America ............. 4,420 1,171 2,014 Far East .................. 1,774 9,355 4,949 Eastern Europe and Former Soviet Union ............. 5,231 814 602 Other ..................... 235 173 215 ---------- ---------- ---------- $ 16,070 $ 15,942 $ 13,777 ========== ========== ========== Operating income (loss): Northwest Europe .......... $ (4,362) $ (4,193) $ (1,260) West Africa ............... (1,452) (1,029) 767 South America ............. 1,034 140 561 Far East .................. (1,016) (152) 327 Eastern Europe and Former Soviet Union ............. (2,062) (408) (206) Other ..................... (228) (102) (166) ---------- ---------- ---------- $ (8,086) $ (5,744) $ 23 ========== ========== ========== Identifiable assets: Northwest Europe .......... $ 41,676 $ 116,232 $ 86,458 West Africa ............... 5,442 5,338 89,097 South America ............. 4,835 16,737 45,040 Far East .................. 5,975 11,982 9,886 Eastern Europe and Former Soviet Union ............. 6,528 7,095 1,023 Other ..................... 716 1,859 113 ---------- ---------- ---------- $ 65,172 $ 159,243 $ 231,617 ========== ========== ==========
The pressure pumping business provides two major services, stimulation and cementing. During 1994, 1993 and 1992, stimulation services accounted for approximately 71%, 73% and 68%, respectively, of the segment's revenues, exclusive of export sales of equipment and products of approximately $5 million, $9 million and $7 million in 1994, 1993 and 1992, respectively. The production chemical business was acquired in 1994 (see Note 3). This segment provides specialty chemicals and services to the upstream oil and gas industry as well as downstream to the refinery, petrochemical, gas processing, pipeline and power generation industries. The Company's well stimulation vessel, WESTERN RENAISSANCE, moved from foreign to domestic operations during the third quarter of 1994. Offshore drilling foreign identifiable assets represent all assets associated with offshore drilling rigs which are operating in foreign waters at the end of each year (see Note 4). Capital expenditures represent cash expended on property and equipment, including interest capitalized. Corporate assets are comprised principally of cash and other assets. 28 29 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Company operating results by quarter for the year ended December 31, 1994 were as follows:
QUARTER ------------------------------------------------------------ FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- --------- --------- (In thousands, except per share amounts) 1994 Revenues: Pressure pumping ................ $ 70,278 $ 70,901 $ 82,052 $ 84,280 $ 307,511 Production chemicals ............ 7,773 7,867 9,700 9,650 34,990 -------- -------- -------- --------- --------- 78,051 78,768 91,752 93,930 342,501 -------- -------- -------- --------- --------- Operating costs and expenses: Pressure pumping ................ 64,677 63,139 71,107 71,814 270,737 Production chemicals ............ 7,092 7,215 8,108 8,612 31,027 Depreciation and amortization ... 4,577 4,347 4,832 5,058 18,814 General and administrative ...... 2,234 2,366 1,953 2,293 8,846 -------- -------- -------- --------- --------- 78,580 77,067 86,000 87,777 329,424 -------- -------- -------- --------- --------- Operating income (loss) ...... (529) 1,701 5,752 6,153 13,077 -------- -------- -------- --------- --------- Other income (expense): Interest expense ................ (3,746) (1,950) (1,954) (2,382) (10,032) Interest income ................. 772 174 109 181 1,236 Merger related expenses(1) ...... -- -- -- (21,118) (21,118) -------- -------- -------- --------- --------- Total other income (expense) .................. (2,974) (1,776) (1,845) (23,319) (29,914) -------- -------- -------- --------- --------- Income (loss) from continuing operations before provision for income taxes and extraordinary loss .............................. (3,503) (75) 3,907 (17,166) (16,837) Provision for income taxes ...... 103 2 205 185 495 -------- -------- -------- --------- --------- Income (loss) from continuing operations ........................ (3,606) (77) 3,702 (17,351) (17,332) Discontinued operations ............ 318 978 1,142 (6,635) (4,197) -------- -------- -------- --------- --------- Net income (loss) .................. $ (3,288) $ 901 $ 4,844 $ (23,986) $ (21,529) ======== ======== ======== ========= ========= Earnings (loss) per share: Income (loss) from continuing operations ..................... $ (0.20) $ 0.00 $ 0.20 $ (0.95) $ (0.95) Discontinued operations ......... 0.02 0.05 0.06 (0.36) (0.23) -------- -------- -------- --------- --------- Net income (loss) ............... $ (0.18) $ 0.05 $ 0.26 $ (1.31) $ (1.18) ======== ======== ======== ========= =========
(1) Merger related expenses of $21.1 million represent costs associated with the expected merger with BJ Services and include investment banker, legal and accounting fees, certain severance costs and other miscellaneous expenses. In addition to the expenses recorded in 1994, additional legal fees and other expenses related to the merger are expected to be incurred and recorded in 1995 (see Note 2). 29 30 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED) The Company formalized a plan in November 1994 to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the offshore drilling segment has been reclassified in the consolidated statements of operations as discontinued operations (see Note 4). The results of the discontinued operations by quarter for the year ended December 31, 1994 were as follows:
QUARTER ------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- (In thousands) Revenues ................................................. $ 5,495 $ 6,056 $ 6,115 $ 4,943 $ 22,609 ======== ======== ======== ======== ======== Income from discontinued operations ...................... $ 345 $ 1,081 $ 1,172 (169) $ 2,429 Provision for income taxes ............................... 27 103 30 (8) 152 -------- -------- -------- -------- -------- 318 978 1,142 (161) 2,277 -------- -------- -------- -------- -------- Loss on disposal, net of income tax benefit of $(152) .... -- -- -- (6,474) (6,474) -------- -------- -------- -------- -------- $ 318 $ 978 $ 1,142 $ (6,635) $ (4,197) ======== ======== ======== ======== ========
Income from discontinued operations includes operating results prior to the Measurement Date. The loss on disposal includes operating results subsequent to the Measurement Date including shut-down expenses and gain (loss) from the disposal of the two semi-submersible offshore drilling rigs, ALASKAN STAR and PACESETTER IV. In December 1994, the Company completed the sale of the ALASKAN STAR for $11.8 million, of which $6.3 million is a bankers' acceptance drawn on a U.S. bank due within one year. This rig sale resulted in a gain of $0.3 million. In December 1994, the Company signed a letter of intent to sell the PACESETTER IV. The Company completed the sale in early February 1995 for $37.2 million (see Note 13). At December 31, 1994, Assets held for sale, net - discontinued operations primarily consists of the net book value and inventory of the PACESETTER IV, net of the loss on sale of such rig. 30 31 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED) Company operating results by quarter for the year ended December 31, 1993 were as follows:
QUARTER ------------------------------------------------------------ FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- --------- --------- (In thousands, except per share amounts) 1993 Revenues: Pressure pumping. . . . . . . . . . . . $ 74,901 $ 67,361 $ 71,545 $ 80,266 $ 294,073 Operating costs and expenses: Pressure pumping. . . . . . . . . . . . 62,921 57,487 60,778 69,285 250,471 Depreciation and amortization . . . . . 3,508 3,984 3,596 3,501 14,589 General and administrative. . . . . . . 1,955 1,926 2,029 3,112 9,022 -------- -------- -------- --------- --------- 68,384 63,397 66,403 75,898 274,082 -------- -------- -------- --------- --------- Operating income . . . . . . . . . . 6,517 3,964 5,142 4,368 19,991 -------- -------- -------- --------- --------- Other income (expense): Interest expense. . . . . . . . . . . . (3,631) (3,432) (2,962) (3,480) (13,505) Interest income . . . . . . . . . . . . 146 1,575 383 2,549 4,653 Writedown of pressure pumping assets and other (1) . . . . . . . . . . . . (248) -- -- (6,884) (7,132) -------- -------- -------- --------- --------- Total other income (expense). . . . . (3,733) (1,857) (2,579) (7,815) (15,984) -------- -------- -------- --------- --------- Income (loss) from continuing operations before provision for income taxes and extraordinary loss. . . . . . . . . . . 2,784 2,107 2,563 (3,447) 4,007 Provision for income taxes. . . . . . 180 309 538 (400) 627 -------- -------- -------- --------- --------- Income (loss) from continuing operations before extraordinary loss 2,604 1,798 2,025 (3,047) 3,380 Discontinued operations . . . . . . . . . (114) 166 2,131 33,138 35,321 Extraordinary loss (2). . . . . . . . . . -- -- -- (25,713) (25,713) -------- -------- -------- --------- --------- Net income . . . . . . . . . . . . . . . $ 2,490 $ 1,964 $ 4,156 $ 4,378 $ 12,988 ======== ======== ======== ========= ========= Earnings (loss) per share: Primary: Income (loss) from continuing operations. . . . . . . . . . . . . $ 0.15 $ 0.10 $ 0.11 $ (0.16) $ 0.18 Discontinued operations . . . . . . . (0.01) 0.01 0.11 1.77 1.90 Extraordinary loss. . . . . . . . . . -- -- -- (1.38) (1.38) -------- -------- -------- --------- --------- Net income (loss) . . . . . . . . . . $ 0.14 $ 0.11 $ 0.22 $ 0.23 $ 0.70 ======== ======== ======== ========= ========= Fully diluted: Income (loss) from continuing operations. . . . . . . . . . . . . $ * $ * $ * $ * $ * Discontinued operations . . . . . . . * * * 1.39 1.48 Extraordinary loss. . . . . . . . . . * * * * * -------- -------- -------- --------- --------- Net income (loss) . . . . . . . . . . $ * $ * $ * $ * $ * ======== ======== ======== ========= =========
- ------------- *Fully diluted computation is not reflected because per share effect is antidilutive. (1) The writedown of pressure pumping assets and other totaled $7.1 million and included a $3.5 million writedown of older pressure pumping equipment and idle facilities to net realizable value in anticipation of disposal and various other non-operating costs. (2) During March 1994, the Company purchased through a tender offer $97.8 million face amount of Notes. The aggregate purchase price of these Notes was $117.3 million, resulting in an extraordinary loss of $25.7 million ($1.38 per share) including unamortized original issue costs of $3.2 million, unamortized original issue discount of $2.3 million and offering costs of $.7 million. The anticipated extraordinary loss was accrued during the fourth quarter of 1993. 31 32 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED) The Company formalized a plan in November 1994 to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the offshore drilling segment has been reclassified in the consolidated statements of operations as discontinued operations. The results of the discontinued operations by quarters for the year ended December 31, 1993 were as follows:
QUARTER ---------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- (In thousands) Revenues ....................................... $ 18,629 $ 19,186 $ 19,870 $ 6,991 $ 64,676 ======== ======== ======== ======== ======== Income from discontinued operations Operating income ............................. $ 462 $ 896 $ 2,406 $ 397 $ 4,161 -------- -------- -------- -------- -------- Other income (loss): Gains on sales of offshore drilling rigs.... 9,076 -- 372 49,713 59,161 Writedowns of offshore drilling rigs ....... (8,828) -- -- (9,500) (18,328) -------- -------- -------- -------- -------- 248 -- 372 40,213 40,833 -------- -------- -------- -------- -------- Income from discontinued operations before income taxes .............. 710 896 2,778 40,610 44,994 Provision for income taxes ..................... 824 730 647 7,472 9,673 -------- -------- -------- -------- -------- $ (114) $ 166 $ 2,131 $ 33,138 $ 35,321 ======== ======== ======== ======== ========
Income from discontinued operations includes operating results prior to the Measurement Date. Income from discontinued operations during 1993 included the following sales of offshore drilling rigs and writedowns of offshore drilling rigs. In March 1993, the Company completed the sale of the TRITON III jack-up drilling rig for $17.8 million in cash. This sale resulted in a gain of $9.1 million. In July 1993, the Company completed the sale of the DELTA jack-up drilling rig for $1.5 million in cash which resulted in a gain of $0.4 million. In October 1993, the Company completed the sale of nine jack-up drilling rigs and associated equipment and inventories for $150.0 million cash that resulted in a 1993 fourth quarter gain of $49.7 million. The rigs sold were: APOLLO I, APOLLO II, APOLLO IV, NIKE I, POLARIS I, POLARIS II, TRITON I, TRITON II and TRITON IV. In March 1993, the Company wrote down the net book value of its three mat-supported jack-up rigs by $8.8 million. This writedown reflected the low utilization experienced by these types of rigs and the expectation of lower future utilization for them. In December 1993, the Company wrote down the net book value of the ALASKAN STAR semi-submersible drilling rig by $9.5 million. This writedown reflected the Company's lower expectation of future operating cash flow opportunities for second generation semi-submersibles like the ALASKAN STAR. 32 33 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13 - SUBSEQUENT EVENT (UNAUDITED) The Company completed the sale of the PACESETTER IV in early February 1995 for $37.2 million which resulted in a loss of $6.7 million. At December 31, 1994, Assets held for sale, net - discontinued operations primarily consists of the net book value and inventory of the PACESETTER IV, net of the loss on sale of such rig. 33 34 (b) PRO FORMA FINANCIAL INFORMATION PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma financial statements are based on the historical financial information of BJ Services and Western giving effect, under the purchase method of accounting, to certain adjustments. The pro forma financial statements are derived from BJ Services' and Western's historical consolidated financial data for the indicated periods, which, in the case of the statement of operations of Western, differ from those periods used for presentation of Western's financial statements included in this Report on Form 8-K/A. In the case of Western, the statement of operations for the year ended September 30, 1994 was derived by combining the last three months of its fiscal year ended December 31, 1993 with the first nine months of its fiscal 1994. The pro forma statement of financial position was prepared as if the Merger occurred on March 31, 1995. The pro forma statements of operations were prepared as if the Merger had occurred as of October 1, 1993 and do not include any estimate for loss of revenue from overlapping locations or the effect of any modifications in operations that might have occurred had BJ Services owned and operated the businesses during the periods presented except as described in the Notes to the Pro Forma Financial Statements. The statements also do not reflect the disposition of assets from BJ Services' Brighton, Colorado and Cortland, Ohio operations. Revenue generated from these operations was $5.6 million for the year ended September 30, 1994 and $4.7 million for the six months ended March 31, 1995. A supplemental pro forma presentation of operating results for the year ended September 30, 1994 was made to reflect the effects of eliminating certain nonrecurring charges included in Western's historical financial statements so that the results would, in management's opinion, be more reflective of normal operations. The pro forma financial statements should be read in conjunction with the Notes to Pro Forma Financial Statements and with the Consolidated Financial Statements of BJ Services and the related notes thereto as previously filed and the Consolidated Financial Statements of Western and the related notes thereto, contained elsewhere in this Report on Form 8-K/A. The pro forma financial information has been prepared based upon assumptions deemed appropriate by management of BJ Services. This information is prepared for informational purposes only and is not necessarily indicative of the actual results or financial condition that would have been achieved had the Merger and related financing occurred at these dates or of future results. Actual results of Western's operations will be included with BJ Services' results beginning April 1, 1995. 34 35 PRO FORMA STATEMENT OF FINANCIAL POSITION (UNAUDITED) MARCH 31, 1995 (IN THOUSANDS)
Historical Pro Forma -------------------------- ---------------------------- BJ Services Western Adjustments Combined ----------- ------- ----------- -------- ASSETS Current Assets: Cash and cash equivalents $ 5,698 $ 44,567 ($44,567)(2) $ 5,698 Receivables - net 98,053 63,926 161,979 Inventories 42,813 20,094 62,907 Deferred income taxes and other 14,260 4,535 18,795 -------- -------- -------- -------- Total current assets 160,824 133,122 (44,567) 249,379 Property - net 197,033 185,045 53,000 (1) 435,078 Goodwill 20,413 18,111 153,097 (1) 191,621 Deferred income taxes 22,690 60,000 (1) 82,690 Investments and other assets 12,658 3,043 15,701 -------- -------- -------- -------- $413,618 $339,321 $221,530 $974,469 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 48,913 $ 23,359 $ 72,272 Short-term borrowings and current portion of long-term debt 29,291 (29,291)(2) Accrued liabilities 36,568 33,492 17,398 (1) 22,000 (9) 109,458 -------- -------- -------- -------- Total current liabilities 114,772 56,851 10,107 181,730 Long-term debt 74,700 77,718 (75,554)(1) 234,851 (2) 311,715 Other long-term liabilities 27,000 14,751 41,751 Stockholders' equity 197,146 190,001 74,126 (1) (22,000)(9) 439,273 -------- -------- -------- -------- $413,618 $339,321 $221,530 $974,469 ======== ======== ======== ========
See Notes to Pro Forma Financial Statements 35 36 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED MARCH 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical Pro Forma ------------------------- ----------------------- BJ Services Western Adjustments Combined ----------- ------- ----------- -------- Revenue $226,083 $173,922 $400,005 Operating Expenses: Cost of sales and services 202,490 164,660 $ 4,438 (3) (13,500) (4) 358,088 General and administrative 12,453 5,033 (4,000) (4) 13,486 Amortization of goodwill 1,914 (6) 1,914 -------- -------- -------- -------- 214,943 169,693 (11,148) 373,488 Operating income 11,140 4,229 11,148 26,517 Other income (expense): Interest expense (4,618) (4,599) (3,900) (5) (13,117) Interest income 334 362 696 Write-downs and other 940 (21,118) 21,118 (8) 940 -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 7,796 (21,126) 28,366 15,036 Income tax expense 1,674 285 2,919 (7) 4,878 -------- -------- -------- -------- Income (loss) from continuing operations $ 6,122 $(21,411) $ 25,447 $ 10,158 ======== ======== ======== ======== Weighted average shares outstanding 15,716 12,040 (1) 27,757 ======== ======== ======== ========= Income per share from continuing operations $ 0.39 $ 0.37 ======== ======== ======== =========
See Notes to Pro Forma Financial Statements 36 37 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED SEPTEMBER 30, 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Supplemental Pro Forma Historical Pro Forma -------------------------- ----------------------- -------------------------- Non-recurring As BJ Services Western Adjustments Combined Adjustments Adjusted ----------- ------- ----------- -------- ------------- --------- Revenue $434,476 $328,837 $763,313 $763,313 Operating Expenses: Cost of sales and services 391,022 306,947 $ 8,875 (3) (27,000)(4) 679,844 679,844 General and administrative 22,709 10,598 (8,000)(4) 25,307 25,307 Amortization of goodwill 3,827 (6) 3,827 3,827 -------- -------- -------- -------- -------- -------- 413,731 317,545 (22,298) 708,978 708,978 -------- -------- -------- -------- -------- -------- Operating income 20,745 11,292 22,298 54,335 54,335 Other income (expense): Interest expense (7,383) (11,130) (4,325)(5) (22,838) (22,838) Interest income 729 3,604 4,333 4,333 Write-downs and other (1,315) (6,884) (8,199) $ 6,884 (10) (1,315) -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 12,776 (3,118) 17,973 27,631 6,884 34,515 Income tax expense (benefit) 2,006 (90) 6,630 (7) 8,546 2,409 (10) 10,955 -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations before extraordinary loss and cumulative effect of accounting change $ 10,770 $ (3,028) $ 11,343 $ 19,085 $ 4,475 $ 23,560 ======== ======== ======== ======== ======== ======== Weighted average shares outstanding 15,665 12,040 (1) 27,705 27,705 ======== ======== ======== ======== Income per share from continuing operations before extraordinary loss and cumulative effect of accounting change $ 0.69 $ 0.69 $ 0.85 ========= ======== ======== ========= ======== ========
See Notes to Pro Forma Financial Statements 37 38 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS) (1) The pro forma financial statements reflect the purchase of 100% of the outstanding shares of Western common stock in exchange for total consideration of $514.3 million ($21.00 per share), consisting of 12.0 million shares of BJ Common Stock, cash of $240.1 million and warrants to purchase 4.8 million shares of BJ Common Stock. For purposes of determining Western's outstanding shares, it is assumed that such debentures, which had a face value of $75.6 million at March 31, 1995 were converted into 4.4 million shares of Western common stock prior to the transaction (as of May 1995, substantially all of the debentures had been converted). The BJ Common Stock to be issued was valued at $19.94, the average closing price prior to the closing date calculated in accordance with the Merger Agreement. In addition, BJ Services incurred transaction costs of approximately $10.0 million, resulting in a total purchase price of $514.3 million. In accordance with purchase accounting, the assets and liabilities of Western will be recorded on BJ Services' books at estimated fair market value with the remaining purchase price reflected as goodwill. For purposes of these Pro Forma Financial Statements, the allocation of the purchase price has been made based upon valuations and other studies which have not been finalized. Accordingly, the allocation of the purchase price is preliminary. The following adjustments reflect management's estimates of the necessary adjustments to Western's historical Statement of Financial Position to reflect fair market value: BJ Consideration Paid: Cash $ 240,127 Stock 240,127 Warrants 24,000 Transaction costs 10,000 ----------- 514,254 Less: Western stockholders' equity 190,001 Conversion of Western debentures 75,554 ----------- 265,555 ----------- Net Adjustment $ 248,699 ===========
38 39 Allocation of adjustment: Property $ 53,000 Deferred tax asset - net operating loss carryforwards 60,000 Accrual for severance, facility closings and other nonrecurring costs associated with the acquisition (9,400) Accrual for buyout of Western stock options (4,598) Accrual of past service costs - benefit plans (3,400) Goodwill 153,097 ------------- $ 248,699 =============
(2) Assumes that immediately upon consummation of the Merger, BJ Services will utilize a new credit facility to retire all of its then outstanding debt and, after utilizing $44.6 million in available excess cash held by Western, pay the cash portion of the merger consideration as discussed in Note (1). (3) Reflects increased depreciation expense due to the net write-up of property depreciated over its average estimated remaining useful life. (4) Reflects estimated consolidation savings from the elimination of personnel and facility costs from overlapping operations, corporate staff and other administrative and support functions. (5) Reflects the interest expense on the borrowings under the new credit facility described in Note (2) at an average assumed rate of 5.125% for the fiscal year and 6.625% for the six-month period. The effect of each .125% change in the assumed rate would change interest expense by $390,000 per annum. (6) Reflects amortization of increase to goodwill over a 40-year period. (7) Adjustment to reflect 35% effective tax rate for Western and the tax effect of the pro forma adjustments, with the exception of goodwill amortization. (8) Adjustment to eliminate expenses incurred by Western which are directly attributable to the Merger. (9) The pro forma statement of operations has not been adjusted for the following nonrecurring charges which are estimated and are expected to be incurred by BJ Services within the 12 month period following the Merger: Severance and special incentive costs $ 10,500 Facility closings, equipment relocation, etc. 8,000 Legal, accounting and other 3,500 --------- $ 22,000 ========= 39 40 These items have been reflected in the pro forma statement of financial position as an addition to accrued liabilities and a reduction to stockholders' equity. (10) Adjustment to eliminate the following historical nonrecurring charge (and the related tax effects) of Western: (a) The writedown of pressure pumping assets and other which totaled $6.9 million and included a $3.5 million writedown of older pressure pumping equipment and idle facilities to net realizable value in anticipation of disposal and various other non-operating costs. (b) Tax expense on the above at a 35% rate. 40 41 (c) Exhibits.
Exhibit Number Description - -------------- ----------- 10.1 Credit Agreement dated as of April 13, 1995, among BJ Services Company, BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Bank of America National Trust and Savings Association, as agent, and the other financial institutions parties thereto (the "Credit Agreement"). 10.2 Parent Guaranty Agreement dated as of April 13, 1995, by BJ Services Company, in favor of the banks and the agent under the Credit Agreement. 10.3 Form of Guaranty Agreement dated as of April 13, 1995, by each of BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, and Western Petroleum Services International Company, in favor of the banks and the agent under the Credit Agreement. 23.1 Consent of Price Waterhouse LLP.
41 42 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BJ SERVICES COMPANY By /s/ MARGARET B. SHANNON _______________________ Margaret B. Shannon Vice President and General Counsel Date: May 30, 1995 42 43 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 10.1 Credit Agreement dated as of April 13, 1995, among BJ Services Company, BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Bank of America National Trust and Savings Association, as agent, and the other financial institutions parties thereto (the "Credit Agreement"). 10.2 Parent Guaranty Agreement dated as of April 13, 1995, by BJ Services Company, in favor of the banks and the agent under the Credit Agreement. 10.3 Form of Guaranty Agreement dated as of April 13, 1995, by each of BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, and Western Petroleum Services International Company, in favor of the banks and the agent under the Credit Agreement. 23.1 Consent of Price Waterhouse LLP.
EX-10.1 2 CREDIT AGREEMENT 1 EXHIBIT 10.1 ================================================================================ - -------------------------------------------------------------------------------- CREDIT AGREEMENT Dated as of April 13, 1995 among BJ SERVICES COMPANY, BJ SERVICES COMPANY, U.S.A., BJ SERVICE INTERNATIONAL, INC., BJ SERVICES COMPANY MIDDLE EAST, THE OTHER SUBSIDIARY BORROWERS FROM TIME TO TIME PARTIES HERETO, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, BANK OF AMERICA ILLINOIS, Individually and as Letter of Credit Issuing Bank, THE CHASE MANHATTAN BANK, N.A., Individually and as Co-Agent, CREDIT LYONNAIS CAYMAN ISLAND BRANCH, Individually and as Co-Agent, FIRST INTERSTATE BANK OF TEXAS, N.A. Individually and as Co-Agent, and THE OTHER FINANCIAL INSTITUTIONS PARTIES HERETO - - - - - - - - - - - - Arranged by BA SECURITIES, INC. - -------------------------------------------------------------------------------- ================================================================================ 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE II THE CREDITS AND CERTAIN PRICING TERMS . . . . . . . . . . . . . . . . . . . . . 22 2.01 Amounts and Terms of Commitments . . . . . . . . . . . . . . . . . . . . . . . . 22 2.02 Certain Pricing Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.03 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.04 Conversion and Continuation Elections . . . . . . . . . . . . . . . . . . . . . 27 2.05 Special Provisions for Swing Loans . . . . . . . . . . . . . . . . . . . . . . . 28 2.06 Voluntary Termination or Reduction of Commitments; Certain Other Terms Applicable to Termination or Reduction . . . . . . . . . . . . . . . . . . 29 2.07 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.08 Mandatory Prepayments of Loans . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.09 Mandatory Termination and Reduction of Commitments. . . . . . . . . . . . . . . 32 2.10 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.11 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.12 Computation of Fees and Interest . . . . . . . . . . . . . . . . . . . . . . . . 35 2.13 Payments by the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 2.14 Payments by the Banks to the Agent . . . . . . . . . . . . . . . . . . . . . . . 36 2.15 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE III THE LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.01 The Letter of Credit Subfacility. . . . . . . . . . . . . . . . . . . . . . . . 37 3.02 Issuance, Amendment and Renewal of Letters of Credit . . . . . . . . . . . . . . 38 3.03 Risk Participations, Drawings and Reimbursements . . . . . . . . . . . . . . . . 40 3.04 Repayment of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.05 Role of the Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.06 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.07 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.08 Cash Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 3.09 Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . . . . . . 45 4.01 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.02 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.03 Increased Costs and Reduction of Return . . . . . . . . . . . . . . . . . . . . 46 4.04 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.05 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.06 Certificates of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.07 Substitution of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.08 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-i- 3 ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.01 Conditions of Initial Credit Extensions . . . . . . . . . . . . . . . . . . . . 48 5.02 Additional Conditions of Initial Credit Extension . . . . . . . . . . . . . . . 52 5.03 Conditions of Initial Advance to each Subsidiary Borrower . . . . . . . . . . . 52 5.04 Conditions to All Credit Extensions . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . 54 6.01 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . 54 6.02 Corporate Authorization; No Contravention . . . . . . . . . . . . . . . . . . . 54 6.03 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 6.04 Other Debt Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 6.05 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 6.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 6.07 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 6.08 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 6.09 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . 55 6.10 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 6.12 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 6.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 6.14 Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 6.15 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.16 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.17 Copyrights, Patents, Trademarks and Licenses, etc. . . . . . . . . . . . . . . . 57 6.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.20 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.21 Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE VII AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.02 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . 59 7.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.04 Preservation of Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . 60 7.05 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.06 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.07 Payment of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.09 Inspection of Property and Books and Records . . . . . . . . . . . . . . . . . . 61 7.10 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.11 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.12 Certain Waivers Under the Merger Agreement. . . . . . . . . . . . . . . . . . . 62 7.13 New Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.01 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.02 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-ii- 4 8.03 Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 8.04 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 8.05 Foreign Subsidiary Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 67 8.06 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.07 Use of Proceeds; Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.08 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.09 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.10 Certain Other Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.11 Change in Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.12 Capitalization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.13 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 8.14 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 8.15 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 8.16 Subsidiary Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE IX EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.01 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.03 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 ARTICLE X THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 10.01 Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 75 10.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 10.03 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 10.04 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 10.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.06 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.08 Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.09 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.11 Co-Agents; Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 11.01 Renegotiation After May 15, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 80 11.02 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 11.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 11.04 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 82 11.05 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 11.06 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 11.07 Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 11.08 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 11.09 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . . . . . . . 83 11.10 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 11.11 Company as Subsidiary Borrower Representative . . . . . . . . . . . . . . . . . 86 11.12 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 11.13 Indemnity and Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 11.14 Notification of Addresses, Lending Offices, Etc. . . . . . . . . . . . . . . . . 87
-iii- 5 11.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 11.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 11.17 No Third Parties Benefitted . . . . . . . . . . . . . . . . . . . . . . . . . . 88 11.18 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 88 11.19 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 11.20 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SCHEDULES: Schedule 2.01 - Commitments Schedule 6.08 - ERISA Schedule 6.13 - Environmental Matters Schedule 6.17 - Intellectual Property Matters Schedule 6.18 - Subsidiaries and Minority Interests Schedule 6.19 - Insurance Matters Schedule 8.01 - Permitted Liens Schedule 8.01(c) - Existing Liens Schedule 8.02(e) - Disposition of Property Schedule 8.02(g) - Consolidation Dispositions of Property Schedule 11.03 - Lending Offices; Addresses for Notices EXHIBITS: Exhibit "A" - Form of Notice of Borrowing Exhibit "B" - Form of Notice of Conversion/Continuation Exhibit "C" - Form of Compliance Certificate Exhibit "D" - Form of Legal Opinion of Company's Counsel Exhibit "E" - Form of Assignment and Acceptance Agreement Exhibit "F" - Form of Revolving Note Exhibit "G" - Form of Term Note Exhibit "H" - Form of Swing Loan Note Exhibit "I" - Form of Parent Guaranty Agreement Exhibit "J" - Form of Domestic Subsidiary Guaranty Agreement Exhibit "K" - Form of Subsidiary Borrower Counterpart Exhibit "L" - Form of Swing Loan Participation Certificate Exhibit "M" - Form of Intercompany Subordination Agreement Exhibit "N" - Form of BJ Note Agreement Waiver -iv- 6 CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of April 13, 1995, among BJ SERVICES COMPANY, a Delaware corporation (the "Company"), BJ SERVICES COMPANY, U.S.A., a Delaware corporation and a Wholly-Owned Subsidiary of the Company ("BJ-USA"), BJ SERVICE INTERNATIONAL, INC., a Delaware corporation and a Wholly-Owned Subsidiary of the Company ("BJ-International"), BJ SERVICES COMPANY MIDDLE EAST, a Delaware corporation and a Wholly-Owned Subsidiary of the Company ("BJ-Middle East"), the other Subsidiary Borrowers (as defined below) from time to time parties to this Agreement (the Company, BJ-USA, BJ-International, BJ-Middle East and the other Subsidiary Borrowers are individually referred to herein as a "Borrower" and collectively as the "Borrowers"), the several financial institutions from time to time parties to this Agreement (collectively, the "Banks"; individually, a "Bank"), BANK OF AMERICA ILLINOIS, as letter of credit issuing bank, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for the Banks, and THE CHASE MANHATTAN BANK, N.A., CREDIT LYONNAIS CAYMAN ISLAND BRANCH and FIRST INTERSTATE BANK OF TEXAS, N.A., as co-agents for the Banks. WHEREAS, the Banks have agreed to make available to the Borrowers a term loan and revolving credit facility with letter of credit and swingline subfacilities upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following meanings: "Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock of a corporation (or similar entity), which stock has ordinary voting power for the election of the members of the acquiree's board of directors or persons exercising similar functions (other than stock having such power only by reason of the happening of a contingency), or the acquisition of in excess of 50% of the partnership interests or equity of any Person not a corporation which acquisition gives the acquirer the power to direct or cause the direction of the management and policies of the acquiree, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Company or a Subsidiary of the Company is the surviving entity. "Additional Proxy/Prospectus Documents" means all amendments and exhibits to, and documents related to, the Proxy/Prospectus Documents filed with the SEC or distributed to the stockholders of the Company or Western Company, in each case to the extent delivered to the Banks after the Execution Date. 7 "Affected Bank" means a Bank to whom a Borrower is required to make a payment pursuant to Section 4.01, 4.02 or 4.03. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "Agent" means Bank of America National Trust and Savings Association in its capacity as agent for the Banks hereunder, and any successor agent arising under Section 10.09. "Agent-Related Person" means each of the Agent, the Arranger, the Swing Loan Bank and the Issuing Bank and each of their respective officers, directors, employees, agents and attorneys-in-fact. "Agent's Payment Office" means the address for payments set forth on Schedule 11.03 in relation to the Agent, or such other address as the Agent may from time to time specify. "Agreement" means this Credit Agreement. "Applicable Margin" means with respect to LIBOR Offshore Rate Loans and Base Rate Loans, the specified percent per annum set forth in Section 2.02 of this Agreement. "Arranger" means BA Securities, Inc., a Delaware corporation. "Assignee" has the meaning specified in subsection 11.09(a). "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the reasonable allocated cost of internal legal services and all reasonable disbursements of internal counsel. "Available Amount" means at any date an amount equal to (i) 50% of Consolidated Net Income on a cumulative basis since the Execution Date plus (ii) 50% of the aggregate net cash proceeds from the issuance or sale (other than to the Company or a Subsidiary) after the Execution Date of shares of capital stock (other than Redeemable Preferred Stock) of the Company. "Bank" has the meaning specified in the introductory clause hereto. References to the "Banks" shall include Bank of America Illinois, including in its capacity as Swing Loan Bank and its capacity as Issuing Bank; for purposes of clarification only, to the extent that Bank of America Illinois may have any rights or obligations in addition to those of the Banks due to its status as Swing Loan Bank or as Issuing Bank, its status as such will be specifically referenced. "Bank of America NT & SA" means Bank of America National Trust and Savings Association, a national banking association. -2- 8 "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.). "Base Rate" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest per annum in effect for such day as publicly announced from time to time by Bank of America NT & SA in San Francisco, California, as its "reference rate." (The "reference rate" is a per annum rate set by Bank of America NT & SA based upon various factors including its costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by Bank of America NT & SA shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Term Loan, a Revolving Loan, a Swing Loan or a Letter of Credit Advance, that bears interest based on the Base Rate. "BJ-International" has the meaning specified in the introductory clause hereto. "BJ-Middle East" has the meaning specified in the introductory clause hereto. "BJ Note Agreements" means the two Note Agreements, each dated August 1, 1991, one being by and among the Company, BJ Services Company U.S.A., BJ Service International, Inc., BJ Services Company Middle East (collectively, the "BJ Note Debtors") and Connecticut Mutual Life Insurance Company, and the other being by and between the BJ Note Debtors and Principal Mutual Life Insurance Company, collectively providing for the issuance of $30,000,000 of 9.2% Senior Notes due August 1, 1998, each as amended by an Amendment to Note Agreement dated as of September 30, 1992. "BJ Notes" means the 9.2% Senior Notes issued by the Company and certain of its Subsidiaries pursuant to the BJ Note Agreements. "BJ-USA" has the meaning specified in the introductory clause hereto. "Borrower" and "Borrowers" have the meaning specified in the introductory clause hereto. "Borrowing" means a borrowing hereunder consisting of Revolving Loans, Swing Loans or Term Loans of the same Interest Rate Type made to the Borrowers on the same day by the Banks under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under Article II. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in Houston, Texas, New York, New York or San Francisco, California are authorized or required by law to close and, if the applicable Business Day relates to any LIBOR Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. -3- 9 "Capital Adequacy Regulation" has the meaning set forth in Section 4.03. "Capital Lease" means a capital lease as determined in accordance with GAAP. "Capitalization Ratio" means, at any time, the ratio of Consolidated Funded Indebtedness to Consolidated Total Capitalization. "Cash Equivalents" means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof and backed by the full faith and credit of the United States having maturities of not more than twelve (12) months from the date of acquisition; (b) certificates of deposit, time deposits, Eurodollar time deposits, or bankers' acceptances having in each case a tenor of not more than twelve (12) months from the date of acquisition issued by any U.S. commercial bank or any branch or agency of a non-U.S. commercial bank licensed to conduct business in the U.S. having combined capital and surplus of not less than Five Hundred Million Dollars ($500,000,000) whose long term securities are rated at least A (or then equivalent grade) by S&P and A2 (or then equivalent grade) by Moody's; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody's and in either case having a tenor of not more than twelve (12) months; and (d) debt securities which are registered under the Securities Act of 1933, as amended (the "Securities Act") (and not "restricted securities" in the Company's hands as defined in Rule 144 under the Securities Act), traded on a national securities exchange and issued by a corporation duly incorporated under the laws of a state of the United States, provided, however, that such debt securities are rated A2 by Moody's and A or better by S&P, and such debt securities have a maturity not in excess of twelve (12) months from the date of creation thereof. "Change of Control" means (a) purchase or acquisition, directly or indirectly, by any "person" or "group" within the meaning of Section 13(d)(3) and 14(d)(2) of the Securities and Exchange Act of 1934 (a "Group"), of "beneficial ownership" (as such term is defined in Rule 13d-3 under the Exchange Act) of securities of the Company which, together with any securities owned beneficially by any "affiliates" or "associates" of such Group (as such terms are defined in Rule 12b-2 under the Exchange Act), shall represent more than fifty percent (50%) of the combined voting power of the Company's securities which are entitled to vote generally in the election of directors and which are outstanding on the date immediately prior to the date of such purchase or acquisition; or (b) a sale of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or Group (other than to another Subsidiary Borrower(s)); or (c) the liquidation or dissolution of the Company; or (d) the first day on which a majority of the Board of Directors of the Company are not Continuing Directors (as herein defined). As herein defined, "Continuing Directors" means any member of the Board of Directors of the Company who (x) is a member of such Board of Directors as of the date of this Agreement or (y) was nominated for election or elected to such Board of Directors with the affirmative vote of two-thirds of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Closing Date" means the date on which all conditions precedent set forth in Sections 5.01 and 5.02 and 5.04 with respect to the obligation of each Bank to make its initial Credit Extension and the obligation of the Issuing Bank to issue the first Letter of Credit are satisfied or waived by all Banks (or, in the case of subsection 5.01(h), waived by the Person entitled to receive such payment). -4- 10 "Closing Date Pricing Certificate" has the meaning set forth in Section 5.01(j). "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Commitment" has the meaning set forth in subsection 2.01(b) and means, for each Bank, the sum of its Revolving Commitment and its Term Commitment. "Commitment Fee" has the meaning set forth in subsection 2.11(b). "Commitment Fee Percentage" means the specified percent per annum set forth in Section 2.02. "Commitment Percentage" means, for each Bank, the percentage of the aggregate Commitments as set forth opposite such Bank's name in Schedule 2.01 under the heading "Commitment Percentage" as the same may be reduced as a result of one or more assignments pursuant to Section 11.09. "Compliance Certificate" means a certificate substantially in the form of Exhibit "C". "Consolidated EBIT" means, for the relevant period, the sum of: (a) the Consolidated Net Income for such period, (b) Consolidated Interest Expense and (c) all taxes measured by income to the extent included in the determination of such Consolidated Net Income; provided, however, that Consolidated Net Income shall be computed for the purposes of this definition without regard to non-cash write-ups and write-downs, and without giving effect to extraordinary losses or extraordinary gains for such period. "Consolidated EBITDA" means, for the relevant period, Consolidated EBIT plus all amounts treated as expenses for depreciation and the amortization of intangibles of any kind for such period to the extent included in the determination of such Consolidated Net Income for the relevant period. "Consolidated Funded Indebtedness" means, for the Company and its Consolidated Subsidiaries, at any time, without duplication, the sum of: (a) liability for borrowed money (including the outstanding principal amount of the Western Subordinated Debentures and the outstanding principal amount of the BJ Notes) or for the deferred purchase price of property or services, (b) obligations under leases which in accordance with GAAP should be recorded as Capital Leases, and (c) all Redeemable Preferred Stock, valued at the applicable redemption price. "Consolidated Interest Expense" means, for the relevant period, for the Company and its Consolidated Subsidiaries, without duplication, the sum of: (a) all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period and including fees payable in respect of letters of credit and bankers' acceptances), (b) the net amount payable (or minus the net amount receivable) under all Swap Contracts during such period (whether or not actually paid or received during such period), and (c) all dividends paid, declared or otherwise accrued in respect of preferred stock, minus (d) interest income. -5- 11 "Consolidated Net Income" means, for any period, the net income (or net loss) of the Company and its Consolidated Subsidiaries for such period taken as a single accounting period determined in accordance with GAAP. "Consolidated Net Worth" means, at any date, an amount equal to the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries determined in accordance with GAAP determined as of such date, excluding any Redeemable Preferred Stock. "Consolidated Subsidiary" means, at any date, any Subsidiary the accounts of which, in accordance with GAAP, would be consolidated with those of the Company in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Total Capitalization" means, at any time, the sum of (a) Consolidated Funded Indebtedness and (b) Consolidated Net Worth for such period. "Contingent Obligation" means, as to any Person, without duplication, any direct or indirect liability of that Person, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument (other than any Letter of Credit) issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; provided, however, that "Contingent Obligations" shall not include (i) bid and performance bonds incurred in the ordinary course of business of the Company or any Subsidiary, or (ii) any liabilities or obligations (whether previously contingent, unliquidated or otherwise) which have been accrued or reserved for and would be shown on the Company's consolidated balance sheet for the relevant period in which such reserve and concomitant accrual were effected. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the maximum stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations, shall be equal to the maximum reasonably anticipated liability in respect thereof. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.04, the Company (a) converts Loans of one Interest Rate Type to another Interest Rate Type, or (b) -6- 12 continues as Loans of the same Interest Rate Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Credit Extension" means and includes (a) the making of any Revolving Loans, Swing Loans or Term Loans hereunder, and (b) the Issuance of any Letters of Credit hereunder. "Debenture-Related Term Loans" means Term Loans in an aggregate principal amount not in excess of $40,000,000, the proceeds of which shall be used to repurchase or redeem the Western Subordinated Debentures. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Default Rate" has the meaning set forth in subsection 2.10(d)(iii). "Disposition" means the sale, lease, conveyance or other disposition of property. "Dollars", "dollars" and "$" each mean lawful money of the United States. "Domestic Subsidiary" means any Subsidiary other than a Foreign Subsidiary. "Effective Amount" means (a) with respect to any Revolving Loans, Term Loans and Swing Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Revolving Loans, Term Loans and Swing Loans occurring on such date; and (b) with respect to any outstanding Letter of Credit Obligations on any date, the amount of such Letter of Credit Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the Letter of Credit Obligations as of such date, including as a result of any reimbursements of drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "Eligible Assignee" has the meaning set forth in subsection 11.09(b). "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and -7- 13 Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate (other than pursuant to Section 4041(b) of ERISA), the treatment of a Plan amendment as a termination under Section 4041(c) or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurodollar Reserve Percentage" has the meaning specified in the definition of "LIBOR Offshore Rate". "Event of Default" means any of the events or circumstances specified in Section 9.01. "Execution Date" means the date this Agreement is executed and delivered by the parties hereto. "Existing Company Credit Agreement" means the Amended and Restated Credit Agreement, dated as of August 11, 1992, among the Company, the Subsidiary Borrowers as therein defined, the agent and the banks signatory thereto, as amended by the First Amendment dated as of September 11, 1992 and the Second Amendment dated September 30, 1992. "Existing Western Credit Agreements" mean the First Amended and Restated Credit Agreement dated as of May 18, 1992, and the First Amended and Restated Revolving Credit Agreement dated as of May 18, 1992, each among Western Company, the Agent therein named and the Banks signatory thereto. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. -8- 14 "Fee Letter" has the meaning specified in subsection 2.11(a). "Financial Letter of Credit" has the meaning set forth in subsection 3.02(a). "Foreign Subsidiary" means, as of any date of determination, a Subsidiary which is incorporated or organized under the laws of any jurisdiction other than the District of Columbia or the United States of America or any state thereof. "Free Cash Flow" means, for any period, the excess, if any, of (a) Consolidated EBITDA for such period, over (b) the sum of: (i) Consolidated Interest Expense for such period, (ii) scheduled principal repayments, (iii) any gain on sale which has been included in Net Proceeds which have been paid as mandatory prepayments pursuant to subsection 2.08(b) of this Agreement to the extent included in Consolidated EBITDA, (iv) consolidated capital expenditures for such period, and (v) income taxes paid in cash by the Company and its Consolidated Subsidiaries during such period. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "Fronting Fees" has the meaning set forth in Section 3.07(b). "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guaranty" means, collectively, the Parent Guaranty and the Subsidiary Guaranties. "Parent Guaranty" means the Guaranty substantially in the form of Exhibit "I" hereto executed by the Company, and "Subsidiary Guaranties" means each of the Guaranties substantially in the form of Exhibit "J" hereto executed by each of the Subsidiary Guarantors, each in favor of the Agent and the Banks, as they may be amended, supplemented or otherwise modified from time to time. "Honor Date" has the meaning specified in subsection 3.03(b). "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar -9- 15 instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to Capital Leases; (g) all indebtedness referred to in clauses (a) through (f) above 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 accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; provided, however, that Indebtedness shall not include obligations for borrowed money owed to the Company or to any Consolidated Subsidiary by any Consolidated Subsidiary or by the Company. "Indemnified Liabilities" has the meaning specified in Section 11.06. "Indemnified Person" has the meaning specified in Section 11.06. "Insolvency Proceeding" means (a) any case, action or proceeding relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Intercompany Subordination Agreement" means an Intercompany Subordination Agreement substantially in the form of Exhibit "M" hereto. "Interest Coverage Ratio" means, for any period, the ratio of Consolidated EBIT to Consolidated Interest Expense. "Interest Payment Date" means, as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter and each date such Loan is converted into another Interest Rate Type of Loan, provided, however, that if any Interest Period for a LIBOR Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period, and the date that falls three months after each Interest Payment Date thereafter, is also an Interest Payment Date. "Interest Period" means, as to any LIBOR Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as a LIBOR Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation; -10- 16 provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Offshore Rate Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to a LIBOR Offshore Rate Loan that begins on the last Business 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 Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; (iii) no Interest Period for any Term Loan shall extend beyond the Term Loan Maturity Date and no Interest Period for any Revolving Loan shall extend beyond the Revolving Termination Date; and (iv) if any Interest Period for any Loan would otherwise end beyond a scheduled principal payment date, then (a) the Interest Period for the principal amount of Loans (if any) that are required to be repaid on such principal payment date shall end on such date and (b) the remainder (if any) of such Loans shall have an Interest Period as set forth above. "Interest Rate Type" means, with reference to Loans, a Base Rate Loan or a LIBOR Offshore Rate Loan. "Interim Adverse Action" is any action which Western is not permitted to take without the Company's consent pursuant to the Merger Agreement if the taking of such action would have resulted in a Default or Event of Default under this Agreement if this Agreement were in effect at the time such action is taken and Western were a Subsidiary of the Company at the time such action is taken. "Investment" has the meaning specified in Section 8.04. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Issuance Date" has the meaning specified in subsection 3.01(a). "Issue" means, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "Issuing Bank" means Bank of America Illinois in its capacity as issuer of one or more Letters of Credit hereunder, together with any successor letter of credit issuer pursuant to Section 11.09 and any replacement letter of credit issuer. -11- 17 "Joint Venture" means a single-purpose corporation, partnership, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person, which is not to be accounted for on a consolidated basis with the Company in accordance with GAAP. "Lending Office" means, as to any Bank, the office or offices of such Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 11.03, or such other office or offices as such Bank may from time to time notify the Company and the Agent. "Letter of Credit" means any Financial Letter of Credit and any Performance Letter of Credit Issued by the Issuing Bank pursuant to Article III. "Letter of Credit Advance" means each Bank's participation in any Letter of Credit Borrowing in accordance with its Pro Rata Share. "Letter of Credit Application" and "Letter of Credit Amendment Application" means an application form for Issuance of, and for amendment of, Letters of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "Letter of Credit Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made in accordance with subsection 3.03(b) nor converted into a Borrowing of Revolving Loans under subsection 3.03(c). "Letter of Credit Commitment" means the commitment of the Issuing Bank to Issue, and the commitment of the Banks severally to participate in, Letters of Credit from time to time Issued or outstanding under Article III, in an aggregate amount not to exceed on any date the amount of $20,000,000; provided that the Letter of Credit Commitment is a part of the combined Revolving Commitments, rather than a separate, independent commitment. "Letter of Credit Obligations" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding Letter of Credit Borrowings. "Letter of Credit-Related Documents" means the Letters of Credit, the Letter of Credit Applications, the Letter of Credit Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for letter of credit issuances. "LIBOR Offshore Rate" means, for any Interest Period, with respect to LIBOR Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Agent as follows: -12- 18 LIBOR Offshore Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBOR" means the rate of interest per annum determined by the Agent to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rate of interest per annum notified to the Agent by the Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, a LIBOR Offshore Rate Loan by Bank of America Illinois and having a maturity comparable to such Interest Period would be offered to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The LIBOR Offshore Rate shall be adjusted automatically as to all LIBOR Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "LIBOR Offshore Rate Loan" means a Loan that bears interest based on the LIBOR Offshore Rate. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not in any event including the interest of a lessor under an Operating Lease. "Loan" means a Credit Extension by a Bank to the Borrowers under Article II or Article III in the form of a Revolving Loan, Swing Loan, Term Loan or Letter of Credit Advance. -13- 19 "Loan Documents" means this Agreement, the Notes, the Guaranties, the Fee Letter, the Letter of Credit-Related Documents, and all other documents executed by the Company or any Subsidiary with or in favor of the Agent or any Bank in connection herewith. "Majority Banks" means at any time Banks then holding at least 66-2/3% of the then aggregate unpaid principal amount of the Loans and the Letter of Credit Obligations, or, if no such principal amount is then outstanding, Banks then having at least 66-2/3% of the Commitments. "Mandatory Prepayment Date" has the meaning set forth in subsection 2.09(b) of this Agreement. "Margin Stock" means "margin stock" as such term is defined in Regulation U or X of the FRB. "Material Adverse Credit Agreement Effect" means (a) a material impairment of the ability of the Company or any Subsidiary to perform its obligations under any Loan Document to which it is a party or (b) a material adverse effect upon the legality, validity, binding effect or enforceability in any material respect against the Company or any Subsidiary of any Loan Document, in either case which occurs after the Execution Date. "Material Adverse Effect" means a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole (including Western Company and its Subsidiaries). "Material Subsidiary" means (i) any Foreign Subsidiary with assets having a book value of $750,000 or more and (ii) any Domestic Subsidiary. "Merger" means the merger of Western Company into the Company, pursuant to the terms, provisions and conditions set forth in the Merger Agreement. "Merger Agreement" means that certain Agreement and Plan of Merger, dated as of November 17, 1994, among the Company, WCNA Acquisition Corp. and Western Company, as amended by First Amendment to Merger Agreement dated March 7, 1995, as may be further amended with the approval of the Banks, which approval the Banks hereby agree they shall not unreasonably withhold. "Merger Effective Time" means the time and the date the Merger becomes effective pursuant to Delaware law. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. -14- 20 "Net Proceeds" means, as to any Disposition by a Person, proceeds as and when received by such Person, net of: (a) the direct costs relating to such Disposition excluding amounts payable to such Person or any Affiliate of such Person, (b) sales, use or other transaction taxes paid or payable by such Person as a direct result thereof, and (c) amounts required to be applied to repay principal, interest and prepayment premiums and penalties on purchase money Indebtedness secured by a Lien on the asset which is the subject of such Disposition. "Note" means a Revolving Note, a Swing Loan Note or a Term Note and "Notes" means the Revolving Notes, the Swing Loan Notes and the Term Notes. "Notice of Borrowing" means a notice in substantially the form of Exhibit "A". "Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit "B". "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by any Borrower to any Bank, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Operating Lease" means an operating lease determined in accordance with GAAP. "Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Debt Documents" means the BJ Notes, the BJ Note Agreement, the Western Notes, the Western Note Agreement, the Western Subordinated Debentures, and the Western Indenture, and all other documents executed in connection therewith. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Participant" has the meaning specified in subsection 11.09(e). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA, other than a Multiemployer Plan, which any Borrower or any Subsidiary of a Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "Performance Letter of Credit" has the meaning set forth in subsection 3.02(a). -15- 21 "Permitted Business" has the meaning set forth in Section 8.09. "Permitted Liens" has the meaning set forth in Section 8.01. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to ERISA, other than a Multiemployer Plan, and which any Borrower or any Subsidiary of a Borrower sponsors or maintains or to which any Borrower or any Subsidiary of a Borrower makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pro Rata Share" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Proposed Amendment Due Date" has the meaning set forth in Section 11.01 of this Agreement. "Proxy/Prospectus Documents" means the Proxy Statement and the Prospectus filed by the Company and/or Western Company in connection with the Merger and all amendments and exhibits thereto and related documents filed with the SEC or distributed to the stockholders of the Company or Western Company, in each case to the extent delivered to the Banks prior to the Execution Date. "Redeemable Preferred Stock" means preferred stock that has, or is convertible into any security that has, mandatory redemption or repurchase requirements (other than those exercisable solely at the option of the issuer of said stock) on or prior to the later of (x) the Term Loan Maturity Date or (y) the Revolving Termination Date. "Reference Bank" means Bank of America National Trust and Savings Association. "Refinancing" means any renewal, extension, renewal and extension, rearrangement, replacement or substitution, modification or other amendment to or of any existing obligation involving the payment of money; provided that the principal amount secured thereby is not greater than the principal amount outstanding at the time of such Refinancing. "Regulation U" and "Regulation X" mean Regulation U and Regulation X, respectively, of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulations or official interpretations of said Board of Governors relating to the subject matter addressed therein. "Related Agreements" means the Merger Agreement, all other agreements executed by the Company or any of its Subsidiaries in connection with the Merger Agreement, all consents and waivers granted by any party to the Merger Agreement to another party thereto, and any notice of breach under the Merger Agreement given by a party thereto to another party thereto. -16- 22 "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Required Prepayment Amount" has the meaning set forth in subsection 2.09(b) of this Agreement. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief financial officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility. "Restricted Fiscal Quarter" means each fiscal quarter of the Company and its Consolidated Subsidiaries next following a fiscal quarter ending date as of which the Capitalization Ratio, determined as of such fiscal quarter ending date, is greater than 35%. For example, if the Capitalization Ratio for the fiscal quarter ending June 30, 1995 (determined as of the end of such fiscal quarter) were 36%, the fiscal quarter period beginning on July 1, 1995 and ending on September 30, 1995 would be a Restricted Fiscal Quarter. "Restricted Payment" means, as to any Person, any dividend or other distribution of assets, properties, cash, rights, obligations or securities made by such Person or any Subsidiary of such Person on account of shares of such Person's capital stock, or any partnership interest or similar ownership interest in such Person, or any purchase, retirement, redemption or other acquisition made by such Person or any Subsidiary of such Person of any such capital stock, partnership interest or similar ownership interest or warrants, rights or options evidencing a right to acquire such shares or interests; provided, however, that neither dividends on preferred stock nor redemptions of Redeemable Preferred Stock shall constitute Restricted Payments. "Revolving Commitments" means the commitments of the Banks to make Loans pursuant to subsection 2.01(b) in a maximum aggregate amount not to exceed $175,000,000, as may be reduced pursuant to Section 2.06 of this Agreement. "Revolving Loan" has the meaning specified in subsection 2.01(b) of this Agreement. "Revolving Note" means a promissory note in substantially the form of Exhibit "F" hereto, duly executed and delivered to the Agent by a Borrower and payable to the order of a Bank in the amount of its Revolving Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Revolving Termination Date" means the earlier to occur of: (a) five years from the Execution Date; and (b) the date on which the Revolving Commitments terminate in accordance with the provisions of this Agreement. -17- 23 "Risk Participation Fee-Financial Letter of Credit" and "Risk Participation Fee-Performance Letter of Credit" mean the fees payable pursuant to Section 3.07 of this Agreement, calculated as set forth in Section 2.02 of this Agreement, and "Risk Participation Fees" means both such fees. "S&P" means Standard & Poor's Corporation. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Solvent" means, as to any Person at any time, that (a) the fair value of all of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (b) the present fair saleable value of all of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Stock/Cash Consideration" means any one or more of the following or a combination of any one or more of the following: Stock Consideration (and cash in lieu of fractional shares of BJ Common Stock and associated BJ Purchase Rights), Cash Consideration and Warrant Consideration, in each case as defined in the Merger Agreement. "Subsidiary" of a Person means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. As of the Closing Date, "Subsidiaries" of the Company include Western Company and its Subsidiaries. "Subsidiaries" of the Company shall include all Consolidated Subsidiaries. "Subsidiary Borrower" means each Subsidiary which has executed and delivered this Agreement (including by means of execution and delivery of a Subsidiary Borrower Counterpart) and has satisfied the requirements of Section 5.03 of this Agreement, and its permitted successors and assigns. "Subsidiary Borrower Counterpart" means a counterpart in substantially the form of Exhibit "K" hereto. "Subsidiary Guarantors" means the Subsidiary Borrowers, Western Petroleum Services International Company, a Delaware corporation, and any other Subsidiaries who execute a Guaranty in favor of the Agent and the Banks, and "Subsidiary Guarantor" means a single such Subsidiary Guarantor. -18- 24 "Surety Instruments" means all letters of credit (including standby), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement (including any master agreement and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, currency swap agreement, cross-currency rate swap agreement, swaption, currency option or any other, similar agreement (including any option to enter into any of the foregoing). "Swing Loan" has the meaning set forth in Section 2.01(c). "Swing Loan Bank" means Bank of America Illinois, its successors and assigns. "Swing Loan Commitment" means the commitment of the Swing Loan Bank to make loans from time to time pursuant to subsection 2.01(c) in an aggregate amount not to exceed on any date the amount of $20,000,000 (in minimum increments of $1,000,000), as the same shall be reduced as a result of a reduction in the Swing Loan Commitment pursuant to Section 2.06; provided that the Swing Loan Commitment is a part of the combined Revolving Commitments, rather than a separate, independent commitment. "Swing Loan Note" means a promissory note in substantially the form of Exhibit "H" hereto, duly executed and delivered to the Agent by a Borrower and payable to the order of the Swing Loan Bank in the amount of its Swing Loan Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Swing Loan Participation Certificate" means a Participation Certificate substantially in the form of Exhibit "L". "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings which arise from or are assessed in connection with any payment made hereunder or under any Note or the execution, delivery, or registration of, or otherwise with respect to, this Agreement or any other Loan Documents, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income and/or assets by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office. "Term Commitments" means the commitments of the Banks to make Loans pursuant to Section 2.01(a) in a maximum aggregate amount not to exceed $265,000,000, subject to reduction pursuant to Sections 2.06 and 2.09 of this Agreement. "Term Loan Availability Period" means the period from the Closing Date through the earlier of (a) June 29, 1996 or (b) the date which is 365 days after the Closing Date. "Term Loan Borrower" means the Company. -19- 25 "Term Loan Maturity Date" means March 31, 2001. "Term Loans" has the meaning specified in subsection 2.01(a). Term Loans includes Term Loans made on the Closing Date and other Term Loans made during the remainder of the Term Loan Availability Period. "Term Note" means a promissory note in substantially the form of Exhibit "G" hereto, duly executed and delivered to the Agent by the Term Loan Borrower and payable to the order of a Bank in the amount of its Term Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Unfunded Pension Liability" means the excess of the actuarial present value of a Pension Plan's benefit liabilities, determined in the manner provided in Section 4041 of ERISA, over the current value of that Pension Plan's assets as reported in Schedule B to the Form 5500 for that Pension Plan. "Western Company" and "Western" mean The Western Company of North America, a Delaware corporation. "Western Indenture" means the Indenture dated as of January 15, 1990 between Western Company as Issuer and Harris Trust and Savings Bank as Trustee relating to the 7-1/4% Convertible Subordinated Debentures issued by Western Company, as amended by Supplemental Indenture dated April 13, 1995. "Western Note Agreement" means the Indenture dated as of November 15, 1992 between Western Company and United States Trust Company of New York as Trustee, as amended by First Amendment dated March 2, 1994, and as amended by Supplemental Indenture dated April 13, 1995. "Western Notes" means the 12-7/8% Senior Notes due 2002 issued by Western pursuant to the Western Note Agreement. "Western Subordinated Debentures" means the 7-1/4% Convertible Subordinated Debentures due January 15, 2015 issued by Western Company pursuant to the Western Indenture. "Wholly-Owned Subsidiary" means any corporation in which (other than directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. 1.02 Other Interpretive Provisions. The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. Unless otherwise specified or the context clearly requires otherwise, the words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement. The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term "including" is not limiting and means -20- 26 "including without limitation." In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, each Borrower and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. 1.03 Accounting Principles. Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. References to "consolidated", when it precedes any accounting term, means such term as it would apply to the Company and its Consolidated Subsidiaries on a consolidated basis, determined in accordance with GAAP. ARTICLE II THE CREDITS AND CERTAIN PRICING TERMS 2.01 Amounts and Terms of Commitments. (a) The Term Credit. Each Bank severally agrees, on the terms and conditions set forth herein, to make loans to the Term Loan Borrower (each such loan, a "Term Loan") during the Term Loan Availability Period in an aggregate amount not to exceed such Bank's Pro Rata Share of the Term Commitments as set forth on Schedule 2.01. (i) Term Loans in a maximum aggregate amount of $225,000,000 may be made from time to time on any Business Day during the period from the Closing Date through April 28, 1995. (ii) In addition, Debenture-Related Term Loans may be made to the Term Loan Borrower on or after the Closing Date and during the Term Loan Availability Period in an aggregate amount not to exceed $40,000,000 (less a dollar amount equal to the excess, if any, of (x) the dollar amount of any reduction of the Term Commitments pursuant to Section 2.06 or 2.09 over (y) the aggregate principal amount of Term Loans made during the period from the Closing Date through April 28, 1995). Amounts borrowed as Term Loans which are repaid or prepaid by the Term Loan Borrower may not be reborrowed. (b) The Revolving Credit. Each Bank severally agrees, on the terms and conditions set forth herein, to make loans to the Borrowers (each such loan, a "Revolving Loan") -21- 27 from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding, such Bank's Pro Rata Share of the Revolving Commitments as set forth on Schedule 2.01 (such Bank's Pro Rata Share of the Revolving Commitment, together with such Bank's Pro Rata Share of the Term Commitments, as the same may be reduced under Section 2.06 or as a result of one or more assignments under Section 11.09, such Bank's "Commitment"); provided, however, that, after giving effect to any Borrowing of Revolving Loans, the Effective Amount of all outstanding Revolving Loans and all outstanding Swing Loans, together with all Term Loans outstanding at such time and the Effective Amount of all Letter of Credit Obligations, shall not at any time exceed the combined Commitments; and provided further, that the (i) Effective Amount of any Bank's Revolving Loans plus, (ii) the aggregate principal amount of such Bank's participation in Swing Loans, plus (iii) if such Bank is the Swing Loan Bank, the principal amount of Swing Loans in which other Banks have not participated, plus (iv) the participation of such Bank in the Effective Amount of all Letter of Credit Obligations, shall not at any time exceed such Bank's Revolving Commitment. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow Revolving Loans under this subsection 2.01(b), prepay Revolving Loans under Section 2.07 and reborrow Revolving Loans under this subsection 2.01(b). (c) Swing Loan Commitment. Subject to the terms and conditions of this Agreement, the Swing Loan Bank agrees to make one or more loans to the Borrowers (each such loan, a "Swing Loan") from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed the Swing Loan Commitment; provided, however, that, after giving effect to any Borrowing of Swing Loans, the Effective Amount of all outstanding Revolving Loans and all outstanding Swing Loans, together with all Term Loans outstanding at such time and the Effective Amount of all Letter of Credit Obligations, shall not at any time exceed the combined Commitments; and provided further, that the (i) Effective Amount of all outstanding Revolving Loans plus, (ii) the Effective Amount of all outstanding Swing Loans, plus (iii) the Effective Amount of all Letter of Credit Obligations, shall not at any time exceed the combined Revolving Commitments. Within the limits of the Swing Loan Bank's Swing Loan Commitment, and subject to the other terms and conditions hereof, the Company may borrow Swing Loans under this subsection 2.01(c), prepay Swing Loans under Section 2.07 and reborrow Swing Loans under this subsection 2.01(c). 2.02 Certain Pricing Terms. (a) Pricing Based on Capitalization Ratio. The Applicable Margin, the Risk Participation Fees, and the Commitment Fee shall be equal to the specified percent per annum set forth below, in each case based upon the Capitalization Ratio as measured at the end of the preceding fiscal quarter of the Company. -22- 28 PRICING CHART
CR CR CR greater greater greater than than than or equal or equal or equal CR CR to 35% to 40% to 45% greater less less less less than than than than than or equal 35% 40% 45% 50% to 50% ------ ---------- ---------- ---------- ---------- Applicable Margin (LIBOR) .450% .500% .625% .750% .875% Applicable Margin (Base Rate) 0 0 0 0 0 Risk Participation Fee- .350% .40% .525% .650% .775% Financial Letter of Credit Risk Participation Fee- .225% .250% .3125% .375% .4375% Performance Letter of Credit Commitment Fee .175% .200% .225% .250% .275%
DEFINITION: "CR" is the abbreviation for Capitalization Ratio. (b) Procedure for Adjustments. During the period from the Execution Date through the last day of the fiscal quarter in which the Closing Date occurs, for purposes of the pricing chart set forth above, the Capitalization Ratio shall be assumed for interim calculation purposes to be the amount set forth in the Closing Date Pricing Certificate. Thereafter, the Applicable Margin, the Risk Participation Fees and the Commitment Fee shall be calculated in reliance on the financial reports and Compliance Certificate delivered pursuant to Sections 7.01 and 7.02 hereof with respect to the fiscal quarter ending immediately before the fiscal quarter in question (e.g., the financial statements for the first fiscal quarter of a fiscal year are used to determine the Applicable Margin, Risk Participation Fees and Commitment Fee for the second fiscal quarter). Because such financial statements are not required to be delivered until 45 days (or 90 days in the case of annual reports) after the end of a fiscal quarter, the Applicable Margin, Risk Participation Fees and Commitment Fee for each fiscal quarter shall be assumed for interim calculation and collection purposes, until delivery of such financial reports and Compliance Certificate, to be the same as for the immediately preceding fiscal quarter. The Applicable Margin, Risk Participation Fees and Commitment Fee shall be adjusted automatically in accordance with the provisions of subsection 2.02(c) and shall apply to all Loans then outstanding (without regard to the timing of Interest Periods) and as to all Letters of Credit then outstanding, as of the effective date of any change in the Applicable Margin, Risk Participation Fees and Commitment Fee. (c) Quarterly Adjustments. (i) If the financial reports delivered pursuant to Section 7.01, and the certificate delivered pursuant to subsection 7.02(a) when delivered with respect to any fiscal quarter indicate that the Applicable Margin, Risk Participation Fee or Commitment Fee for any such period should have been higher than the Applicable Margin, Risk Participation Fee or Commitment Fee assumed for such period pursuant to Section 2.02(b) above, and the interest or fee that would have been collected hereunder based upon the actual Applicable Margin, Risk -23- 29 Participation Fee or Commitment Fee exceeds the interest or fee actually collected hereunder, then the Company shall pay an amount equal to such excess Commitment Fee, and the applicable Borrower shall pay an amount equal to such excess Risk Participation Fee and Applicable Margin. The Agent will provide a statement to the Company of such amounts due within five (5) Business Days of the Agent's receipt of such financial reports and certificate, and the Company (and, if applicable, the other Borrower(s)) shall pay such amounts within three (3) Business Days of receipt of such statement; provided that the failure of the Agent to provide any such statement shall not limit or otherwise affect the Company's or any other Borrower's obligations hereunder or under any Note. (ii) If (A) the financial reports delivered pursuant to Section 7.01 and the certificate delivered pursuant to subsection 7.02(a) when delivered with respect to any fiscal quarter indicate that the Applicable Margin, Risk Participation Fee or Commitment Fee for any such period should have been lower than the Applicable Margin, Risk Participation Fee or Commitment Fee assumed for such period pursuant to the definitions of such terms, and (B) the interest or fee actually collected hereunder exceeds the interest or fee that would have been collected hereunder based upon the actual Applicable Margin, Risk Participation Fee or Commitment Fee, then the Agent shall credit such excess to interest and fees owing hereunder during the calendar quarter when such financial reports and certificate were received. If all such excess is not credited by the end of such calendar quarter, then the Agent shall credit such excess to interest and fees owing hereunder during the next succeeding calendar quarter or if the Company so requests, each Bank, severally, if no Default or Event of Default exists, shall refund to the Agent for distribution to the Company the amount of such excess actually received and retained by such Bank. (d) Senior Debt Rating. Notwithstanding the foregoing, in the event senior debt issued by the Company is at any time rated BBB or higher by S&P and Baa2 or higher by Moody's, the Applicable Margin, the Risk Participation Fees and the Commitment Fee shall be determined as if the Capitalization Ratio were ( 35%. The Company agrees to notify the Agent and the Banks if any senior debt issued by the Company is rated BBB or higher by S&P and Baa2 or higher by Moody's; and thereafter, the Company shall notify the Agent and the Banks immediately if the S&P or the Moody's rating on such senior debt is lowered below such level. Each such notice of changed senior debt rating shall specify the new rating and the effective date thereof, and shall be accompanied by a copy of the announcement issued by S&P or by Moody's, as applicable. Each adjustment of the Applicable Margin, the Risk Participation Fees and the Commitment Fee pursuant to this subsection 2.02(d) shall be made by the Agent and shall be effective as to all outstanding Loans then outstanding (without regard to the timing of Interest Periods) as of the date the changed rating is effective (the "Effective Date"). The Agent shall not be deemed to have notice of any change in rating unless it receives notice from the Company or a Bank of such rating, together with a copy of the announcement from S&P or Moody's. 2.03 Procedure for Borrowing. (a) Notice of Borrowing. (i) Revolving Loans or Term Loan. Each Borrowing of Revolving Loans or Term Loans, respectively, shall be made upon the irrevocable written notice by any Borrower delivered to the Agent in the form of a Notice of Borrowing, which notice must be -24- 30 received by the Agent prior to (x) 9:00 a.m. (San Francisco time) three (3) Business Days prior to the requested Borrowing Date, in the case of LIBOR Offshore Rate Loans, and (y) 11:00 a.m. (San Francisco time) one (1) Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the name of the Borrower; (B) the amount of the Borrowing, which shall be in an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; (C) the requested Borrowing Date, which shall be a Business Day; (D) the Interest Rate Type of Loans comprising the Borrowing; and (E) the duration of the Interest Period applicable to any LIBOR Offshore Rate Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of LIBOR Offshore Rate Loans, such Interest Period shall be three months. (ii) Swing Loans. Each Borrowing of Swing Loans shall be made upon the irrevocable written notice by any Borrower delivered to the Agent (with a copy to the Swing Loan Bank) in the form of a Notice of Borrowing, which notice must be received by the Agent and the Swing Loan Bank at or prior to 12:00 Noon (San Francisco time) on the requested Borrowing Date, specifying: (A) the name of the Borrower; (B) the amount of the Borrowing, which shall be in an aggregate minimum amount of $1,000,000 or any multiple of $1,000,000; and (C) the requested Borrowing Date, which shall be a Business Day. All Swing Loans shall be Base Rate Loans. (b) Funding Mechanics. (i) Revolving Loans and Term Loans. (A) The Agent will promptly notify each Bank of its receipt of any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that Borrowing and (B) each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Agent for the account of the applicable Borrower, at the Agent's Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date requested in the Notice of Borrowing in funds immediately available to the Agent. The proceeds of all such Loans will then be made available by the Agent to the Borrower specified in the Notice of Borrowing by wire transfer in accordance with written instructions provided to the Agent by the Borrower of like funds as received by the Agent. (ii) Swing Loans. The Swing Loan Bank will make available to the applicable Borrower at its account at the Swing Loan Bank, on or before close of business on the requested Borrowing Date, in immediately available funds, the proceeds of the Swing Loans being made on such date. (c) Interest Rate Periods. After giving effect to any Borrowing, there may not be more than 10 different Interest Periods in effect. 2.04 Conversion and Continuation Elections. (a) Any Borrower may, upon irrevocable written notice to the Agent in accordance with subsection 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of LIBOR Offshore Rate Loans, to convert any such Revolving Loans or Term Loans (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Loans of the other Interest Rate Type; or (ii) elect as of the last day of the applicable Interest -25- 31 Period, to continue any Revolving Loans or Term Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided, that if at any time the aggregate amount of LIBOR Offshore Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such LIBOR Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrowers to continue such Loans as, and convert such Loans into, LIBOR Offshore Rate Loans, as the case may be, shall terminate. (b) A Borrower shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than (i) 9:00 a.m. (San Francisco time) at least three (3) Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as LIBOR Offshore Rate Loans, and (ii) 11:00 a.m. (San Francisco time) one (1) Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or renewed; (C) the Interest Rate Type of Loans resulting from the proposed conversion or continuation; and (D) in the case of LIBOR Offshore Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to LIBOR Offshore Rate Loans, a Borrower has failed to select timely a new Interest Period to be applicable to such LIBOR Offshore Rate Loans, as the case may be, or if any Default or Event of Default then exists, such Borrower shall be deemed to have elected to convert such LIBOR Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by any Borrower, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Majority Banks otherwise agree, during the existence of a Default or Event of Default, no Borrower may elect to have a Loan converted into or continued as a LIBOR Offshore Rate Loan. (f) After giving effect to any conversion or continuation of Loans, there may not be more than 10 different Interest Periods in effect. (g) No Swing Loans may be converted to LIBOR Offshore Rate Loans. 2.05 Special Provisions for Swing Loans. (a) Banks to Make Revolving Loans. (i) The Swing Loan Bank, at any time in its discretion, upon written request to the Banks through the Agent (with a copy to the applicable Borrower), may require each Bank (including the Swing Loan Bank) to make a Revolving Loan, subject to the provisions of subsection 2.01(b) hereof, in an amount equal to such Bank's Pro Rata Share of the -26- 32 outstanding Swing Loans. The Swing Loan Bank shall deliver such request to the Agent prior to 12:00 noon (San Francisco time) on the Business Day next preceding the date (which shall be a Business Day) on which such Revolving Loans are to be made. Promptly upon receipt of any such request, the Agent shall give notice thereof to the Banks. The Agent shall apply the proceeds of such Revolving Loans to prepay the Swing Loans of the Swing Loan Bank; provided, however, that the Agent shall be obligated to make the proceeds of such Revolving Loans available only to the extent received by it from the Banks. All Revolving Loans made pursuant to this subsection 2.05(a) shall be Base Rate Loans. (ii) In the event the Agent advances proceeds of any Revolving Loan to the Swing Loan Bank and one or more of the Banks (other than the Swing Loan Bank) fail to fund all or any portion of such Revolving Loan immediately upon receipt of notice from the Agent, then (I) such Bank shall pay directly to Agent the amount thereof together with interest thereon (A) at the Federal Funds Rate, if payment is received by the Agent on or before the third Business Day following the date when due, and (B) at the Default Rate, if payment is received after such third Business Day, and (II) if not paid by such Bank, the Swing Loan Bank will repay directly to the Agent such amount as will equal the amount such other Bank(s) failed to fund, together with interest at a rate equal to the weighted average of the rates on Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published by the Federal Reserve Bank of New York (in Weekly Release 11.15) for the day on which such Bank shall fail to make such payments, or, if such rate is not so published for any such day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent, whereupon the Swing Loans will be reinstated pro rata. (b) Participations in Swing Loans. (i) If, at any time prior to the making of Revolving Loans pursuant to subsection 2.05(a)(i) hereof, any Event of Default described in subsections 9.01(g) or (h) hereof shall have occurred, each Bank, on the date such Revolving Loan was to have been made or, if no request for Revolving Loans had been made pursuant to subsection 2.05(a)(i) hereof, promptly upon request by the Swing Loan Bank delivered to the Agent, shall purchase an undivided participation interest in all outstanding Swing Loans in an amount equal to its Pro Rata Share times the outstanding amount of such Swing Loans. Each Bank (other than the Swing Loan Bank) will transfer immediately to the Swing Loan Bank, in immediately available funds, the amount of its participation and, upon receipt thereof, the Swing Loan Bank will deliver to such other Bank a Swing Loan Participation Certificate, dated the date of receipt of such funds and in the amount of such Bank's participation. (ii) Whenever, at any time after the Swing Loan Bank has received from any other Bank such other Bank's participating interest in a Swing Loan, the Swing Loan Bank receives any payment on account thereof, the Swing Loan Bank will distribute to such other Bank its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded); provided, however, that in the event that any payment received by the Swing Loan Bank is required to be returned, such other Bank will return to the Swing Loan Bank any portion thereof previously distributed to it. -27- 33 (c) Acknowledged Privity. The Company expressly agrees that, in respect of each Bank's funded participation interest in any Swing Loan, such Bank shall be deemed to be in privity of contract with the applicable Borrower and have the same rights and remedies against the applicable Borrower under the Loan Documents as if such funded participation interest in such Swing Loan were a Revolving Loan. (d) Unconditional Obligation. Each Bank's obligation to make the Revolving Loans or to purchase participation interests in the Swing Loans as provided in this Section 2.05 shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Swing Loan Bank, any Borrower or any other Person for any reason whatsoever, (B) the existence of any Default or Event of Default at any time, (C) the occurrence of any event or existence of any condition that might have a Material Adverse Effect or a Material Adverse Credit Agreement Effect, or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.06 Voluntary Termination or Reduction of Commitments; Certain Other Terms Applicable to Termination or Reduction. (a) The Borrowers may, upon not less than five Business Days' prior notice to the Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, (i) the Effective Amount of all Revolving Loans, Swing Loans, Term Loans and Letter of Credit Obligations together would exceed the amount of the combined Commitments then in effect, or (ii) the Effective Amount of all Revolving Loans, Swing Loans and Letter of Credit Obligations together would exceed the amount of the combined Revolving Commitments then in effect, or (iii) the Effective Amount of all Swing Loans would exceed the Swing Loan Commitment, or (iv) the Effective Amount of all Letter of Credit Obligations then outstanding would exceed the Letter of Credit Commitment. Once reduced in accordance with this Section, the Commitments may not be increased. If and to the extent specified by the Borrowers in the notice to the Agent, some or all of the reduction in the combined Commitments shall be applied to reduce the Swing Loan Commitment and/or the Letter of Credit Commitment. (b) Any reduction of the Commitments, whether voluntary or mandatory, shall be applied to each Bank according to its Pro Rata Share. All accrued Commitment, Risk Participation and Fronting Fees to, but not including, the effective date of any reduction or termination of Commitments, whether voluntary or mandatory, shall be paid on the effective date of such reduction or termination. (c) In the event of any optional prepayment of Term Loans pursuant to Section 2.07 of this Agreement, the Term Commitments automatically shall reduce by the amount of such prepayment. 2.07 Optional Prepayments. Each Borrower may, at any time or from time to time, upon not less than three (3) Business Days' irrevocable notice to the Agent for LIBOR Offshore Rate Loans, and upon not less than one (1) Business Days' irrevocable notice to the Agent for Base Rate Loans, ratably prepay such Loans in whole or in part, in minimum amounts of -28- 34 $5,000,000 or any multiple of $1,000,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Interest Rate Type(s) of Loans to be prepaid. The Agent will promptly notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is given by a Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein for Base Rate Loans, or on the last day of the relevant Interest Period for LIBOR Offshore Rate Loans, together with accrued interest to each such date on the amount prepaid and, if such payment is made with respect to a LIBOR Offshore Rate Loans at a time other than the last day of an Interest Period, any amount required pursuant to Section 4.04. Optional prepayments of Term Loans shall be applied to the principal payments required pursuant to Section 2.10 in inverse order of their maturity. 2.08 Mandatory Prepayments of Loans. (a) General. If on any date the Effective Amount of all Revolving Loans, Swing Loans and Term Loans then outstanding plus the Effective Amount of all Letter of Credit Obligations exceeds the combined Commitments, each Borrower shall immediately, and without notice or demand, prepay the outstanding principal amount of the Revolving Loans, Swing Loans, Letter of Credit Advances and Term Loans owed by it to the extent necessary to eliminate such excess over the Commitments. If on any date the Effective Amount of all Revolving Loans and Swing Loans plus the Effective Amount of all Letter of Credit Obligations exceeds the Revolving Commitments, each Borrower shall immediately, without notice or demand, prepay the outstanding principal amount of the Revolving Loans, Swing Loans and Letter of Credit Advances to the extent necessary to eliminate such excess over the Revolving Commitments. If on any date the Effective Amount of the Term Loans exceeds the Term Commitments, the Term Loan Borrower shall immediately, without notice or demand, prepay the outstanding principal amount of the Term Loans to the extent necessary to eliminate such excess over the Term Commitments. (b) Asset Dispositions. If (i) the Company or any Subsidiary shall make during any Restricted Fiscal Quarter a Disposition (other than an "Excluded Disposition" as defined in this subsection 2.08(b)) of any property or asset (including capital stock of any Subsidiary), and (ii) (a) the Net Proceeds of such Disposition exceeds $1,000,000, or (b) on a cumulative basis during any fiscal year the Net Proceeds from all such Dispositions by the Company and its Subsidiaries of property or assets exceed $2,000,000, then (x) the Company or the Subsidiary making the Disposition shall promptly notify the Agent of such Disposition (including the amount of the Net Proceeds received or to be received by the Company or such Subsidiary in respect thereof), and (y) if such Net Proceeds are received by the Company or a Subsidiary after the Closing Date, then promptly upon, and in no event later than one Business Day after receipt by the Company or the Subsidiary of, the Net Proceeds of such Disposition, the Term Loan Borrower shall prepay the Term Loans in an aggregate amount equal to the amount of such Net Proceeds; provided, however, that in the event the consideration received by the Company (or the applicable Subsidiary) is in the form of a promissory note or other extension of credit by the Company (or the applicable Subsidiary) to the purchaser of the assets, such prepayments shall be made promptly upon, and in no event later than one Business Day after the Company (or the applicable Subsidiary) receives a payment pursuant to such note or other extension of credit. As used in this subsection 2.08(b), the term "Excluded Disposition" means any Disposition of the type permitted by subsections (a), (b), (c), (d) or (f) of Section 8.02. -29- 35 (c) From Free Cash Flow. If the Capitalization Ratio of the Company is greater than thirty-five percent (35%) as measured at the end of any fiscal quarter during any fiscal year, then the Term Loan Borrower shall prepay the outstanding principal amount of the Term Loans by an amount equal to fifty percent (50%) of the Free Cash Flow for such fiscal year. Such mandatory prepayments, if any, shall be due once each fiscal year at the time the Company is required to deliver its annual financial statements pursuant to subsection 7.01(a) of this Agreement. The Compliance Certificate delivered by the Company pursuant to subsection 7.02(a) of this Agreement together with such financial statements shall set forth the computation of such mandatory prepayment. (d) Issuance of Stock. If the Company issues capital stock for cash proceeds after the Execution Date and the Capitalization Ratio, as at the end of the preceding fiscal quarter, is greater than thirty-five percent (35%), the Term Loan Borrower shall prepay the outstanding principal of the Term Loans from the net cash proceeds of such issuance, to the extent necessary to reduce the Capitalization Ratio, adjusted for such issuance of capital stock, to thirty-five percent (35%). For purposes of the foregoing, "net cash proceeds" shall mean the gross cash proceeds received by the Company from such issuance less (i) the transaction costs, fees and expenses (including reasonable attorney's fees) incurred in connection with the issuance, less (ii) any proceeds thereof applied toward any Acquisition(s) made within six (6) months prior to or after the date of such issuance and less (iii) the transaction costs, fees and expenses (including reasonable attorney's fees) incurred in connection with any such Acquisition(s). Such prepayment shall be made on or before that date which is six (6) months after the date of such issuance. (e) General. Any prepayments pursuant to this Section 2.08 shall reduce pro rata the principal installments of the Term Loans due from June 30, 1996 to the Term Loan Maturity Date. Such prepayments shall be applied first to any Base Rate Loans then outstanding and then to LIBOR Offshore Rate Loans with the shortest Interest Periods remaining. The Term Loan Borrower shall pay, together with each prepayment under this Section 2.08, accrued interest on the amount prepaid and any amounts required pursuant to Section 4.04. The requirements set forth in Section 2.07 requiring advance notice for optional prepayments, and requiring that optional prepayments be in the minimum amounts therein set forth, shall not apply to mandatory prepayments made pursuant to this Section 2.08. 2.09 Mandatory Termination and Reduction of Commitments. (a) Termination. The commitments of the Banks herein contained to make the Term Loans (other than the Debenture-Related Term Loans) shall automatically terminate at 5:00 p.m. Houston, Texas time on April 28, 1995, and the commitments of the Banks herein contained to make Debenture-Related Term Loans shall automatically terminate at 5:00 p.m. Houston time on the last day of the Term Loan Availability Period. The Revolving Commitments shall automatically terminate at 5:00 p.m. Houston, Texas time on the Revolving Termination Date. (b) Reduction of Commitment: Asset Dispositions, Etc. Upon the occurrence of a date upon which a prepayment would be required pursuant to Section 2.08 (a "Mandatory Prepayment Date"), the Term Commitments shall automatically be reduced by an amount equal to the Required Prepayment Amount (as defined in this Section 2.09(b)), effective as of the earlier of the date that such prepayment is made or the date by which such prepayment is due -30- 36 and payable hereunder. If a Mandatory Prepayment Date occurs at a time when no Term Loans are outstanding, the Term Commitments shall nevertheless be reduced by an amount equal to the Required Prepayment Amount. "Required Prepayment Amount" means the amount of principal required to be prepaid (or, if no Term Loans are outstanding, the amount of principal of Term Loans which would have been subject to prepayment if Term Loans had been outstanding as of such date) pursuant to subsection 2.08(b), subsection 2.08(c) or subsection 2.08(d). (c) Reduction of Commitment: Last Day of Term Loan Availability Period. Upon the termination of the Term Loan Availability Period, the Term Commitments shall be reduced to an amount equal to the total dollar amount of Term Loans disbursed during the Term Loan Availability Period (less any reductions made in the Term Commitment pursuant to Section 2.06 and subsection 2.09(b)). 2.10 Repayment. (a) The Term Loan. The Term Loan Borrower shall repay the principal of the Term Loans as follows: On March 31, 1996, the Term Loan Borrower shall pay principal in the amount of $15,000,000 and thereafter the Term Loan Borrower shall make principal payments on each date set forth below (each, a "Principal Payment Date"), in an amount equal to the dollar amount set forth below opposite such date. The schedule of payments set forth below is based upon the assumption that the outstanding principal amount of Term Loans on June 30, 1996 will be $250,000,000. In the event the outstanding principal amount of Term Loans on June 30, 1996 is less than $250,000,000, the amount of principal due on each Principal Payment Date will be equal to the amount set forth in the schedule below (the "Principal Repayment Schedule") opposite such date minus an amount equal to (x) $250,000,000 minus the Effective Amount of the Term Loans on June 30, 1996 (y) divided by 20 (or, if less than 20 Principal Payment Dates remain, by such lesser number). -31- 37
Principal Payment Date Amount of Payment ---------------------- ----------------- June 30, 1996 $ 7,500,000 September 30, 1996 $ 7,500,000 December 31, 1996 $ 10,000,000 March 31, 1997 $ 10,000,000 June 30, 1997 $ 10,000,000 September 30, 1997 $ 10,000,000 December 31, 1997 $ 13,000,000 March 31, 1998 $ 13,000,000 June 30, 1998 $ 13,000,000 September 30, 1998 $ 13,000,000 December 31, 1998 $ 14,300,000 March 31, 1999 $ 14,300,000 June 30, 1999 $ 14,300,000 September 30, 1999 $ 14,300,000 December 31, 1999 $ 14,300,000 March 31, 2000 $ 14,300,000 June 30, 2000 $ 14,300,000 September 30, 2000 $ 14,300,000 December 31, 2000 $ 14,300,000 March 31, 2001 $ 14,300,000 ------------ Total: $250,000,000
After each mandatory or optional prepayment of principal, the Agent shall provide to the Company and the Banks a revised Principal Repayment Schedule. (b) The Revolving Credit. Each Borrower shall repay to the Banks on the Revolving Termination Date the aggregate principal amount of Revolving Loans made to such Borrower outstanding on such date. (c) Swing Loans. Each Borrower shall repay to the Swing Loan Bank each Swing Loan made to such Borrower, no later than the earlier of (i) the seventh (7th) day after the date such Swing Loan is made and (ii) the Revolving Termination Date. (d) Interest. (i) Each Revolving Loan, Swing Loan and Term Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the LIBOR Offshore Rate or the Base Rate, as the case may be (subject to the right of the Borrowers to convert to other Interest Rate Types of Loans under Section 2.04), plus the Applicable Margin. (ii) Interest on each Revolving Loan, Swing Loan and Term Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.07 or 2.08 for the portion of the Loans so prepaid and upon -32- 38 payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Agent at the request of the Majority Banks. (iii) Notwithstanding subsection (d)(i) of this Section 2.10, while any Event of Default exists or after acceleration of all or any portion of the Loans, the Borrowers shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum (the "Default Rate") equal to the Base Rate plus two percent (2%) per annum. (e) Highest Lawful Rate. Anything herein to the contrary notwithstanding, the obligations of the Borrowers to any Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder to the extent (but only to the extent) that contracting for, charging or receiving such payment by such Bank would be contrary to the provisions of any law applicable to such Bank limiting the highest nonusurious rate of interest that may be contracted for, charged or received by such Bank, and in such event the Borrowers shall pay such Bank interest at the highest nonusurious rate permitted by applicable law. 2.11 Fees. In addition to certain fees described in Section 3.07: (a) Arrangement, Agency Fees. The Company shall pay an arrangement fee to the Arranger for the Arranger's own account, and shall pay an agency fee to the Agent for the Agent's own account, as required by the letter agreement ("Fee Letter") between the Company and the Arranger and Agent dated December 14, 1994. (b) Commitment Fees. The Company shall pay to the Agent for the account of each Bank a commitment fee (the "Commitment Fee") based upon the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter as calculated by the Agent, equal to the per annum percentage designated as the "Commitment Fee" in the "Pricing Chart" set forth in Section 2.02. For purposes of calculating utilization under this subsection, the Commitments shall be deemed used to the extent of the Effective Amount of Revolving Loans, Swing Loans and Term Loans then outstanding, plus the Effective Amount of Letter of Credit Obligations then outstanding. The Commitment Fee with respect to the Term Commitments shall accrue from the earlier of (x) April 1, 1995 and (y) the Execution Date, to the last day of the Term Loan Availability Period, and the Commitment Fee with respect to the Revolving Commitment shall accrue from the earlier of (x) April 1, 1995 and (y) the Execution Date, to the Revolving Termination Date. The Commitment Fee shall be due and payable as follows: the first payment shall be made on the Closing Date and each subsequent payment shall be made quarterly in arrears on the last Business Day of each fiscal quarter through the Term Loan Availability Period or the Revolving Termination Date, as applicable, with the final payment to be made on the last day of the Term Loan Availability Period or the Revolving Termination Date, as applicable; provided that, in connection with any reduction or termination of Commitments under Section 2.06 or Section 2.09, the accrued Commitment Fee calculated for the period ending on the date of such reduction or termination shall also be paid on the date of such reduction or termination, with the payment due on the following quarterly payment date being calculated on the basis of the period from such reduction or termination date to such quarterly payment date; and provided, further that, in connection with any termination of Commitments under Section 11.01 hereof, the accrued -33- 39 Commitment Fee for the period ending on the Proposed Amendment Due Date (as defined in Section 11.01) shall be paid on such date. The Commitment Fees provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article V are not met. 2.12 Computation of Fees and Interest. (a) All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America NT & SA's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest, including those referred to in Article III, shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Agent shall be conclusive and binding on the Borrowers and the Banks in the absence of manifest error. The Agent will, at the request of the Borrowers or any Bank, deliver to the Borrowers or the Bank, as the case may be, a statement showing the quotations used by the Agent in determining any interest rate and the resulting interest rate. 2.13 Payments by the Borrowers. (a) All payments to be made by the Borrowers shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Borrowers shall be made to the Agent for the account of the Banks at the Agent's Payment Office, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (San Francisco time) on the date specified herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. If the Agent fails to send to any Bank its portion of any payment timely received by the Agent hereunder by the close of business on the day such payment is deemed received pursuant to this subsection 2.13(a), the Agent shall pay to such Bank interest on its portion of such payment from the day such payment is deemed received by the Agent until the date such Bank's portion of such payment is sent to such Bank, at the Federal Funds Rate. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Agent receives notice from a Borrower prior to the date on which any payment is due to the Banks that such Borrower will not make such payment in full as and when required, the Agent may assume that such Borrower has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an -34- 40 amount equal to the amount then due such Bank. If and to the extent a Borrower has not made such payment in full to the Agent, each Bank shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.14 Payments by the Banks to the Agent. (a) Unless the Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one (1) Business Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Agent for the account of a Borrower the amount of that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the applicable Borrower such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the applicable Borrower of such failure to fund and, upon demand by the Agent, such applicable Borrower shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.15 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Bank (or any Participant pursuant to subsection 11.09(e)) shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrowers agree that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights -35- 41 of payment (including the right of set-off, but subject to Section 11.10) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participation purchased under this Section and will in each case notify the Banks following any such purchases or repayments. ARTICLE III THE LETTERS OF CREDIT 3.01 The Letter of Credit Subfacility. (a) On the terms and conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date to issue Letters of Credit for the account of any Borrower, and to amend or renew Letters of Credit previously issued by it, in accordance with subsections 3.02(c), 3.02(d)and 3.02(e), and (B) to honor drafts under the Letters of Credit; and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of any Borrower; provided, that the Issuing Bank shall not be obligated to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if, as of the date of Issuance of such Letter of Credit (the "Issuance Date"): (1) the Effective Amount of all Letter of Credit Obligations plus the Effective Amount of all Revolving Loans and all Swing Loans exceeds the Revolving Commitments, (2) the participation of any Bank in the Effective Amount of all Letter of Credit Obligations plus (w) the Effective Amount of the Revolving Loans of such Bank plus (x) the aggregate principal amount of such Bank's participation in Swing Loans, plus (y) if such Bank is the Swing Loan Bank, the principal amount of all Swing Loans in which other Banks have not participated, exceeds such Bank's Revolving Commitment, or (3) the Effective Amount of Letter of Credit Obligations exceeds the Letter of Credit Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the ability of a Borrower to obtain Letters of Credit shall be fully revolving, and, accordingly, each Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Bank, the Agent or a Borrower, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date -36- 42 of any requested Letter of Credit is (A) more than 2 years (in the case of Performance Letters of Credit) or 1 year (in the case of Financial Letters of Credit) after the date of Issuance or (B) after the Revolving Termination Date, unless all of the Banks have approved such expiry date in writing; (iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank; (v) such Letter of Credit is in a face amount less than $1,000,000 or to be denominated in a currency other than U.S. Dollars; provided, however, that clause (iii) of this subsection 3.01(b) shall not be deemed to prohibit a Letter of Credit that provides that it shall automatically renew unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed. 3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit shall be issued upon the irrevocable written request of any Borrower received by the Issuing Bank (with a copy sent by such Borrower to the Agent) at least three days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of a Letter of Credit Application, and shall specify in form and detail satisfactory to the Issuing Bank such matters as the Issuing Bank may require. Each Letter of Credit (i) will be for the account of the Company or other Borrower which makes the request in accordance with the terms of this Agreement, (ii) will be a (A) nontransferable standby letter of credit to support certain performance obligations of the Company (or, if applicable, the other Borrower who is the account party) ("Performance Letters of Credit"), or (B) non-transferable standby letter of credit to support certain payment obligations of the Company (or, if applicable, the other Borrower who is the account party) that are not prohibited by this Agreement ("Financial Letters of Credit"), (iii) will be for purposes reasonably satisfactory to the Issuing Bank and (iv) will contain such terms and provisions as may be customarily required by the Issuing Bank. Classification of a Letter of Credit as a "Performance Letter of Credit" or a "Financial Letter of Credit" shall be determined by the Issuing Bank in its sole discretion. (b) At least two Business Days prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of the Letter of Credit Application or Letter of Credit Amendment Application from the Borrower and, if not, the Issuing Bank will provide the Agent with a copy thereof. Unless the Issuing Bank has received notice on or before the Business Day immediately preceding the date the Issuing Bank is to issue a requested Letter of Credit from the Agent (A) directing the Issuing Bank not to issue such Letter of Credit because such issuance is not then permitted under subsection 3.01(a) as a result of the limitations set forth in clauses (1) through (3) thereof or subsection 3.01(b)(ii); or (B) that one or more conditions specified in Article V are not then satisfied or waived; then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of such Borrower in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Issuing Bank will, upon the written request of a Borrower received by the Issuing Bank (with a copy sent by such Borrower to the Agent) at least three days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole -37- 43 discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in such form as the Issuing Bank shall require. The Issuing Bank shall be under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. (d) Upon receipt of notice from the Issuing Bank, the Agent will promptly notify the Banks of the Issuance of a Letter of Credit and any amendment thereto. (e) If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, the Issuing Bank shall be permitted to allow such Letter of Credit to renew, and the Borrowers and the Banks hereby authorize such renewal. The Issuing Bank shall not be obligated to allow such Letter of Credit to renew if the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit under the terms of this Agreement. (f) The Issuing Bank may, at its election (or as required by the Agent at the direction of the Majority Banks), deliver any notices of termination or other communications to any Letter of Credit beneficiary, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of any Letter of Credit to be a date not later than the Revolving Termination Date. (g) This Agreement shall control in the event of any conflict with any Letter of Credit-Related Document. (h) The Issuing Bank will also deliver to the Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to a Letter of Credit. 3.03 Risk Participations, Drawings and Reimbursements. (a) Immediately upon the Issuance of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of subsection 2.01(b), each Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Bank by an amount equal to the amount of such participation. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary thereof, the Issuing Bank will promptly notify the applicable Borrower. In the case of Letters of Credit under which drawings are payable one or more Business Days after the drawing is made, the Issuing Bank will give such notice to the applicable Borrower at least one Business Day prior to the Honor Date. Such Borrower shall reimburse the Issuing Bank prior -38- 44 to 10:00 a.m. (Chicago time), on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in an amount equal to the amount so paid by the Issuing Bank. In the event such Borrower fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (Chicago time) on the Honor Date, the Issuing Bank will promptly notify the Agent and the Agent will promptly notify each Bank thereof, and such Borrower shall be deemed to have requested that Base Rate Loans be made by the Banks to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Commitment and subject to the conditions set forth in Section 5.04. Any notice given by the Issuing Bank or the Agent pursuant to this subsection 3.03(b) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Each Bank shall upon any notice pursuant to subsection 3.03(b) make available to the Agent for the account of the relevant Issuing Bank an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Banks shall (subject to subsection 3.03(e)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Borrower in that amount. If any Bank so notified fails to make available to the Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Share of the amount of the drawing by no later than 12:00 noon (San Francisco time) on the Honor Date, then interest shall accrue on such Bank's obligation to make such payment, from the Honor Date to the date such Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Agent will promptly give notice to each Bank of the occurrence of the Honor Date, but failure of the Agent to give any such notice on the Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this Section 3.03. (d) With respect to any unreimbursed drawing that is not converted into Revolving Loans consisting of Base Rate Loans to the Borrower in whole or in part, because of failure of the Borrower to satisfy the conditions set forth in Section 5.04 or for any other reason, the Borrower shall be deemed to have incurred from the Issuing Bank a Letter of Credit Borrowing in the amount of such drawing, which Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus two percent (2%) per annum, and each Bank's payment to the Issuing Bank pursuant to subsection 3.03(c) shall be deemed payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a Letter of Credit Advance from such Bank in satisfaction of its participation obligation under this Section 3.03. (e) Each Bank's obligation in accordance with this Agreement to make the Revolving Loans or Letter of Credit Advances, as contemplated by this Section 3.03, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default, a Material Adverse Effect or a Material Adverse Credit Agreement Effect; or (iii) any other circumstance, happening or event whatsoever, whether -39- 45 or not similar to any of the foregoing; provided, however, that each Bank's obligation to make Revolving Loans under this Section 3.03 is subject to the conditions set forth in Section 5.04. 3.04 Repayment of Participation. (a) When the Agent receives (and only if the Agent receives), for the account of the Issuing Bank, immediately available funds from a Borrower (i) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Bank has paid the Agent for the account of the Issuing Bank for such Bank's participation in the Letter of Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in the same funds as those received by the Agent for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share of such funds of any Bank that did not so pay the Agent for the account of the Issuing Bank. If the Agent fails to send to any Bank its portion of any payment timely received by the Agent hereunder by the close of business on the day such payment is deemed received pursuant to subsection 2.13(a), the Agent shall pay to such Bank interest on its portion of such payment from the day such payment is deemed received by the Agent until the date such Bank's portion of such payment is sent to such Bank, at the Federal Funds Rate. (b) If the Agent or the Issuing Bank is required at any time to return to a Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Borrower to the Agent for the account of the Issuing Bank pursuant to subsection 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Bank. (a) Each Bank and Borrower agrees that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft, certificates and other documents, if any, expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) Neither the Issuing Bank nor any of its correspondents, participants or assignees shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (including the Majority Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any Letter of Credit-Related Document. (c) Each Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude a Borrower from pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other -40- 46 agreement. Neither the Issuing Bank, nor any correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided, however, that the Borrower for whose account the applicable Letter of Credit is Issued may have a claim against the Issuing Bank, and the Issuing Bank may be liable to Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered or incurred by such Borrower which are caused by the Issuing Bank's willful misconduct or gross negligence (i) in failing to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft, certificate(s) and other documents, if any, strictly complying with the terms and conditions of such Letter of Credit, (ii) in its paying under a Letter of Credit against presentation of a sight draft, certificate(s) or other documents not complying with the terms of such Letter of Credit or (iii) otherwise with respect to the Letters of Credit; provided, however, that (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, provided that any such instrument appears on its face to be in order. 3.06 Obligations Absolute. The obligations of the Borrowers under this Agreement and any Letter of Credit-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any Letter of Credit Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other Letter of Credit-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any Letter of Credit-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrowers in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the Letter of Credit-Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the Letter of Credit-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Borrowers in respect of any Letter of Credit; or (vii) any other circumstance that might otherwise constitute a defense available to, or a discharge of, a Borrower or a guarantor. -41- 47 3.07 Letter of Credit Fees. (a) Risk Participation Fees. Each Borrower for whose account a Letter of Credit is Issued shall pay to the Agent for the account of each of the Banks a letter of credit fee with respect to such Letters of Credit equal to the Risk Participation Fees specified in Section 2.02 of this Agreement multiplied by the average daily maximum amount available to be drawn on such outstanding Letters of Credit. (b) Fronting Fees. Each Borrower for whose account a Letter of Credit is Issued shall pay to the Agent for the account of the Issuing Bank a letter of credit fronting fee for each Letter of Credit Issued by the Issuing Bank equal to 0.10% per annum multiplied by the average daily maximum amount available to be drawn on such outstanding Letters of Credit. (c) Calculation of Fees. The Risk Participation Fee-Financial Standby Letter of Credit, the Risk Participation Fee-Performance Standby Letter of Credit, and the Fronting Fee, each shall be computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter as calculated by the Agent. Such fees shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Closing Date, through the Revolving Termination Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Revolving Termination Date (or such later expiration date). (d) Other. Each Borrower for whose account a Letter of Credit is issued shall pay to the Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect. 3.08 Cash Collateralization. (a) If any Event of Default shall occur and be continuing, each Borrower agrees that it shall on the Business Day it receives notice from the Agent, acting upon instructions of the Majority Banks, deposit in an account (the "Cash Collateral Account") held by the Agent, for the benefit of the Banks, an amount in cash equal to the Letter of Credit Obligations as of such date. Such deposit shall be held by the Agent as collateral for the payment and performance of the Obligations. The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Cash collateral shall be held in a blocked, non-interest bearing account held by the Agent or any Affiliate of the Agent upon such terms and in such type of account as customary at that depository institution. The Borrowers shall pay any fees charged by such depository institution which fees are of the type customarily charged by such institution with respect to such accounts. Moneys in such account shall (i) be applied by the Agent to the payment of Letter of Credit Borrowings and interest thereon, (ii) be held for the satisfaction of the reimbursement obligations of the Borrowers in respect of Letters of Credit, and (iii) if the maturity of the Loans has been accelerated, with the consent of the Majority Banks, be applied to satisfy the Obligations. -42- 48 (b) As security for the payment of all Obligations, each Borrower hereby grants, conveys, assigns, pledges, sets over and transfers to the Agent, and creates in the Agent's favor a Lien on, and security interest in, all money, instruments and securities at any time held in or acquired in connection with the Cash Collateral Account, together with all proceeds thereof. At any time and from time to time, upon the Agent's request, the Borrowers promptly shall execute and deliver any and all such further instruments and documents as may be necessary, appropriate or desirable in the Agent's judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this subsection 3.08(b) and of the rights and powers herein granted. 3.09 Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce ("UCP") most recently published in final form at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 Taxes. (a) Any and all payments by a Borrower to each Bank or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Borrowers shall pay all Other Taxes. (b) Each Borrower agrees to indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor. In the event the Agent or a Bank is required to pay Taxes or Other Taxes for which the Agent or such Bank seeks indemnity hereunder, the Agent or such Bank, as applicable, shall make written request to the Company within 60 days after paying such Taxes or Other Taxes; provided, however, that a Bank's failure to timely give notice of such Taxes or Other Taxes shall not impair the Borrowers' obligations to indemnify such Bank against such Taxes or such Other Taxes. (c) If a Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) such Borrower shall make such deductions and withholdings; (iii) such Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) such Borrower shall also pay to each Bank or the Agent for the -43- 49 account of such Bank, at the time interest is paid, all additional reasonable amounts which the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by a Borrower of Taxes or Other Taxes, such Borrower shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (e) If a Borrower is required to pay additional amounts to any Bank or the Agent pursuant to subsection (c) of this Section, then, upon the written request of the Borrower, such Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Borrowers which may thereafter accrue, if such change in the judgment of such Bank is not otherwise disadvantageous to such Bank. 4.02 Illegality. (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make LIBOR Offshore Rate Loans, then, on notice thereof by the Bank to the Borrowers through the Agent, any obligation of that Bank to make LIBOR Offshore Rate Loans shall be suspended until the Bank notifies the Agent and the Borrowers that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any LIBOR Offshore Rate Loan, the Borrowers shall, upon their receipt of notice of such fact and demand from such Bank (with a copy to the Agent), prepay in full such LIBOR Offshore Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such LIBOR Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such LIBOR Offshore Rate Loan. If the Borrowers are required to so prepay any LIBOR Offshore Rate Loan, then concurrently with such prepayment, the Borrowers shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Bank to make or maintain LIBOR Offshore Rate Loans has been so terminated or suspended, all Loans which would otherwise be made by such Bank as LIBOR Offshore Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Agent under this Section, the affected Bank shall designate a different Lending Office with respect to its LIBOR Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. -44- 50 4.03 Increased Costs and Reduction of Return. (a) If any Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any LIBOR Offshore Rate Loans or participating in Letters of Credit, or, in the case of the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Borrowers shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank (each, a "Capital Adequacy Regulation"), (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Borrowers through the Agent, the Borrowers shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. (c) In the event a Bank requests compensation under this Section 4.03, it shall make such request to the Company within 90 days after such Bank has actual knowledge of such increased costs or such increased capital. 4.04 Funding Losses. Each Borrower shall reimburse each Bank and hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of such Borrower to make on a timely basis any payment of principal of any LIBOR Offshore Rate Loan; (b) the failure of such Borrower to borrow, continue or convert a Loan after such Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation (including by reason of the failure to satisfy any condition precedent thereto); (c) the failure of such Borrower to make any prepayment in accordance with any notice delivered under Section 2.07; (d) the prepayment (including pursuant to Section 2.07 or 2.08) or other payment (including after acceleration thereof) of a LIBOR Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 2.04 of any LIBOR Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including in each instance any such loss or expense arising -45- 51 from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Borrowers to the Banks under this Section and under subsection 4.03(a), each LIBOR Offshore Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the LIBOR Offshore Rate for such LIBOR Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Offshore Rate Loan is in fact so funded. 4.05 Inability to Determine Rates. If the Reference Bank determines that for any reason adequate and reasonable means do not exist for determining the LIBOR Offshore Rate for any requested Interest Period with respect to a proposed LIBOR Offshore Rate Loan, or that the LIBOR Offshore Rate applicable pursuant to subsection 2.10(d) for any requested Interest Period with respect to a proposed LIBOR Offshore Rate Loan does not adequately and fairly reflect the cost to the Banks of funding such Loan, the Agent will promptly so notify the Borrowers and each Bank. Thereafter, the obligation of the Banks to make or maintain LIBOR Offshore Rate Loans, hereunder shall be suspended until the Agent upon the instruction of the Majority Banks revokes such notice in writing. Upon receipt of such notice the Borrowers may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Borrowers do not revoke such Notice, the Banks shall make, convert or continue the Loans, as proposed by the Borrowers, in the amount specified in the applicable notice submitted by the Borrowers, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Offshore Rate Loans. 4.06 Certificates of Banks. Any Bank claiming reimbursement or compensation under this Article IV shall deliver to the Borrowers (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Borrowers in the absence of manifest error. 4.07 Substitution of Banks. Upon the occurrence of one or more of the following events: (i) any Borrower is required to pay to a Bank any amounts pursuant to Section 4.01 and such Bank does not change the jurisdiction of its Lending Office; (ii) receipt by Borrowers (or any of them) of a notice by or on behalf of a Bank pursuant to Section 4.02; or (iii) receipt by Borrowers (or any of them), of a request by or on behalf of a Bank for compensation pursuant to Section 4.03, the Company shall pay any applicable amount due, and the Company may: (A) request the Affected Bank to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Agent to acquire and assume all or a ratable part of all of such Affected Bank's Loans and Commitment (a "Replacement Bank"); (B) request one more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitment, but none of the Banks shall have any obligation to do so; or (C) designate a Replacement Bank satisfactory to the Agent. Any such designation of a Replacement Bank under clause (A) or (C) shall be subject to the prior written consent of the Agent, which consent shall not be unreasonably withheld. 4.08 Survival. The agreements and obligations of the Borrowers in this Article IV shall survive the payment of all other Obligations. -46- 52 ARTICLE V CONDITIONS PRECEDENT 5.01 Conditions of Initial Credit Extensions. The obligation of each Bank to make its initial Credit Extension, and the obligation of the Issuing Bank to issue the first Letter of Credit, hereunder is subject to the condition that the Agent shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Agent and each Bank, and in sufficient copies for each Bank: (a) Credit Agreement and Notes. This Agreement, the Notes, the Guaranties, and the Intercompany Subordination Agreement executed by each party thereto; (b) Certificate (Merger). A certificate signed by a Responsible Officer of the Company, in form and substance reasonably satisfactory to the Agent and each Bank, representing and warranting that: (i) On and as of the Closing Date, (w) the Merger of Western into the Company has been consummated in accordance with the terms and conditions of the Merger Agreement (including any consents pursuant to Section 7.1 of the Merger Agreement to actions taken by Western prior to the Closing Date not constituting Interim Adverse Actions) and in compliance with all material Requirements of Law, and all of the assets of Western have been transferred by the Company to BJ-USA, and attaching thereto a true and correct copy of (A) the Certificate of Merger issued by the Secretary of State of the State of Delaware evidencing that the Merger is effective as of such date, (B) all amendments to the Merger Agreement subsequent to the First Amendment thereto, if any, and (C) the Contribution Agreement evidencing the transfer by the Company to BJ-USA of all of the assets acquired by the Company pursuant to the Merger; (x) all shareholder approvals required for consummation of the Merger have been obtained; (y) all third party approvals required for consummation of the Merger have been obtained, except such approvals the failure of which to obtain would not have a Material Adverse Effect; and (z) all necessary material consents and approvals of and filings and registration with, and all other material actions in respect of, all Governmental Authorities required for consummation of the Merger have been obtained, given, filed or taken and are in full effect and all waiting periods relating thereto have expired without, in any such case, any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of the Merger pursuant to the Merger Agreement; (ii) On and as of the Closing Date, there does not exist any judgment, order, injunction or other restraint issued or filed with respect to the making of Loans or which could reasonably be expected to impair materially the right or ability of the Company to consummate the Merger; (iii) The Company has not consented to Western's or any of its Subsidiaries' (as such term is used in the Merger Agreement) taking any Interim Adverse Action, without the written approval of the Banks; (iv) At the time of their mailing to the shareholders of the Company, the Proxy/Prospectus Documents and the Additional Proxy/Prospectus Documents, if any, taken -47- 53 as a whole prepared by or on behalf of the Company and/or its Subsidiaries, did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein contained, in light of the circumstances under which made, not misleading; (v) A true and correct list of all Related Agreements (true and correct copies of which have been delivered to the Agent and the Banks to the extent requested by any of them) is attached to the Certificate, which list shall include the Proxy/Prospectus Documents and the Additional Proxy/Prospectus Documents, which Additional Proxy/Prospectus Documents (other than any Additional Proxy/Prospectus Documents consisting solely of an amendment to the date of the special shareholders meeting) shall be reasonably satisfactory to the Majority Banks; and (vi) The Merger Agreement has not been amended, except as consented to by the Banks; all material conditions precedent described in the Merger Agreement have been fulfilled in all material respects in accordance with the terms and provisions thereof, and all amendments to the Merger Agreement, and waivers to any conditions precedent described in the Merger Agreement, have been consented to by the Banks, and the Company (and any other Subsidiary who is a party to the Merger Agreement) have complied with the Merger Agreement in all material respects; (c) Existing Indebtedness. Evidence that all Indebtedness of the Company and its Subsidiaries under (i) the Existing Company Credit Agreement, and (ii) the Existing Western Credit Agreement, shall have been (or shall simultaneously be) repaid, all liens, if any, securing the same shall have been (or shall simultaneously be) terminated and all commitments thereunder shall have been (or shall simultaneously be) cancelled; provided, however, that the parties acknowledge that existing letters of credit may remain outstanding (subject, however, to the limitations set forth in Article VIII); and provided, further, that the Borrowers may be required to pay at a later date break-funding or similar losses or costs required pursuant to the Existing Company Credit Agreement by reason of repayment of advances thereunder prior to maturity thereof, which amounts are estimated to be less than $10,000 in the aggregate; (d) Certificate (Other Debt). In the event that indebtedness will remain outstanding after the Closing Date under any of the Other Debt Documents, a certificate signed by a Responsible Officer of the Company stating that such Other Debt Documents have been amended, pursuant to amendment agreements satisfactory to the Majority Banks, to the extent necessary so that execution and delivery of and compliance with this Agreement and the other Loan Documents will not result in a default under the Other Debt Documents; or, in the case of the BJ Notes and the BJ Note Agreements, that such default has been waived pursuant to a waiver substantially in the form attached hereto as Exhibit "N"; and attaching thereto a true and correct copy of any such waiver and a true and correct copy of all amendments to the Other Debt Documents; (e) Resolutions; Incumbency; Organization Documents. (i) Copies of the resolutions of the board of directors of each Borrower and each Guarantor authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of such Person; (ii) certificate of the Secretary or Assistant Secretary of each Borrower and each Guarantor, certifying the names and true signatures of the officers of such Person authorized to execute this Agreement, and all other Loan Documents to be delivered by -48- 54 it hereunder; and (iii) the articles or certificate of incorporation and the bylaws of each Borrower and each Guarantor as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of such Person as of the Closing Date; and (f) Good Standing. Each of the following documents: (i) a good standing certificate for each Borrower and each Guarantor from the Secretary of State of its state of incorporation as of a recent date, together with a bring-down certificate by facsimile, dated the Closing Date; and (ii) evidence of qualification and for those states where available, a good standing certificate, for each Borrower and each Guarantor from the Secretary of State (or similar applicable Governmental Authority) of each state where such Person is qualified to do business as a foreign corporation, dated as of a recent date; (g) Legal Opinions. (i) an opinion of Andrews & Kurth, L.L.P., special United States counsel to the Company and its Subsidiaries, and an opinion of Margaret B. Shannon, General Counsel of the Company, and addressed to the Agent and the Banks, substantially in the form of Exhibit "D" to be delivered as of Closing Date; and (ii) an opinion of Butler & Binion, L.L.P., special counsel to the Agent; (h) Payment of Fees. Evidence of payment by the Borrowers of all accrued and unpaid fees, costs and expenses owed pursuant to this Agreement and the Fee Letter to the extent then due and payable on the Closing Date, together with Attorney Costs of the Agent to the extent such Attorney Costs are invoiced at least three Business Days prior to the Closing Date, which invoice may include such additional amounts of Attorney Costs as shall constitute the Agent's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and the Agent); including any such costs, fees and expenses arising under or referenced in Sections 2.11 and 11.05; (i) Certificate (Representations and Warranties; No Default; No Material Adverse Effect; Conditions Precedent). A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that (i) the representations and warranties contained in Article VI are true and correct on and as of such date, as though made on and as of such date, taking into account the Merger, (ii) no Default or Event of Default exists or would result from the Credit Extension being made on the Closing Date, (iii) there has occurred since December 31, 1994 no event or circumstance that has resulted or would reasonably be expected to result in a Material Adverse Effect and (iv) all of the conditions precedent set forth in Section 5.02 have been satisfied; (j) Financial Statements; Certificate (Pricing). A certificate (the "Closing Date Pricing Certificate") signed by a Responsible Officer, dated the Closing Date (i) stating that a copy of the financial statements of the Company and its Consolidated Subsidiaries referred to in Section 6.12 previously has been delivered to the Agent and each of the Banks; and (ii) setting forth the estimated Capitalization Ratio for purposes of Section 2.02(b) of this Agreement; (k) CT Corporation Letter. A letter confirming that CT Corporation System has accepted appointment by each Borrower and each Guarantor, and by each other Subsidiary of the Company who is a party to the Intercompany Subordination Agreement, as its agent for service of process in New York; and -49- 55 (l) Other Documents. Such other approvals, opinions, documents or materials as the Agent or the Majority Banks (through the Agent) may reasonably request. 5.02 Additional Conditions of Initial Credit Extension. The obligation of each Bank to make its initial Credit Extension, and the obligation of the Issuing Bank to issue the first Letter of Credit, hereunder is subject to the following additional conditions: (a) Western Actions Under Merger Agreement. Neither Western nor any of its subsidiaries (as such term is used in the Merger Agreement) shall have taken any Interim Adverse Action at any time from and after the date of execution of the Merger Agreement through the Closing Date; (b) Litigation. To the best knowledge of the Borrowers, no litigation shall be pending or threatened against any of the Borrowers, the Subsidiary Guarantors, Western Company or any material Subsidiary of the Company or Western Company in which there is a reasonable probability of an adverse decision which would result in a Material Adverse Effect; (c) Western Debt Documents. The terms of the Western Indenture and the Western Debentures shall not have been amended or modified, except as may have been consented to by the Majority Banks; (d) Additional Matters. All legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory to the Majority Banks; and (e) Closing Date. The Closing Date shall occur no later than August 31, 1995. 5.03 Conditions of Initial Advance to each Subsidiary Borrower. After the Closing Date, any Subsidiary (other than a Foreign Subsidiary) may become a Subsidiary Borrower. The Banks shall not be required to make an initial Advance to a Subsidiary Borrower hereunder unless such Subsidiary Borrower has furnished to the Agent with sufficient copies for the Banks: (a) A Subsidiary Borrower Counterpart together with a schedule of litigation as may be necessary in connection with such Subsidiary making the representations and warranties set forth in Section 6.06(a) of this Agreement, such schedule to be in form and substance reasonably satisfactory to the Agent and each of the Banks in their sole discretion, executed by such Subsidiary and acknowledged by each of the Company and Subsidiary Guarantors; (b) A current certificate of existence and, for the states where available, a certificate of good standing, both certified by the appropriate governmental officer, in its jurisdiction of incorporation; (c) Copies, certified by the Secretary or Assistant Secretary of such Subsidiary Borrower, of its Articles of Incorporation, Bylaws and Board of Directors' resolutions authorizing the execution of the Loan Documents to which it is a party; (d) An incumbency certificate, executed by the Secretary or Assistant Secretary of such Subsidiary Borrower, which shall identify by name and title and bear the signature of the -50- 56 officers of the Subsidiary Borrower authorized to sign the Loan Documents to which it is a party and to make borrowings hereunder, upon which certificates the Agent and the Banks shall be entitled to rely until informed of any change in writing by such Subsidiary Borrower; (e) A written opinion of counsel to such Subsidiary Borrower in form and substance satisfactory to the Agent and the Banks, substantially in the form set forth in Exhibit "D" hereto, with such additional provisions and revisions as the Majority Banks may reasonably request; (f) Notes executed by such Subsidiary Borrower and payable to the order of each of the Banks; (g) Guaranty executed by such Subsidiary Borrower; and (h) Such other documents as the Majority Banks through the Agent may have reasonably requested. 5.04 Conditions to All Credit Extensions. The obligation of each Bank to make the Term Loan and any Revolving Loan to be made by it (including its initial Revolving Loan) or to continue or convert any Revolving Loan under Section 2.04, and the obligation of the Swing Loan Bank to make any Swing Loan, and the obligation of the Issuing Bank to Issue any Letter of Credit (including the initial Letter of Credit) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date: (a) Notice, Application. The Agent shall have received (with, in the case of the initial Revolving Loan only, a copy for each Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as applicable, or in the case of any Issuance of any Letter of Credit, the Issuing Bank and the Agent shall have received a Letter of Credit Application or Letter of Credit Amendment Application as required under Section 3.02; (b) Continuation of Representations and Warranties. The representations and warranties in Article VI shall be true and correct on and as of such Borrowing Date or Conversion/Continuation Date with the same effect as if made on and as of such Borrowing Date or Conversion/Continuation Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing or continuation or conversion; and (d) Illegality. The making of the Loans and the issuance of Letters of Credit shall be permitted by the laws and regulations of each applicable jurisdiction to which the Agent, the Banks, the Company or any of its Subsidiaries are subject (including, without limitation, Regulations U or X), and shall not subject Banks or the Agent to any penalty. Each Notice of Borrowing, Notice of Conversion/Continuation and Letter of Credit Application or Letter of Credit Amendment Application submitted by a Borrower hereunder shall constitute -51- 57 a representation and warranty by such Borrower hereunder, as of the date of each such notice and as of each Borrowing Date, Conversion/Continuation Date, or Issuance Date, as applicable, that the conditions in Section 5.01, 5.02 and 5.03, if applicable, and 5.04 are satisfied. ARTICLE VI REPRESENTATIONS AND WARRANTIES Each of the Borrowers represent and warrant to the Agent and each Bank that: 6.01 Corporate Existence and Power. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all material governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance in all material respects with all Requirements of Law; except, in each case referred to in clause (c), to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect or a Material Adverse Credit Agreement Effect. 6.02 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company, the Subsidiary Borrowers and the Subsidiary Guarantors of their respective obligations under this Agreement and each other Loan Document to which such Person is party, the Borrowings hereunder, the issuance of Letters of Credit, and the use of proceeds of Borrowings have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of that Person's Organization Documents; (b) conflict with or result in any breach or contravention of, in any material respect, any document evidencing any material Contractual Obligation to which such Person is a party, or result in the creation of any Lien under any such document except for Permitted Liens, or (c) conflict with or result in any breach or contravention of any material order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (d) violate any material Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Borrowers or any of their Subsidiaries of this Agreement or any other Loan Document to which any one or more of them is a party. 6.04 Other Debt Documents. Execution and delivery of, and compliance with, this Agreement and the other Loan Documents will not result in a default under the Other Debt Documents which has not been waived. 6.05 Binding Effect. This Agreement and each other Loan Document to which the Borrowers or any of their Subsidiaries is a party constitute the legal, valid and binding -52- 58 obligations of the Borrowers and any of their Subsidiaries to the extent they are a party thereto, enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles. 6.06 Litigation. (a) To the best knowledge of the Borrowers, there are no actions, suits, proceedings, claims or disputes pending, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against any of the Borrowers, or any of their Subsidiaries or any of their respective properties, or with respect to any Plan or any Multiemployer Plan to which the Company or any of its Subsidiaries makes, is making or is obligated to make contributions: (i) which purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (ii) in which there is a reasonable probability of an adverse decision which would reasonably be expected to have a Material Adverse Effect or a Material Adverse Credit Agreement Effect. (b) No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the consummation of the Merger, or execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.07 No Default. No Default or Event of Default exists or will result from the incurring of any Obligations by the Borrowers. 6.08 ERISA Compliance. Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law, except to the extent that the failure to be in compliance would not reasonably be expected to have a Material Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of the Code has received, or filed (or is still within the applicable remedial amendment period for filing) with the IRS a request for, a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. Except as set forth in Schedule 6.08, (i) the Company and each ERISA Affiliate has made all required contributions to any Plan and Multiemployer Plan subject to Section 412 of the Code, and (ii) neither the Company nor any ERISA Affiliate has made an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Plan or any Multiemployer Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or would reasonably be expected to result in a Material Adverse Effect or a Material Adverse Credit Agreement Effect. 6.09 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 7.11. None of the Borrowers nor any of their Subsidiaries is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. -53- 59 6.10 Title to Properties. Each of the Borrowers and their Subsidiaries have good record and indefeasible title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as would not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of each of the Borrowers and their Subsidiaries is subject to no Liens, other than Permitted Liens. 6.11 Taxes. Each of the Borrowers and their Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. To the knowledge of the Borrowers and their Subsidiaries, there is no proposed tax assessment against any of the Borrowers or any of their Subsidiaries that would, if made, have a Material Adverse Effect. 6.12 Financial Condition. (a) The audited consolidated financial statements of BJ Services Company and its Consolidated Subsidiaries dated September 30, 1994, and the audited consolidated financial statements of Western Company and its Consolidated Subsidiaries dated December 31, 1994, including the respective consolidated statements of financial position and related consolidated statements of operations, shareholders' equity and cash flows for the fiscal year ended on each such date, and the unaudited financial statements dated December 31, 1994 of BJ Services Company and its Consolidated Subsidiaries: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) fairly present the financial condition of the Company and its Consolidated Subsidiaries, and Western Company and its Consolidated Subsidiaries, as of the respective dates thereof and results of operations for the respective periods covered thereby. (b) Since December 31, 1994, there has been no Material Adverse Effect. 6.13 Environmental Matters. Each of the Borrowers and their Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on their businesses, operations and properties, and as a result thereof the Borrowers and their Subsidiaries have reasonably concluded that, except as specifically disclosed in Schedule 6.13, such Environmental Laws and Environmental Claims would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.14 Regulated Entities. None of the Borrowers, any Person controlling the Borrowers, or any of their Subsidiaries, is an "Investment Company" within the meaning of the Investment Company Act of 1940. None of the Borrowers is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation, in each case limiting its ability to incur Indebtedness or Contingent Obligations, as applicable. -54- 60 6.15 No Burdensome Restrictions. None of the Borrowers nor any of their Subsidiaries is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 6.16 Solvency. The Company and its Subsidiaries, taken as a whole, and the Company, individually, each of the other Borrowers and each of the Guarantors individually, is Solvent. 6.17 Copyrights, Patents, Trademarks and Licenses, etc. The Company and its Subsidiaries own or are licensed or otherwise have the right to use all of the material patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict in any material respect with the rights of any other Person. To the best knowledge of the Company and each of the Borrowers, no material slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any of its Subsidiaries infringes in any material respect upon any material rights held by any other Person. Except as specifically disclosed in Schedule 6.17, no claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Company or any of its Subsidiaries, threatened, in which there is a reasonable probability of an adverse decision which would reasonably be expected to have a Material Adverse Effect. 6.18 Subsidiaries. As of the Closing Date and taking into account the Merger, the Borrowers have no Subsidiaries, and have no equity investments in any other corporation or entity, other than those specifically disclosed in Schedule 6.18. Each of the Borrowers and their Subsidiaries is the owner, free and clear of all liens and encumbrances, of all of the issued and outstanding voting stock of each of their Subsidiaries (except where ownership of less than 100% is indicated on Schedule 6.18 and except for directors' qualifying shares). All shares of such stock have been validly issued and are fully paid and nonassessable, and no rights to subscribe to additional shares have been granted to exist. 6.19 Insurance. Except as specifically disclosed in Schedule 6.19, the properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles or such self-insured retention levels, and covering such risks, as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 6.20 Full Disclosure. The representations or warranties made by the Borrowers or any of their Subsidiaries in the Loan Documents as of the date such representations and warranties are made or deemed made, and the statements contained in all exhibits, reports, statements and certificates furnished by or on behalf of the Borrowers or any of their Subsidiaries in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Borrowers to the Banks prior to the Closing Date), taken as a whole, do not contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. -55- 61 6.21 Merger Agreement. At all times prior to the consummation of the Merger, the Merger Agreement shall constitute a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. ARTICLE VII AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 7.01 Financial Statements. The Company shall maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with GAAP and deliver to the Agent, with sufficient copies for each Bank: (a) As soon as available, but no later than 90 days after the close of each fiscal year, for the Company and its Subsidiaries (i) a copy of the audited consolidated statement of financial position as at the end of such fiscal year and the related consolidated statement of operations, statement of cash flows, and statement of stockholders equity for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of independent nationally recognized certified public accountants (the "Independent Auditor"), which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years; such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records; and (ii) a consolidating statement of financial position and consolidating statement of operations for the Company and its Subsidiaries, such statements consolidating by major geographic areas; (b) As soon as available, but no later than 45 days after the close of each of the first three (3) quarterly periods of each fiscal year, for the Company and its Subsidiaries for the quarterly period then ended (i) an unaudited consolidated statement of financial position and related consolidated statement of operations, statement of cash flows and statement of stockholders equity, and (ii) an unaudited consolidating statement of financial position and related consolidated statement of operations for the Company and its Subsidiaries, such statements consolidating by major geographic areas, all such statements to be certified by a Responsible Officer of the Company as fairly presenting, in accordance with GAAP (subject to year-end audit adjustments), the financial position and the results of operations of the Company and its Subsidiaries; (c) As soon as available, but no later than 120 days after the close of each fiscal year, Company-prepared annual projections for the next succeeding 3 fiscal years setting forth a financial forecast in substantially the same form as the projections provided to the Banks prior to the Closing Date; and -56- 62 (d) As soon as possible after the delivery thereof to the Company, a copy of any annual management letter prepared by the Independent Auditor in connection with the annual audit of the Company and its Subsidiaries. 7.02 Certificates; Other Information. The Company shall furnish to the Agent, with sufficient copies for each Bank: (a) concurrently with the delivery of the financial statements referred to in subsections 7.01(a) and (b), a Compliance Certificate executed by a Responsible Officer; (b) promptly, copies of all financial statements and reports that the Company sends to its shareholders, and, promptly after the filing thereof, copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; and (c) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Agent (at the request of any Bank) may from time to time reasonably request. 7.03 Notices. The Company shall promptly notify the Agent: (a) of the occurrence of any Default or Event of Default, promptly upon the chief executive officer, president or any other officer having substantially the same authority and responsibility or a Responsible Officer of the Company becoming aware of same; (b) of any development or event that has resulted or would reasonably be expected to result in a Material Adverse Effect or Material Adverse Credit Agreement Effect, including any of the following if it has resulted or would reasonably be expected to result in a Material Adverse Effect or a Material Adverse Credit Agreement Effect: (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after the Company obtains knowledge of such event), and deliver to the Agent and each Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan or Multiemployer Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan or Multiemployer Plan subject to Section 412 of the Code, if such amendment results in a material increase in annual contributions; and (d) prior to the Closing Date, of the giving or receipt by the Company (or any Subsidiary) of a notice of breach given by any Person pursuant to the Merger Agreement. -57- 63 Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been breached or violated. 7.04 Preservation of Corporate Existence, Etc. Each of the Company and the other Borrowers shall, and except as otherwise permitted under Sections 8.02 and 8.03, shall cause each of their respective Subsidiaries to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; and (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary in the normal conduct of its business, in the case of clause (a) (with respect to Persons other than the Company and the other Borrowers) or clause (b) (with respect to all such Persons), the non-preservation or maintenance of which could reasonably be expected to have a Material Adverse Effect. 7.05 Maintenance of Property. Each of the Company and the other Borrowers shall, and shall cause each of their respective Subsidiaries to, maintain and preserve all material property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted, so that its business carried on in connection therewith may be properly conducted at all times, except where the maintenance and preservation of such property, in the good faith business judgment of the Company or the applicable Subsidiary, is no longer in the best interests of the Company and its Subsidiaries, taken as a whole. The Company and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 7.06 Insurance. The Company and the other Borrowers shall maintain, and shall cause each of their respective Subsidiaries to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 7.07 Payment of Certain Obligations. Each of the Company and the other Borrowers shall, and shall cause each of their respective Subsidiaries to, pay and discharge as the same shall become due and payable, all their respective taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits, and all claims for sums which have become due and payable and which by law would become a Lien upon any of its properties or assets; provided, however, that no such tax, assessment, charge or claim need be paid or reimbursed if the same is being contested in good faith by appropriate proceedings diligently conducted and if such reserves, if any, as shall be required by GAAP shall have been made therefor. 7.08 Compliance with Laws. Each of the Company and the other Borrowers shall (a) comply, and shall cause each of their respective Subsidiaries to comply, with all material Requirements of Law of any Governmental Authority having jurisdiction over it or its business, (b) maintain, and cause each of its ERISA Affiliates to maintain, each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state -58- 64 law, and cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) refrain from engaging in a transaction that could be subject to Section 4069 or 4212(c) of ERISA, in the case of each of the preceding clauses (a), (b) and (c), if failure to do so could reasonably be expected to have a Material Adverse Effect. 7.09 Inspection of Property and Books and Records. Each of the Company and the other Borrowers shall maintain and shall cause each of their respective Subsidiaries to maintain proper books of record and account in conformity with GAAP. The Company and the other Borrowers shall permit, and shall cause each of their respective Subsidiaries to permit, representatives and independent contractors of the Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event of Default exists the Agent or any Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice, and, provided, further, that if no Event of Default shall then exist, such inspection shall be at the expense of the Agent or Bank, as applicable. 7.10 Environmental Laws. Each of the Company and the other Borrowers shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in material compliance with all material Environmental Laws. 7.11 Use of Proceeds. Each of the Company and the other Borrowers shall use the proceeds of the Loans for only the following purposes: (a) Term Loans. The proceeds of the Term Loans may be used only for the following purposes: (i) to pay cash consideration to shareholders of Western pursuant to Section 3.1(a) of the Merger Agreement, (ii) to pay cash consideration to holders of Western Options pursuant to Section 3.2 of the Merger Agreement, (iii) to pay transaction costs, fees and expenses relating to the Merger, (iv) to repay Indebtedness owing under or pursuant to the BJ Note Agreements and the BJ Notes, (v) to repay Indebtedness owing under or pursuant to the Western Note Agreement and the Western Notes, (vi) to repay Indebtedness owing under or pursuant to the Existing Company Credit Agreement, the Existing Western Credit Agreements and any promissory notes issued pursuant thereto, and (vii) the repurchase or redemption of Western Subordinated Debentures. (b) Revolving Loans. The proceeds of the Revolving Loans may be used only for the following purposes: (i) subject to Section 8.07, for working capital and general corporate purposes, including, without limitation, the issuance of Letters of Credit, the making of Restricted Payments permitted by Section 8.15 of this Agreement and the making of Investments permitted by Section 8.04 of this Agreement, (ii) for each of the purposes described in subsection 7.11(a) hereinabove, and (iii) to pay Cash Consideration (as defined in the Merger Agreement) to holders of Western Subordinated Debentures who convert Western Subordinated Debentures pursuant to Section 3.1(e) of the Merger Agreement. -59- 65 (c) Swing Loans. The proceeds of the Swing Loans may be used only for working capital and general corporate purposes, including, without limitation, the issuance of Letters of Credit. (d) All Loans. No Loans shall be used for any purpose which would be in contravention of any Requirement of Law. 7.12 Certain Waivers Under the Merger Agreement. Prior to the Closing Date, the Company shall provide to the Agent copies of (a) all waivers, if any, which the Company grants to Western Company pursuant to Article VII of the Merger Agreement, promptly after the granting thereof, and (b) all notices of a breach under the Merger Agreement given to or received by the Company (or any Subsidiary). This Section 7.12 shall not be deemed to authorize the giving of any waivers not permitted by subsection 5.01(b)(i) of this Agreement. 7.13 New Subsidiary Guarantors. If, at any time after the date of this Agreement, there exists any Subsidiary incorporated under the laws of any state in the United States of America with total assets with a book value of $3,000,000 or more, then the Company shall cause each such Subsidiary to do the following: (i) execute and deliver a Guaranty to the Agent substantially in the form of Exhibit "J" hereto and (ii) furnish the Agent with a written opinion of counsel for each such Subsidiary Guarantor in substantially the form set forth in Exhibit "D"; in each case with such revisions as may be reasonably requested by the Agent or the Banks. 7.14 Further Assurances. (a) Each of the Company and the other Borrowers will ensure and will cause each of their Subsidiaries to ensure, that all written information, exhibits and reports furnished to the Agent and the Banks do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will, and will cause each of their Subsidiaries to, promptly disclose to the Agent and the Banks and correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement or recordation thereof. (b) Promptly upon request by the Majority Banks or the Agent, each of the Company and the other Borrowers will, and will cause each of their Subsidiaries to, do, execute, acknowledge, deliver, record, re-record, file, and re-file, any and all such further acts, certificates, assurances and other instruments as the Agent or such Banks may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, and (ii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agent and the Banks the rights granted or now or hereafter intended to be granted to the Agent and the Banks under any Loan Document or under any other instrument executed in connection therewith. -60- 66 ARTICLE VIII NEGATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 8.01 Limitation on Liens. Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): (a) (1) Liens for taxes, assessments and other governmental charges or levies arising by operation of law in the ordinary course of business for sums which are not yet due and payable, or such Liens the enforcement of which are, at all times, effectively and fully stayed and are being contested in good faith by appropriate proceedings diligently conducted, and for which reserves as required under United States generally accepted accounting principles shall have been established, (2) Liens created by this Agreement and the other Loan Documents, (3) deposits or pledges made in the ordinary course of business to secure the payment of (A) workmen's compensation, unemployment insurance, pensions or other social security benefits or obligations or public or statutory obligations, (B) to the extent any such Contingent Obligations are permitted hereunder, contingent obligations on surety, appeal, bid or performance bonds or other obligations of a like general nature incurred in the ordinary course of business, (4) cash deposits or cash pledges to secure the payment of Contingent Obligations (to the extent any such Contingent Obligations are permitted hereunder), to issuers of appeal bonds or supersedeas bonds (including, without limitation, surety bonds and letters of credit and other instruments serving a similar purpose) arising in connection with judicial or administrative proceedings, (5) zoning restrictions, easements, licenses, restrictions, conditions and permits, and other similar encumbrances, on or with respect to, the use of real property or minor irregularities in title thereto which do not materially impair the use of such property in the operation of the business of the Company or the Subsidiaries or the value of such property, (6) inchoate liens arising under ERISA to secure current service pension liabilities as they are incurred under the provisions of Pension Plans from time to time in effect, (7) Liens arising in the ordinary course of business in respect of claims or demands of landlords, carriers, warehousemen, vendors, mechanics, laborers, materialmen, mechanics, workers, repairmen and other similar Persons, whether arising by operation of law, contractually or otherwise, provided that the amounts respectively secured thereby are not past due or if past due, the enforcement of any such Liens are, at all times, stayed, and such Liens are being contested in good faith by appropriate proceedings diligently conducted and reserves as required under GAAP shall have been established therefor, (8) Liens arising by operation of law for master's and crew's wages and other maritime liens arising by operation of law which are incurred in the ordinary course of business, (9) rights of lessees or sublessees under leases or subleases of property, whether real, personal or mixed, to other Persons, if such leases or subleases are not prohibited by Section 8.02, and (10) Liens existing on the date hereof and described in Schedule 8.01 hereto and any Refinancings of such Liens described in this clause (10); provided that the principal amount secured thereby is not increased above the principal amount outstanding at the time of such Refinancing; -61- 67 (b) purchase money security interests on any property acquired or held by the Company or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property and Refinancings thereof; provided that, (i) such Lien attaches solely to the property so acquired in such transaction, and (ii) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed $20,000,000; (c) Liens existing on property acquired in the Merger, which Liens were in existence immediately prior to the Merger, described in Schedule 8.01(c) hereto; provided that such Liens shall relate solely to the property subject thereto as of the Closing Date and shall secure only the payment of the Indebtedness so secured as of such date and Refinancings thereof; (d) Liens arising in respect of any sale and lease-back transactions permitted within the dollar limits set forth in subsection 8.02(h) of this Agreement; (e) statutory and common law rights of setoff, and rights of setoff under general depository agreements and under reimbursement agreements executed in connection with letters of credit issued for the account of the Company or a Subsidiary of the Company, with respect to financial institution depository accounts maintained by the Company and its Subsidiaries in the ordinary course of business, which accounts (i) remain (subject to such rights of setoff) at all times under the dominion and control of the Company and its Subsidiaries, and (ii) are not at any time subject to any balance requirements or other Liens of any kind; (f) any attachment or other judgment Lien, provided that the judgment secured by such attachment or other Lien shall, within forty-five (45) days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within forty-five (45) days after expiration of such stay and provided further that the aggregate amount so secured will not at any time exceed $10,000,000; (g) contractual rights of set-off in general depository accounts granted to financial institutions pursuant to guarantees of Indebtedness (or other obligations) of the Company or any Subsidiary of the Company otherwise permitted by this Agreement, provided that (i) the aggregate dollar amount on deposit in depository accounts subject to such rights of set-off does not at any time exceed $5,000,000 in the aggregate, and (ii) the Company (or the applicable Subsidiary) maintains (subject to such right of set-off) dominion and control over such account(s); and (h) Liens on assets other than current assets (as defined under GAAP) of the Company or any Subsidiary and other than stock of Subsidiaries; provided, that the aggregate consolidated book value of all such assets encumbered at any one time shall not exceed $10,000,000. 8.02 Disposition of Assets. Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to, permit any Disposition (whether in one or a series of transactions) of any property or assets (including accounts and notes receivable, with or without recourse) or enter into any agreement so to do, except: (a) Dispositions of inventory in the ordinary course of business; -62- 68 (b) sales of capital stock of any Subsidiary by the parent company thereof to members of the board of directors (or other analogous governing body under the laws of the jurisdiction under which such Subsidiary is incorporated) or officers of such Subsidiary in the minimum amount required to qualify such person by the laws of the jurisdiction under which such Subsidiary is incorporated; (c) Dispositions of assets, properties or businesses by the Company or any of its Subsidiaries or Affiliates to any other Subsidiary or to the Company, including the transfer after the Merger by the Company to BJ-USA of the assets of Western and its Subsidiaries acquired by the Company as a result of the Merger; (d) Dispositions of property in connection with any consolidation, merger or dissolution or liquidation permitted by Section 8.03 hereof; (e) Dispositions of the property described in Schedule 8.02(e) attached hereto; (f) Dispositions of equipment which is obsolete, worn out or no longer used or useful in such Person's business, all in the ordinary course of business; (g) Dispositions, during the one-year period following the effective date of the Merger, of any property or assets (other than stock of a Subsidiary) having an aggregate book value not in excess of $10,000,000 when in the judgment of the Company the disposition of such property is determined to be useful to achieve consolidation (or avoid duplication), achieve reduction of expenses or costs and/or maximize the potential for profits in respect of its and its Subsidiaries' business and operations taken together after the Merger including, but not limited to, the property described in Schedule 8.02(g) hereto; and (h) Dispositions of any property, assets (including capital stock of Subsidiaries and Affiliates) or businesses of the Company or any Subsidiary not otherwise permitted by clauses (a) through (g) of this Section 8.02; provided, that the aggregate book value of all such property, assets or businesses sold, leased or otherwise disposed of during the term of this Agreement shall not at any time exceed 15% of the total book value of the assets of the Company (determined on a consolidated basis in accordance with GAAP, as of the end of the immediately preceding fiscal quarter), and, provided, further, that for any such property, asset or business other than capital stock that is sold, leased or otherwise disposed of, for purposes of determining compliance with this subsection (h), the value of any such property, asset or business shall be equal to the book value of such property, asset or business as of the date of such Disposition; and provided, further, that for purposes of determining compliance with this subsection (h), the value of any capital stock sold or disposed of shall be determined by multiplying the number of shares of such capital stock sold by the net book value per share of such capital stock; and provided, further that this subsection 8.02(h) does not authorize Dispositions of accounts receivable, with or without recourse. 8.03 Consolidations and Mergers. Each of the Company and the other Borrowers agree that it shall not, and shall not permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: -63- 69 (a) any Subsidiary may merge with the Company, provided that the Company shall be the continuing or surviving corporation, or with any one or more Subsidiaries, provided that if any transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; (b) any Subsidiary may sell or transfer all or substantially all of its assets (upon voluntary liquidation, dissolution or otherwise), to the Company or a Wholly-Owned Subsidiary, and (c) any Subsidiary or the Company may merge or consolidate with another Person; provided that such transaction is not prohibited by Section 8.04 and (x) the Company or the Subsidiary involved in the merger or the consolidation is the surviving corporation, and (y) immediately prior to and after giving effect to such merger or consolidation, there exists no Default or Event of Default. 8.04 Loans and Investments. Each of the Company and the other Borrowers agrees that it shall not own, purchase or acquire, or permit any Subsidiary to own, purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment (collectively, an "Investment") in, any Person including any Affiliate of the Company, except for: (a) Investments in Cash Equivalents; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business and extensions of credit arising from Dispositions permitted by Section 8.02; (c) Investments by the Company in any Consolidated Subsidiary, whether now or hereafter existing, Investments by any of the Company's Consolidated Subsidiaries in the Company or in another Consolidated Subsidiary, whether now or hereafter existing, or Investments by any of the Company's unconsolidated Subsidiaries in the Company or another Subsidiary, whether now or hereafter existing; provided, however, that in the event any loans or extensions of credit are made by the Company or by a Subsidiary to a Borrower or to a Guarantor, the obligee of such loans or extensions of credit shall have executed an Intercompany Debt Subordination Agreement in the form of Exhibit "M" hereto; provided, however, it is agreed that accounts payable and accounts receivable among the Company and its Consolidated Subsidiaries arising or created in the ordinary course of business in connection with the centralized cash management system or centralized purchasing policies of the Company shall not be deemed loans or extensions of credit for purposes of this subsection 8.04(c); (d) Investments in Margin Stock, and other Investments, in each case which constitute Acquisitions provided that the acquired Person, division or business is not engaged in any material line of business substantially different from the Permitted Business; (e) Investments (other than Acquisitions) in Margin Stock of any corporation provided that the aggregate book value of the Margin Stock issued by such corporation and -64- 70 owned by the Company or its Subsidiaries does not exceed five percent (5%) of the total book value of the assets owned by the Company and its Subsidiaries (determined on a consolidated basis in accordance with GAAP); (f) Investments made prior to the Execution Date in Subsidiaries and Joint Ventures described on Schedule 6.18 hereto; or (g) (i) Investments in Joint Ventures and other Investments not permitted by subsection 8.04(a) through subsection 8.04(f) hereinabove, made in fiscal year 1995 after the Execution Date, which when aggregated with all such Investments made in fiscal year 1995 prior to the Execution Date (including any such Investments described on Schedule 6.18 hereto), do not exceed 5% of Consolidated Net Worth as of the Closing Date (giving effect to the Merger), and (ii) Investments in Joint Ventures and other Investments not permitted by subsection 8.04(a) through subsection 8.04(f) hereinabove, in each case made during any fiscal year after fiscal year 1995, in an amount not to exceed in the aggregate at any time during such fiscal year 5% of Consolidated Net Worth as of the end of the fiscal quarter immediately preceding the fiscal quarter in which the Investment is made. 8.05 Foreign Subsidiary Indebtedness. Each of the Company and the other Borrowers agrees that it shall not permit any Foreign Subsidiary to create, incur or suffer to exist any Indebtedness, except Indebtedness in an aggregate amount for all such Foreign Subsidiaries at no time to exceed 10% of Consolidated Net Worth at such time. For purposes of determining the amount of "Indebtedness" under this Section 8.05, any guaranties issued by a Foreign Subsidiary with respect to Indebtedness of a Borrower or Guarantor shall constitute "Indebtedness" of such Foreign Subsidiary. 8.06 Transactions with Affiliates. Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to, be a party to or enter into any transaction (including the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate of the Company, except in the ordinary course of business and upon fair and reasonable terms no less favorable to such Borrower or Subsidiary than such Borrower or Subsidiary would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary. 8.07 Use of Proceeds; Margin Stock. The Borrowers shall not, and shall not permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, or (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock. 8.08 Contingent Obligations. Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) this Agreement and the Guaranties; and -65- 71 (c) other Contingent Obligations in addition to the foregoing, not at any time to exceed an aggregate outstanding amount equal to 10% of Consolidated Net Worth. For purposes of this Section 8.08, "Contingent Obligations" shall not include guarantees issued by the Company guaranteeing Indebtedness of a Consolidated Subsidiary of the Company, or guarantees issued by a Consolidated Subsidiary of the Company guaranteeing Indebtedness of the Company or another Consolidated Subsidiary. 8.09 Change in Business. Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to, engage in any material line of business substantially different from the "Permitted Business", which term means those lines of business in which the Company and its Subsidiaries are engaged on the Execution Date and the technologies related to such lines of business, those lines of business which now or hereafter are complementary to the existing lines of business of the Company and its Subsidiaries and those lines of business which now or hereafter are complementary to the technologies related to such complementary lines of business. 8.10 Certain Other Debt. (a) Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to: (i) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms of the Western Indenture, the Western Subordinated Debentures, the BJ Note Agreements or the BJ Notes, other than (A) any such amendment or modification which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date of payment of interest thereon, (B) amendments and modifications permitted by subsection 8.10(b), and (C) such other amendments and modifications reasonably acceptable to the Majority Banks; or (ii) make any payments to the holders of the Western Debentures or to any trustee acting under the Western Indenture which is prohibited by Article XI of the Western Indenture. (b) The Company may make amendments and modifications to the BJ Note Agreements and the BJ Notes as necessary or appropriate so that no defaults or "Events of Default" as therein defined occur as a result of the execution, delivery or performance hereof or as a result of the making of any Loans hereunder, provided that (i) the terms of the BJ Notes and the BJ Note Agreements as amended shall not be more restrictive than the terms of this Credit Agreement and (ii) not less than ten (10) Business Days prior to entering into any such amendment, the Company shall provide written notice to the Agent, together with a copy of the proposed amendment. 8.11 Change in Structure. Each of the Company and the other Borrowers agrees that it shall not, and, except as permitted by Section 8.02 or 8.03, shall not permit any Subsidiary to, make any changes in its capital structure (including, without limitation, in the terms of its outstanding stock) or amend its articles or certificate of incorporation or by-laws if, as a result, a Material Adverse Effect or a Material Adverse Credit Agreement Effect would occur. -66- 72 8.12 Capitalization Ratio. (a) From and after the Closing Date the Company shall not permit the Capitalization Ratio to be greater than the amounts specified at any time during the periods specified in subsections 8.12(b) and (c) below. (b) The following amounts shall apply from and after the Merger Effective Time in the event that any of the Western Subordinated Debentures have been or are converted into or exchanged for common stock of Western Company after December 31, 1994, or in the event any of the Western Subordinated Debentures are converted into or exchanged for common stock of the Company or cash (or a combination of common stock and cash) on or after the Merger Effective Time pursuant to Section 3.1(e) of the Merger Agreement:
Period: Capitalization Ratio ------- -------------------- April 1, 1995 through 50.0% March 31, 1996 April 1, 1996 through 42.5% March 31, 1997 April 1, 1997 and 40.0% thereafter
(c) The following amounts shall apply from and after the Merger Effective Time in the event none of the Western Subordinated Debentures have been or are converted into or exchanged for common stock of Western Company after December 31, 1994, or converted into or exchanged for Company common stock or cash (or a combination of common stock and cash) pursuant to Section 3.1(e) of the Merger Agreement on or after the Merger Effective Time:
Period: Capitalization Ratio ------- -------------------- April 1, 1995 through 52.5% March 31, 1996 April 1, 1996 through 45.0% March 31, 1997 April 1, 1997 and 40.0% thereafter
In the event that any of the Western Subordinated Debentures are converted into or exchanged for common stock of the Company or cash (or a combination of common stock and cash) pursuant to Section 3.1(e) of the Merger Agreement at any time after the Merger Effective Time, the amounts set forth in subsection 8.12(b) shall apply from and after the date of the first such conversion. -67- 73 8.13 Minimum Net Worth. (a) From and after the Closing Date, the Company will maintain at all times Consolidated Net Worth in an amount not less than the sum of (i) the "Net Worth Base" in the amount specified in subsection (b) below, plus (ii) 50% of Consolidated Net Income computed on a cumulative basis for the period beginning June 30, 1995 and ending on the date of determination (provided that no negative adjustment will be made in the event that Consolidated Net Income is a deficit figure for such period), plus (iii) 50% of the aggregate amount of the net assets (cash or otherwise) received by the Company from the issuance of any class of capital stock after December 31, 1994 (excluding stock issued to Western Company stockholders and holders of Western Subordinated Debentures in exchange for their shares (or debentures, as applicable) in connection with the Merger). (b) The Net Worth Base shall be determined on the Closing Date, after giving effect to the funding of the Term Loans on such date, and shall be re-determined on each date that Western Subordinated Debentures are converted into Stock/Cash Consideration pursuant to Section 3.1(e) of the Merger Agreement. In the event none of the Western Subordinated Debentures are converted into or exchanged for common stock of Western Company after December 31, 1994, or converted into or exchanged for Company common stock or cash (or a combination of common stock and cash) pursuant to Section 3.1(e) of the Merger Agreement, the Net Worth Base shall be $380,000,000. In the event any Western Subordinated Debentures are converted into or exchanged for common stock of Western Company after December 31, 1994, or converted into or exchanged for Company common stock or cash (or a combination of common stock and cash) pursuant to Section 3.1(e) of the Merger Agreement, the Net Worth Base shall be increased by an amount equal to 50% of the principal amount of such Debentures so converted to stock and/or cash, up to a maximum Net Worth Base of $400,000,000. By way of example, the Net Worth Base shall be $400,000,000 if (x) $40,000,000 in principal amount of Western Subordinated Debentures are converted into stock and/or cash or (y) $80,000,000 in principal amount of Western Subordinated Debentures are converted into stock and/or cash. 8.14 Interest Coverage Ratio. (a) The Company shall not permit (as of the end of any fiscal quarter) the Interest Coverage Ratio for any period of four consecutive fiscal quarters to be less than the ratio set forth below:
Four Fiscal Quarters Ending: Ratio ---------------------------- ----- June 30, 1995 through 1.75 to 1.00 September 30, 1995 December 31, 1995 through 2.00 to 1.00 September 30, 1996 December 31, 1996 and 2.50 to 1.00 thereafter
(b) For purposes of determining compliance with this Section 8.14 for the four fiscal quarters ending on each of June 30, 1995 and September 30, 1995, the following shall apply: in calculating net income for purposes of clause (a) of the definition of Consolidated -68- 74 EBIT, the Company may exclude costs and expenses paid to third parties not Affiliates of the Company (not to exceed $40,000,000) which were incurred in connection with the Merger. 8.15 Restricted Payments. Each of the Company and the other Borrowers agrees that it shall not, and shall not permit any Subsidiary to, declare or make any Restricted Payment, except that the Company and any Subsidiary may make the following Restricted Payments provided that, in the case of clauses (a), (c) and (d) below, immediately prior to and after giving effect to the declaration of any dividend, and immediately prior to and after giving effect to the payment of any Restricted Payment, there exists no Default or Event of Default: (a) the Company and any Subsidiary may declare and make dividend payments or other distributions payable solely in its capital stock; (b) any Subsidiary may declare and make Restricted Payments to the Company or to any Consolidated Subsidiary; (c) the Company and any Subsidiary may declare and pay cash dividends on its capital stock, provided, that (1) the Capitalization Ratio is equal to or less than 35% immediately prior to and after giving effect to the declaration of dividends, and (2) the aggregate cash dividends paid by the Company during any fiscal quarter of the Company shall not exceed an amount equal to 50% of Consolidated Net Income for the preceding four fiscal quarters; and (d) the Company and any Subsidiary may purchase, redeem or otherwise acquire shares of its capital stock or warrants, rights or options to acquire any such shares provided that (1) the Capitalization Ratio is equal to or less than 35% immediately prior to and after giving effect thereto and (2) the aggregate dollar amount of consideration paid for such repurchases, redemptions or other acquisitions during the period from the Execution Date to and excluding the making of the purchase, redemption or other acquisition in question, when aggregated with all other Restricted Payments made by the Company and its Subsidiaries after the Closing Date in accordance with subsection 8.15(c) above, does not exceed the Available Amount. 8.16 Subsidiary Dividends. The Company will not, and it will not permit any of its Subsidiaries to, be a party to or enter into any agreement, instrument or other document which prohibits or restricts in any way, or to otherwise, directly or indirectly, create or cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (i) pay dividends or make any other distributions in respect of its capital stock or any other equity interest or participation in any Subsidiary, or pay or repay any Indebtedness owed to the Company or any Subsidiary, (ii) make loans or advances to the Company or (iii) transfer any of its properties or assets to the Company or any Subsidiary (subject to the rights of any holder of a Lien on any such properties or assets which Lien is a Permitted Lien). Notwithstanding the foregoing, this Section 8.16 shall not prohibit a Foreign Subsidiary from entering into or being a party to agreements of the type customarily entered into by Persons engaged in the same or similar business under similar circumstances in such countries. -69- 75 ARTICLE IX EVENTS OF DEFAULT 9.01 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Company or any other Borrower fails to pay (i) when and as the same becomes due, any amount of principal of any Loan, or (ii) within five (5) Business Days after the same becomes due, any Letter of Credit Borrowing or any interest, fee or other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by the Company, any other Borrower, or any Subsidiary made, or deemed pursuant to Section 5.04 to be made, herein or made in any other Loan Document, certificate, document or financial or other statement by the Company, any other Borrower, any Subsidiary, or any Responsible Officer and furnished at any time under this Agreement or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made pursuant to Section 5.04; or (c) Specific Defaults. The Company or any other Borrower fails to perform or observe any term, covenant or agreement contained in any of Sections 7.03(a) or 7.11 or in Article VIII (other than Sections 8.01, 8.04, 8.05, 8.06, 8.08 and 8.09); or (d) Certain Other Defaults. The Company or any other Borrower fails to perform or observe any term, covenant or agreement contained in any of Sections 7.01, 7.02, 7.03 (other than subsection 7.03(a)), 8.01, 8.04, 8.05, 8.06, 8.08 or 8.09, and such default shall continue unremedied for a period of 20 days after the earlier of (x) the date upon which a Responsible Officer of the Company reasonably should have known of such default, or (y) the date upon which written notice thereof is given to the Company by the Agent or any Bank; or (e) Other Defaults. The Company, any other Borrower, or any Subsidiary party thereto fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the date upon which written notice thereof is given to the Company by the Agent or any Bank; or (f) Cross-Default. (i) the Company, any other Borrower, or any Subsidiary fails to make any payment in respect of any Indebtedness or Contingent Obligation having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (ii) the Company, any other Borrower, or any Subsidiary fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation, if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated -70- 76 maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (iii) any Indebtedness or Contingent Obligations of the Company, any other Borrower or any Subsidiary in excess of $10,000,000 shall be declared due and payable prior to its stated maturity or cash collateral is demanded in respect of such Contingent Obligations; or (g) Insolvency; Voluntary Proceedings. The Company, any other Borrower or any Material Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any action to effectuate or authorize any of the foregoing; or (h) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company, any other Borrower or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against all or a substantial part of any Borrower's properties, or all or substantially all of any Material Subsidiary's properties, and any such involuntary Insolvency Proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company, any other Borrower or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company, any other Borrower or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (i) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted in liability of the Company or a Subsidiary under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $5,000,000 and such liability is not paid when due; or (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans is in an amount which would reasonably be expected to cause a Material Adverse Effect; or (j) Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $10,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 30 days after the entry thereof; or (k) Change of Control. There occurs any Change of Control; or (l) Adverse Change. There occurs a Material Adverse Effect; or (m) Guarantor Defaults. A Subsidiary Guarantor fails in any material respect to perform or observe any term, covenant or agreement in the Guaranty executed by it; or any Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or the Guarantor or any other -71- 77 Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at subsections (g) or (h) of this Section occurs with respect to a Subsidiary Guarantor. 9.02 Remedies. If any Event of Default has occurred and is continuing, the Agent shall, at the request of, or may, with the consent of, the Majority Banks: (a) declare the commitment of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit to be terminated, whereupon such Commitments shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest, notice of intention to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by the Company and each other Borrower; (c) require cash collateral as set forth in Section 3.08; and (d) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (g)(ii) or (h) of Section 9.01 (in the case of clause (i) of subsection (h) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit shall automatically terminate and (x) the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable and (y) cash collateral as set forth in Section 3.08 shall automatically be due and payable, in each case without further act of the Agent, the Issuing Bank or any Bank and without presentment, demand, protest, notice of intention to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by the Company and each other Borrower. 9.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X THE AGENT 10.01 Appointment and Authorization. (a) Each Bank hereby irrevocably (subject to Section 10.09) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties -72- 78 as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. (b) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Agent may agree at the request of the Majority Banks to act for such Issuing Bank with respect thereto; provided, however, that the Issuing Bank shall have all of the benefits and immunities (i) provided to the Agent in this Article X with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent", as used in this Article X, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 10.02 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 10.03 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness (other than such Agent-Related Person's own due execution and delivery), genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Subsidiaries or Affiliates of the Company. 10.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon -73- 79 advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions precedent to the initial Credit Extension or a subsequent Credit Extension specified in Article V, each Bank that has made available to the Agent its Pro Rata Share of the initial Credit Extension or subsequent Credit Extension, as the case may be, shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank as a condition precedent to such initial Credit Extension or subsequent Credit Extension, as applicable. 10.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. Subject to subsection 10.04(a), the Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article IX; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 10.06 Credit Decision. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent-Related Person hereafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrowers hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrowers. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, -74- 80 the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrowers which may come into the possession of any of the Agent-Related Persons. 10.07 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand (to the extent not reimbursed by or on behalf of the Company or other Borrowers and without limiting the obligation of the Company and the other Borrowers to do so as set forth in Section 11.06 of this Agreement), pro rata, each Agent-Related Person, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities to the extent the same arise from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs and out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company or other Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 10.08 Agent in Individual Capacity. Bank of America NT & SA and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though Bank of America NT & SA were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, Bank of America NT & SA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary or Affiliate) and acknowledge that the Agent-Related Persons shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America NT & SA shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent. 10.09 Successor Agent. The Agent may, and at the request of the Majority Banks shall, resign as Agent upon 30 days notice to the Banks. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article X and Sections 11.05 and 11.06 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and -75- 81 the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, for so long as Bank of America Illinois or Bank of America NT & SA (referred to interchangeably as "Bank of America" in this sentence) is the Issuing Bank, then Bank of America may not be removed as the Agent at the request of the Majority Banks unless Bank of America shall also simultaneously be replaced as "Issuing Bank" hereunder pursuant to documentation in form and substance reasonably satisfactory to Bank of America. 10.10 Withholding Tax. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrowers to such Bank, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Borrowers to such Bank. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrowers to such Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax. -76- 82 (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered, was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. 10.11 Co-Agents; Arranger. None of the Banks identified on the facing page or signature pages of this Agreement as a "co-agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Banks as such. The Arranger shall not have any obligations, liabilities, responsibilities or duties under this Agreement or the other Loan Documents. Without limiting the foregoing, none of the Banks so identified as a "co-agent", nor the Arranger, shall have or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified or on the Arranger in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE XI MISCELLANEOUS 11.01 Renegotiation After May 15, 1995. In the event the Closing Date has not occurred on or before May 15, 1995, then, subject to the terms of Section 11.02, the Majority Banks (with the consent of all Banks, the Issuing Bank and/or the Agent, in each case as may be required by Section 11.02), at their discretion, may elect to request amendments to the terms of this Agreement and the other Loan Documents. In order to request such amendments, the Majority Banks (through the Agent) shall provide to the Company, on or before June 15, 1995 (or such later date as may be agreed to by the Company and the Majority Banks) a form of proposed First Amendment to Credit Agreement (and amendments to other Loan Documents, to the extent applicable) (collectively, "Proposed Amendment"). If no Proposed Amendment is furnished to the Company on or before 5:00 p.m. (Houston, Texas time) on June 15, 1995, then this Agreement, and any Loan Documents which may have been executed, shall continue in full force and effect in accordance with their respective terms. If a Proposed Amendment is timely furnished to the Company, and the Agent does not receive, on or before 5:00 p.m. (San Francisco time) on the tenth (10th) Business Day after the Company receives said Proposed Amendment (or such later date as may be agreed to by the Company and the Majority Banks) (the "Proposed Amendment Due Date"), from the Company executed counterparts of the Proposed Amendment, then the Commitments, this Agreement and all other Loan Documents shall terminate at 5:00 p.m. (San Francisco time) on the Proposed Amendment Due Date. 11.02 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company or any applicable Subsidiary of the Company therefrom, shall be effective unless the -77- 83 same shall be in writing and signed by the Majority Banks (or by the Agent at the written request of the Majority Banks) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank or reinstate any Commitment terminated pursuant to Section 9.02; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (iii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; or (e) amend this Section, or Section 2.15, or any provision herein providing for consent or other action by all Banks; and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Issuing Bank under this Agreement or any Letter of Credit-Related Document relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (iii) the Fee Letter may be amended, or rights or privileges thereunder waived, only in a writing executed by the parties thereto. 11.03 Notices. (a) All notices, requests and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company or any other Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 11.03, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 11.03; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. -78- 84 (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next Business Day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II, III or X shall not be effective until actually received by the Agent, and notices pursuant to Article III to the Issuing Bank shall not be effective until actually received by the Issuing Bank at the address specified for the "Issuing Bank" on the applicable signature page hereof. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrowers. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company or any other Borrower to give such notice and the Agent and the Banks shall not have any liability to the Company or any other Borrower or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice, except to the extent that such action or inaction constitutes willful misconduct or gross negligence. The obligation of the Borrowers to repay the Loans and Letter of Credit Obligations shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 11.04 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.05 Costs and Expenses. Each of the Company and the other Borrowers, jointly and severally, shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse the Agent and the Issuing Bank within ten (10) Business Days after demand (subject to subsection 5.01(h)) for all reasonable costs and expenses incurred by the Agent and the Issuing Bank in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including Attorney Costs incurred by the Agent and the Issuing Bank with respect thereto; and (b) pay or reimburse the Agent, the Arranger and each Bank within ten (10) Business Days after demand (subject to subsection 5.01(h)) for all reasonable costs and expenses (including Attorney Costs) incurred by each of them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). -79- 85 11.06 Indemnity. Whether or not the transactions contemplated hereby are consummated, the Borrowers, jointly and severally, shall indemnify and hold each of the Agent-Related Persons and each Bank and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, and reasonable costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letters of Credit and the termination, resignation or replacement of the Agent or replacement of any Bank) be imposed on or incurred by any such Person and relating to or arising out of this Agreement or any of the other Loan Documents or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Borrowers shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities to the extent the same arise from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 11.07 Payments Set Aside. To the extent that one or more of the Borrowers makes a payment to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent. 11.08 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank. 11.09 Assignments, Participations, etc. (a) Any Bank (including the Issuing Bank) may, with the written consent of the Company (provided that such consent shall not be required during the existence of an Event of Default) and with the written consent of the Agent and the Issuing Bank, which consents of the Company, the Agent and the Issuing Bank, as applicable, shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (as defined in subsection 11.09(b) below) (provided that no written consent of the Company, the Agent or the Issuing Bank shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments, the Letter of Credit Obligations and the other rights and obligations of such Bank hereunder, in a minimum amount of $10,000,000, divided pro rata -80- 86 between the Revolving Commitment and the Term Commitment, provided, however, that in the event a Bank assigns less than all of its interests hereunder, it shall retain a Commitment of not less than $10,000,000 after the consummation of the assignment; provided, further, that the Company and the Agent may continue to deal solely and directly with an assigning Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of Exhibit "E" ("Assignment and Acceptance") together with any Note or Notes subject to such assignment and (iii) the assignor Bank or Assignee has paid to the Agent a processing fee in the amount of $2,500. (b) As used herein, an "Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $200,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $200,000,000 which makes or participates in commercial loans in the ordinary course of business, provided that such bank is acting through a branch or agency located in the United States; and (iii) a Person with a combined capital and surplus of at least $200,000,000 that is primarily engaged in the business of commercial banking and which makes or participates in commercial loans in the ordinary course of business and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. (c) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents, and (iii) this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. (d) Within five (5) Business Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance and payment of the processing fee (and provided that it consents to such assignment in accordance with subsection 11.09(a)), the Borrowers shall execute and deliver to the Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). (e) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the -81- 87 Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (i) the originating Bank's obligations under this Agreement shall remain unchanged, the originating Bank shall remain a Bank for all purposes hereof and of the other Loan Documents to which such originating Bank is a party, and the Participant shall not become a Bank for purposes hereof or for purposes of any other of the Loan Documents, (ii) the originating Bank shall remain solely responsible for the performance of such obligations, (iii) the Company, the Issuing Bank and the Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to Section 11.02. In the case of any such participation, the Participant shall not have any rights under this Agreement or any of the other Loan Documents (the Participant's rights against the granting Bank in respect of such participation being those set forth in the agreement creating or evidencing such participation with such Bank), and all amounts payable by the Borrowers hereunder shall be determined as if such Bank had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (f) Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any of its Subsidiaries, or by the Agent on such Company's or Subsidiary's behalf, under or in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors in the exercise of their professional duties; (G) to any Affiliate of such Bank, or to any Participant or Assignee, actual or potential, provided that such Affiliate, Participant or Assignee agrees to keep such information confidential to the same extent required of the Banks hereunder, and (H) as to any Bank, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company is party or is deemed party with such Bank. -82- 88 (g) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest by any such Bank in any manner permitted under applicable law. 11.10 Set-off. In addition to any rights and remedies of the Banks provided by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Borrowers, any such notice being waived by each of the Borrowers to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of any one or more of the Borrowers against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 11.11 Company as Subsidiary Borrower Representative. Each Subsidiary Borrower hereby irrevocably designates and appoints the Company as the agent of such Subsidiary Borrower under this Agreement and the other Loan Documents for the purpose of giving notices and taking other actions delegated to the Company pursuant to the terms of this Agreement and the other Loan Documents. In furtherance of the foregoing, each Subsidiary Borrower hereby irrevocably grants to the Company such Subsidiary Borrower's power-of- attorney, and hereby authorizes the Company, to act in place of such Subsidiary Borrower with respect to matters delegated to the Company pursuant to the terms of this Agreement and the other Loan Documents and to take such other actions as are reasonably incidental thereto. The Company hereby agrees to provide prompt notice to the relevant Subsidiary Borrower of any action taken by the Company under this Agreement and the other Loan Documents in place of such Subsidiary Borrower, provided that the failure to so provide such notice shall not affect the obligations of such Subsidiary Borrower hereunder. The Agent is hereby authorized to direct to the Company all invoices and similar statements showing amounts due by the Borrowers hereunder and under the Notes. 11.12 Interest. It is the intention of the parties hereto to comply strictly with applicable usury laws; accordingly, notwithstanding any provision to the contrary in this Agreement, the Notes or in any of the other Loan Documents securing the payment hereof or otherwise relating hereto, in no event shall this Agreement, the Notes or such other Loan Documents require or permit the payment, charging, taking, reserving, or receiving of any sums constituting interest under applicable laws which exceed the maximum nonusurious amount permitted by such laws. If any such excess interest is contracted for, charged, taken, reserved, or received in connection with the Loans evidenced by the Notes or in any of the Loan Documents securing the payment hereof or otherwise relating hereto, or in any communication by Agent or the Banks or any other person to any Borrower or any other person, or in the event all or part of the principal or interest thereof shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved, or -83- 89 received on the amount of principal actually outstanding from time to time under the Notes shall exceed the maximum nonusurious amount of interest permitted by applicable usury laws, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) any such excess shall be deemed an accidental and bona fide error and canceled automatically to the extent of such excess, and shall not be collected or collectible, (iii) any such excess which is or has been paid or received notwithstanding this paragraph shall be credited against the then unpaid principal balance of the Notes, or, if no principal balance is then outstanding, refunded to the applicable Borrower, and (iv) the effective rate of interest shall be automatically reduced to the maximum nonusurious rate allowed under applicable laws as construed by courts having jurisdiction thereof or hereof. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved, or received in connection with the Notes or this Agreement which are made for the purpose of determining whether such rate exceeds the maximum nonusurious rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the Loans, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, reserved, or received. The terms of this paragraph shall be deemed to be incorporated in every document and communication relating to the Notes, the Loans or any other Loan Document. 11.13 Indemnity and Subrogation. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law, each Borrower agrees that in the event a payment shall be made by any Guarantor under a Guaranty in respect of a Loan to such Borrower, such Borrower shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment subject to the provisions of the Guaranty executed by such Guarantor. Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under this Section 11.13 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full of the Obligations. No failure on the part of a Borrower to make the payments required by this Section (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Guarantor with respect to any Guaranty, and each Guarantor shall remain liable for the full amount of the obligations of such Guarantor under each such Guaranty in accordance therewith. 11.14 Notification of Addresses, Lending Offices, Etc. Each Bank shall notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 11.15 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 11.16 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. -84- 90 11.17 No Third Parties Benefitted. This Agreement is made and entered into for the sole protection and legal benefit of the Borrowers, the Banks, the Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 11.18 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT Section 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK); PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON- EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SCHEDULE 11.03, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY OTHER JURISDICTION. EACH OF THE BORROWERS, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. (c) EACH OF THE BORROWERS, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, -85- 91 WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. 11.19 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE BORROWERS, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.20 Entire Agreement. This Agreement supersedes in its entirety the commitment letter dated December 14, 1994 among the Company, the Arranger and Bank of America NT & SA, which letter is hereby terminated. The Fee Letter remains in full force and effect in accordance with the terms thereof. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Borrowers, the Banks and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -86- 92 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. BJ SERVICES COMPANY By: /s/ Taylor M. Whichard III ---------------------------------- Taylor M. Whichard III Treasurer BJ SERVICES COMPANY, U.S.A. By: /s/ Taylor M. Whichard III ---------------------------------- Taylor M. Whichard III Treasurer BJ SERVICES COMPANY MIDDLE EAST By: /s/ Taylor M. Whichard III ---------------------------------- Taylor M. Whichard III Treasurer BJ SERVICE INTERNATIONAL, INC. By: /s/ Taylor M. Whichard III ---------------------------------- Taylor M. Whichard III Treasurer -87- 93 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ Frank H. Woo ---------------------------------- Name: Frank H. Woo Title: Assistant Vice President BANK OF AMERICA ILLINOIS, as a Bank and as Issuing Bank By: /s/ C. Paige DiMaggio ---------------------------------- Name: C. Paige DiMaggio Title: Vice President THE CHASE MANHATTAN BANK, N.A., as Co-Agent and as a Bank By: /s/ Bettylou J. Robert ---------------------------------- Name: Bettylou Robert Title: Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH, as Co-Agent and as a Bank By: /s/ Xavier Ratouis ---------------------------------- Name: Xavier Ratouis Title: Authorized Signature FIRST INTERSTATE BANK OF TEXAS, N.A., as Co-Agent and as a Bank By: /s/ Frank W. Schageman ---------------------------------- Name: Frank Schageman Title: Assistant Vice President -88- 94 BANK OF MONTREAL By /s/ Donald G. Skipper ---------------------------------- Don Skipper Director THE BANK OF NEW YORK By /s/ Alan Lyster Jr. ---------------------------------- Alan F. Lyster, Jr. Vice President CHRISTIANIA BANK OG KREDITKASSE By /s/ C B Moise ---------------------------------- Name: C. B. Moise Title: Manager By /s/ N. M. Hagnussen ---------------------------------- Name: N. M. Hagnussen Title: Sr. Mgr. CORESTATES BANK, N.A. By /s/ R. Bart Brown, Jr. ---------------------------------- R. Bart Brown, Jr. Vice President DEN NORSKE BANK AS By /s/ Fran Meyers ---------------------------------- Name: Fran Meyers Title: Vice President By /s/ Nelvin Farstad ---------------------------------- Name: Nelvin Farstad Title: Senior Vice President -89- 95 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By /s/ B. Craig Erickson ---------------------------------- B. Craig Erickson Vice President By /s/ J. M. Leffler ---------------------------------- Name: J. Michael Leffler Title: Senior Vice President THE FUJI BANK, LIMITED By /s/ David Kelley ---------------------------------- David Kelley Vice President and Senior Manager THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By /s/ R. W. Ramage, Jr. ---------------------------------- Name: R. W. Ramage, Jr. Title: Senior Vice President THE MITSUBISHI BANK, LTD. HOUSTON AGENCY By /s/ Takeshi Yokohawa ---------------------------------- Mr. Takeshi Yokokawa Joint General Manager -90- 96 THE YASUDA TRUST AND BANKING COMPANY LIMITED By /s/ Gerald Gill ---------------------------------- Gerald Gill Vice President THE DAI-ICHI KANGYO BANK, LTD. By /s/ Koji Fujiwara ---------------------------------- Koji Fujiwara Assistant Vice President FIRST NATIONAL BANK OF COMMERCE By /s/ Cory Armand ---------------------------------- Cory Armand Assistant Vice President THE BANK OF TOKYO, LTD., DALLAS AGENCY By /s/ John McIntyre ---------------------------------- John McIntyre Vice President -91- 97 Exhibits and Schedules Omitted Copies of exhibits and schedules provided upon request. EX-10.2 3 PARENT GUARANTY AGREEMENT 1 EXHIBIT 10.2 PARENT GUARANTY AGREEMENT THIS PARENT GUARANTY AGREEMENT (this "Guaranty") by BJ SERVICES COMPANY, a Delaware corporation (the "Guarantor"), is effective as of April 13, 1995, and is in favor of each of the Banks (herein defined) from time to time parties to the Credit Agreement (herein defined) and in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (together with its successors and assigns herein called the "Agent"), as the Agent for and on behalf of the financial institutions (the "Banks") now or hereafter party to that certain Credit Agreement (as the same may be amended, modified or restated from time to time and at any time, the "Credit Agreement") among the Guarantor, the Subsidiary Borrowers (as defined in the Credit Agreement) (the Guarantor and the Subsidiary Borrowers who are from time to time parties to the Credit Agreement are herein referred to individually, as a "Borrower", and collectively, as "Borrowers"), the Banks, BANK OF AMERICA ILLINOIS, as letter of credit issuing bank, the Agent, and the Co-Agents therein named. All capitalized terms used but not defined herein shall have the meaning assigned to them in the Credit Agreement. W I T N E S S E T H: WHEREAS, pursuant to the terms of the Credit Agreement, the Banks have agreed to make certain Loans and to issue or participate in Letters of Credit to or for the benefit of the Borrowers; WHEREAS, the obligation of the Banks to make the Loans and to issue or participate in Letters of Credit is conditioned upon, among other things, the execution and delivery by the Guarantor of this Guaranty; WHEREAS, the Guarantor and the other Borrowers are members of the same consolidated group of companies and are engaged in related businesses and the Guarantor will derive substantial direct and indirect economic benefit from the Loans and the issuance of Letters of Credit; NOW, THEREFORE, (i) in consideration of the premises and to induce the Banks to enter into the Credit Agreement and to make the Loans and to issue or participate in the Letters of Credit, (ii) at the special insistence and request of the Agent and the Banks, and (iii) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor, for the benefit of the Agent and the Banks, hereby agrees as follows: Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. Section 2. Guaranty. The Guarantor hereby, unconditionally and irrevocably, guarantees the prompt performance and payment in full in Dollars by each of the Borrowers when due Page 1 2 (whether at stated maturity, by acceleration or otherwise) of the Obligations of each of the Borrowers, and the Guarantor further agrees to pay all reasonable costs, fees and expenses (including, without limitation, reasonable counsel fees, and the allocated cost of in-house counsel) incurred by the Agent or any Bank in enforcing any rights under this Guaranty. Section 3. Guaranty Absolute. (a) The obligations of the Guarantor hereunder are those of a primary obligor, and not merely a surety, and are independent of the Obligations. A separate action or actions may be brought against the Guarantor whether or not an action is brought against the Borrowers, any other guarantor or other obligor in respect of the Obligations or whether the Borrowers, any other guarantor or any other obligor in respect of the Obligations are joined in any such action or actions. (b) The Guarantor guarantees that the Obligations will be paid and performed strictly in accordance with the terms of the Credit Agreement and the other Loan Documents regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Banks with respect thereto. Guarantor agrees that its guarantee constitutes a guarantee of payment when due and not of collection. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of genuineness, validity, legality or enforceability of the Credit Agreement, any other Loan Document or any other document, agreement or instrument relating thereto or any assignment or transfer of any thereof; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations (including, without limitation, the possible extension of the Revolving Termination Date, Term Loan Maturity Date and increase of the amount of the Commitments all on the terms and conditions set forth in the Credit Agreement), or any waiver, indulgence, compromise, renewal, extension, amendment, modification of, or addition, consent, supplement to, or consent to departure from, or any other action or inaction under or in respect of, the Credit Agreement or any other Loan Document or any document, instrument or agreement relating to the Obligations or any other instrument or agreement referred to therein or any assignment or transfer of any thereof; (iii) any release or partial release of any other guarantor or other obligor in respect of the Obligations; (iv) any exchange, release or non-perfection of any collateral for all or any of the Obligations, or any release, or amendment or waiver of, or consent to departure from, any guaranty or security, for all or any of the Obligations; (v) any furnishing of any additional security for any of the Obligations; Page 2 3 (vi) the liquidation, bankruptcy, insolvency or reorganization of any Borrower, any other guarantor or other obligor in respect of the Obligations or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding; (vii) any modification or termination of any intercreditor or subordination agreement pursuant to which the claims of other creditors of the Borrowers or the Guarantor are subordinated to those of the Banks; or (viii) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower or the Guarantor. (c) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Obligations, or any part thereof, is, upon the insolvency, bankruptcy or reorganization of one or more of the Borrowers or the Guarantor or otherwise pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by the Agent or any Bank, all as though such payment or performance had not been made. (d) If an event permitting the acceleration of any of the Obligations shall at any time have occurred and be continuing and such acceleration shall at such time be prevented by reason of the pendency against one or more of the Borrowers of a case or proceeding under any bankruptcy or insolvency law, the Guarantor agrees that, for purposes of this Guaranty and its obligations hereunder, the Obligations shall be deemed to have been accelerated and the Guarantor shall forthwith pay such Obligations (including, without limitation, interest which but for the filing of a petition in bankruptcy with respect to the Borrowers, would accrue on such Obligations), and the other obligations hereunder, without any further notice or demand. Section 4. Waivers. The Guarantor hereby waives promptness, diligence, notice of intention to accelerate, notice of acceleration, notice of acceptance and any and all other notices with respect to any of the Obligations and this Guaranty and any requirement that the Agent or any Bank protect, secure, perfect or insure any security interest in or any Lien on any property subject thereto or exhaust any right or take any action against the Borrowers, any other guarantor or any other Person or any collateral or security or to any balance of any deposit accounts or credit on the books of any Bank in favor of the Borrowers or the Guarantor. Section 5. Subrogation. (a) The Guarantor will not exercise any rights of subrogation, reimbursement and contribution, contractual statutory or otherwise which it may acquire by way of subrogation under this Guaranty, by any payment hereunder or otherwise, until all of the Obligations of all of the Borrowers have been paid, all Commitments have terminated and all Letters of Credit have expired. (b) If, in the exercise of any of its rights and remedies, the Agent or any Bank shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against the Borrowers or any other Person, whether because of any applicable laws pertaining to Page 3 4 "election of remedies" or the like, the Guarantor hereby consents to such action by the Agent or such Bank and waives any claim based upon such action, even if such action by the Agent or such Bank shall result in a full or partial loss of any rights of subrogation which the Guarantor might otherwise have had but for such action by the Agent or such Bank. Any election of remedies which results in the denial or impairment of the right of the Agent or such Bank to seek a deficiency judgment against the Borrowers shall not impair the Guarantor's obligation to pay the full amount of the Obligations. In the event the Agent or any Bank shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or under the Loan Documents, the Agent or such Bank may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by the Agent or such Bank but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether the Agent or such Bank or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which the Agent or any Bank might otherwise be entitled but for such bidding at any such sale. Section 6. Further Assurances. (a) The Guarantor agrees that at any time and from time to time, at the expense of the Guarantor, the Guarantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, to enable the Agent to protect and to exercise and enforce its rights and remedies hereunder. (b) All representations and warranties, including, but not limited to, as to due authorization and enforceability of the Guaranty, set forth in the Credit Agreement are incorporated herein by reference and shall have the same effect as if fully stated herein. Section 7. Application of Payments. Any payment received by the Agent from the Guarantor (or from any Bank pursuant to Section 12 below), shall be applied by the Agent as follows: First, to the payment of reasonable costs and expenses of collection and all reasonable expenses (including, without limitation, any reasonable legal fees and disbursements and the reasonable allocated cost of in-house counsel), liabilities and advances made or incurred by the Agent in connection therewith; Page 4 5 Next, to the Banks pro rata, based on the then outstanding amount of the Obligations owed to each in payment in full of the Obligations; and Finally, after payment in full of all Obligations and the termination of the Commitments and expiration of all outstanding Letters of Credit, the payment to the Guarantor, or its successors and assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. Section 8. Decisions Relating to Exercise of Remedies. Notwithstanding anything in this Guaranty to the contrary, the Agent may exercise, and at the request of the Majority Banks shall exercise or refrain from exercising, all rights and remedies provided for herein and provided by law. Section 9. No Waiver. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 10. Amendments, Etc. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed, in the case of amendments, by the Guarantor and by the Agent and, in the case of consent or waivers, by the Agent and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given. Section 11. Notices. All notices, requests and other communications provided for hereunder shall be in writing and given as provided in Section 11.03 of the Credit Agreement. Section 12. Right to Set-off. (a) Upon the occurrence and during the continuance of any Event of Default under the Credit Agreement, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Guarantor against any and all of the Obligations, irrespective of whether or not such Bank shall have made any demand under this Guaranty and although such Obligations may be contingent and unmatured. Each Bank which sets-off pursuant to this Section 12(a) shall give prompt notice to the Guarantor following the Page 5 6 occurrence thereof; provided that the failure to give such notice shall not affect the validity of the set-off. (b) Any payment obtained pursuant to Section 12(a) above (or in any other manner directly from the Guarantor) by any Bank shall be remitted to the Agent and distributed among the Banks in accordance with the provisions of Section 7 above. Section 13. Continuing Guaranty. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until payment in full (after the termination of the Commitments and expiration of all outstanding Letters of Credit) of the Obligations and all other amounts payable under this Guaranty; (b) be binding upon the Guarantor, its successors and assigns; and (c) inure to the benefit of the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Bank may assign or otherwise transfer its rights and obligations under the Credit Agreement to any other Person or entity, and such other Person or entity shall thereupon become vested with all the benefits in respect thereof granted to the Bank herein or otherwise, all as provided in, and to the extent set forth in, Sections 11.08 and 11.09 of the Credit Agreement. Section 14. Subordination of the Credit Parties' Obligations to the Guarantor. The Guarantor hereby expressly covenants and agrees for the benefit of the Agent and the Banks that all obligations and liabilities of the Borrowers and their Subsidiaries to the Guarantor of whatsoever description (including, without limitation, all intercompany receivables of the Guarantor from the Borrowers) shall be subordinated and junior in right of payment to the Obligations. Following the occurrence of an Event of Default, any indebtedness of the Borrowers to the Guarantor shall, if the Agent shall so request, be collected and received by the Guarantor as trustee for the Agent and the Banks and paid over to the Agent and the Banks on account of the Obligations. Section 15. Other Guarantors. The Guarantor acknowledges that Subsidiaries of Guarantor (collectively, the "Other Guarantors") have guaranteed the payment and performance of the Obligations pursuant to other guaranty agreements executed in connection with the Credit Agreement (the "Other Guaranty Agreements"). The Guarantor agrees that in the event a payment shall be made by any Other Guarantor under any Other Guaranty Agreement, the Other Guarantor (the "Claiming Guarantor") shall have and be entitled to rights of contribution against the Guarantor pursuant to and in accordance with applicable law. In the event the Guarantor makes any such payment to a Claiming Guarantor, the Guarantor shall be subrogated to the rights of such Claiming Guarantor to the extent of such payment. Notwithstanding any provision of this Agreement to the contrary, all rights of the Other Guarantors under this Section and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full of the Obligations. No failure on the part of the Guarantor or any Other Guarantor to make the payments required by this Section (or any other Page 6 7 payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of the Guarantor or any Other Guarantor with respect to any Guaranty, and the Guarantor and each Other Guarantor shall remain liable for the full amount of the obligations under the guaranty agreement executed by it. This Section 15 is intended only to confirm the relative rights of the Guarantor and all Other Guarantors, and nothing set forth in this sentence is intended to or shall impair the obligations of the Guarantor and Other Guarantors, jointly and severally, to pay to the Agent and the Banks, or any one or more of them, as the case may be, the Obligations as and when the same shall become due and payable in accordance with the terms of this Guaranty. Section 16. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Guaranty which are valid. Section 17. Taxes. (a) Any and all payments by the Guarantor to each Bank or the Agent under this Guaranty and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Guarantor shall pay all Other Taxes. (b) The Guarantor agrees to indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor. In the event the Agent or a Bank is required to pay Taxes or Other Taxes for which the Agent or such Bank seeks indemnity hereunder, the Agent or such Bank, as applicable, shall make written request to the Guarantor within 60 days after paying such Taxes or Other Taxes; provided, however, that a Bank's failure to timely give notice of such Taxes or Other Taxes shall not impair the Guarantor's obligations to indemnify such Bank against such Taxes or such Other Taxes. (c) If Guarantor shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Guarantor shall make such deductions and withholdings; (iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance Page 7 8 with applicable law; and (iv) the Guarantor shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, all additional reasonable amounts which the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Guarantor of Taxes or Other Taxes, the Guarantor shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. SECTION 18. GOVERNING LAW AND JURISDICTION. (a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT Section 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK); PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE GUARANTOR AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SCHEDULE 11.03 OF THE CREDIT AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE Page 8 9 PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION. THE GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. (c) THE GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. SECTION 19. WAIVER OF JURY TRIAL. THE GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE GUARANTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS. Section 20. ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. BJ SERVICES COMPANY By: /s/ Taylor M. Whichard, III ---------------------------------- Taylor M. Whichard, III Treasurer Page 9 EX-10.3 4 FORM OF GUARANTY AGREEMENT 1 EXHIBIT 10.3 GUARANTY AGREEMENT [DOMESTIC SUBSIDIARIES] THIS GUARANTY AGREEMENT (this "Guaranty") by _______________________, a _____________ corporation (the "Guarantor"), is effective as of ____________________ , and is in favor of each of the Banks (herein defined) from time to time parties to the Credit Agreement (herein defined) and in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, (together with its successors and assigns herein called the "Agent"), as the Agent for and on behalf of the financial institutions (the "Banks") now or hereafter party to that certain Credit Agreement (as the same may be amended, modified or restated from time to time and at any time, the "Credit Agreement") among BJ SERVICES COMPANY, a Delaware corporation (the "Company"), the Subsidiary Borrowers (as defined in the Credit Agreement) (the Company and the Subsidiary Borrowers who are from time to time parties to the Credit Agreement are herein referred to individually, as a "Borrower", and collectively, as "Borrowers"), the Banks, BANK OF AMERICA ILLINOIS, as letter of credit issuing bank, the Agent, and the Co-Agents therein named. All capitalized terms used but not defined herein shall have the meaning assigned to them in the Credit Agreement. W I T N E S S E T H: WHEREAS, pursuant to the terms of the Credit Agreement, the Banks have agreed to make certain Loans and to issue or participate in Letters of Credit to or for the benefit of the Borrowers; WHEREAS, the obligation of the Banks to make the Loans and to issue or participate in Letters of Credit is conditioned upon, among other things, the execution and delivery by the Guarantor of this Guaranty; WHEREAS, the Guarantor is a wholly-owned subsidiary of the Company and the Borrowers are members of the same consolidated group of companies and are engaged in related businesses and the Guarantor may receive a portion of the Loans or the benefit of the issuances of the Letters of Credit and will derive other substantial direct and indirect economic benefit therefrom; NOW, THEREFORE, (i) in consideration of the premises and to induce the Banks to enter into the Credit Agreement and to make the Loans and to issue or participate in the Letters of Credit, (ii) at the special insistence and request of the Agent and the Banks, and (iii) for other Page 1 2 good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor, for the benefit of the Agent and the Banks, hereby agrees as follows: Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. Section 2. Guaranty. The Guarantor hereby, unconditionally and irrevocably, guarantees the prompt performance and payment in full in Dollars by each of the Borrowers when due (whether at stated maturity, by acceleration or otherwise) of the Obligations of each of the Borrowers, and the Guarantor further agrees to pay all reasonable costs, fees and expenses (including, without limitation, reasonable counsel fees, and the allocated cost of in-house counsel) incurred by the Agent or any Bank in enforcing any rights under this Guaranty. Section 3. Guaranty Absolute. (a) The obligations of the Guarantor hereunder are those of a primary obligor, and not merely a surety, and are independent of the Obligations. A separate action or actions may be brought against the Guarantor whether or not an action is brought against the Borrowers, any other guarantor or other obligor in respect of the Obligations or whether the Borrowers, any other guarantor or any other obligor in respect of the Obligations are joined in any such action or actions. (b) The Guarantor guarantees that the Obligations will be paid and performed strictly in accordance with the terms of the Credit Agreement and the other Loan Documents regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Banks with respect thereto. Guarantor agrees that its guarantee constitutes a guarantee of payment when due and not of collection. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of genuineness, validity, legality or enforceability of the Credit Agreement, any other Loan Document or any other document, agreement or instrument relating thereto or any assignment or transfer of any thereof; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations (including, without limitation, the possible extension of the Revolving Termination Date, Term Loan Maturity Date and increase of the amount of the Commitments all on the terms and conditions set forth in the Credit Agreement), or any waiver, indulgence, compromise, renewal, extension, amendment, modification of, or addition, consent, supplement to, or consent to departure from, or any other action or inaction under Page 2 3 or in respect of, the Credit Agreement or any other Loan Document or any document, instrument or agreement relating to the Obligations or any other instrument or agreement referred to therein or any assignment or transfer of any thereof; (iii) any release or partial release of any other guarantor or other obligor in respect of the Obligations; (iv) any exchange, release or non-perfection of any collateral for all or any of the Obligations, or any release, or amendment or waiver of, or consent to departure from, any guaranty or security, for all or any of the Obligations; (v) any furnishing of any additional security for any of the Obligations; (vi) the liquidation, bankruptcy, insolvency or reorganization of any Borrower, any other guarantor or other obligor in respect of the Obligations or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding; (vii) any modification or termination of any intercreditor or subordination agreement pursuant to which the claims of other creditors of the Borrowers or the Guarantor are subordinated to those of the Banks; or (viii) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower or the Guarantor. (c) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Obligations, or any part thereof, is, upon the insolvency, bankruptcy or reorganization of one or more of the Borrowers or the Guarantor or otherwise pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by the Agent or any Bank, all as though such payment or performance had not been made. (d) If an event permitting the acceleration of any of the Obligations shall at any time have occurred and be continuing and such acceleration shall at such time be prevented by reason of the pendency against one or more of the Borrowers of a case or proceeding under any bankruptcy or insolvency law, the Guarantor agrees that, for purposes of this Guaranty and its obligations hereunder, the Obligations shall be deemed to have been accelerated and the Page 3 4 Guarantor shall forthwith pay such Obligations (including, without limitation, interest which but for the filing of a petition in bankruptcy with respect to the Borrowers, would accrue on such Obligations), and the other obligations hereunder, without any further notice or demand. Section 4. Waivers. To the extent permitted by applicable law, the Guarantor hereby waives promptness, diligence, notice of intention to accelerate, notice of acceleration, notice of acceptance and any and all other notices with respect to any of the Obligations and this Guaranty and any requirement that the Agent or any Bank protect, secure, perfect or insure any security interest in or any Lien on any property subject thereto or exhaust any right or take any action against the Borrowers, any other guarantor or any other Person or any collateral or security or to any balance of any deposit accounts or credit on the books of any Bank in favor of the Borrowers or the Guarantor. Section 5. Subrogation. (a) The Guarantor will not exercise any rights of subrogation, reimbursement and contribution, contractual statutory or otherwise, which it may acquire by way of subrogation under this Guaranty, by any payment hereunder or otherwise, until all of the Obligations of all of the Borrowers have been paid, all Commitments have terminated and all Letters of Credit have expired. (b) If, in the exercise of any of its rights and remedies, the Agent or any Bank shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against the Borrowers or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, the Guarantor hereby consents to such action by the Agent or such Bank and waives any claim based upon such action, even if such action by the Agent or such Bank shall result in a full or partial loss of any rights of subrogation which the Guarantor might otherwise have had but for such action by the Agent or such Bank. Any election of remedies which results in the denial or impairment of the right of the Agent or such Bank to seek a deficiency judgment against the Borrowers shall not impair the Guarantor's obligation to pay the full amount of the Obligations. In the event the Agent or any Bank shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or under the Loan Documents, the Agent or such Bank may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by the Agent or such Bank but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether the Agent or such Bank or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling Page 4 5 may have the effect of reducing the amount of any deficiency claim to which the Agent or any Bank might otherwise be entitled but for such bidding at any such sale. Section 6. Representations and Warranties. The Guarantor represents and warrants to the Agent and the Banks as of the date hereof as follows: (a) Corporate Existence and Power. The Guarantor (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) has the power and authority and all material governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (iii) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (iv) is in compliance in all material respects with all Requirements of Law; except, in each case referred to in clause (iii), to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect. (b) Corporate Authorization; No Contravention. The execution, delivery and performance by the Guarantor of this Guaranty and every other Loan Document to which the Guarantor is party, has been duly authorized by all necessary corporate action, and do not and will not: (i) contravene the terms of any of the Guarantor's Organization Documents; (ii) conflict with or result in any breach or contravention of, in any material respect, or the creation of any Lien (except Permitted Liens) under, any document evidencing any material Contractual Obligation to which the Guarantor is a party or any material order, injunction, writ or decree of any Governmental Authority to which the Guarantor or its property is subject; or (iii) violate any material Requirement of Law. (c) Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Guarantor of this Guaranty or any other Loan Document to which the Guarantor is a party. (d) Binding Effect. This Guaranty and the other Loan Documents to which the Guarantor is a party constitute the legal, valid and binding obligations of the Guarantor to the extent it is a party thereto, enforceable against the Guarantor in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles. Page 5 6 (e) Litigation. (i) To the best knowledge of the Guarantor, there are no actions, suits, proceedings, claims or disputes pending, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Guarantor or any of its respective properties: (A) which purport to affect or pertain to this Guaranty or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (B) if determined adversely to the Guarantor, would reasonably be expected to have a Material Adverse Effect. (ii) No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Guaranty or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. (f) No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by the Guarantor. (g) Use of Proceeds; Margin Regulations. The Guarantor is not generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. (h) Title to Properties. The Guarantor has good record and indefeasible title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its respective businesses, except for such defects in title as would not, individually or in the aggregate, have a Material Adverse Effect. The property of the Guarantor is subject to no Liens, other than Permitted Liens. (i) Taxes. The Guarantor has filed all Federal and other material tax returns and reports required to be filed, and has paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon it or its properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. To Guarantor's knowledge, there is no proposed tax assessment against the Guarantor that would, if made, have a Material Adverse Effect. (j) Environmental Matters. The Guarantor conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on their businesses, operations and properties, and as a result thereof the Guarantor has reasonably concluded that, except as specifically disclosed in Schedule 6.13 of the Credit Page 6 7 Agreement, such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (k) Regulated Entities. Neither the Guarantor, any Person controlling the Guarantor or any of its Subsidiaries is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Guarantor is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. (l) No Burdensome Restrictions. Neither the Guarantor nor any of its Subsidiaries is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. (m) Solvency. The Guarantor is, and after giving effect to this Guaranty will be, Solvent, on a going concern basis and taking into account its rights of contribution and subrogation. (n) Copyrights, Patents, Trademarks and Licenses, etc. The Guarantor and its Subsidiaries own or are licensed or otherwise have the right to use all of the material patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Guarantor, no material slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Guarantor or any of its Subsidiaries infringes in any material respect upon any material rights held by any other Person. Except as disclosed in Schedule 6.17 to the Credit Agreement, which Schedule 6.17 is incorporated herein by this reference, no claim or litigation regarding any of the foregoing is pending or threatened in which there is a reasonable probability of an adverse decision which would reasonably be expected to have a Material Adverse Effect. (o) Subsidiaries. The Guarantor has no Subsidiaries, and has no equity investments in any other corporation or entity, other than those specifically disclosed in Schedule 6.18 of the Credit Agreement, which Schedule 6.18 is incorporated herein by this reference. Each of the Guarantor and its Subsidiaries is the owner, free and clear of all liens and encumbrances, of all of the issued and outstanding voting stock of each of its Subsidiaries (except where ownership of less than 100% is indicated on Schedule 6.18 of the Credit Agreement Page 7 8 and except for directors' qualifying shares). All shares of such stock have been validly issued and are fully paid and nonassessable, and no rights to subscribe to additional shares have been granted to exist. (p) Insurance. Except as disclosed in Schedule 6.19 to the Credit Agreement, which Schedule 6.19 is incorporated herein by this reference, the properties of the Guarantor and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Guarantor, in such amounts, with such deductibles and self-insured retention levels and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Guarantor or such Subsidiary operates. (q) Full Disclosure. None of the representations or warranties made by the Guarantor or any of its Subsidiaries in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Guarantor or any of its Subsidiaries in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Guarantor to the Banks prior to the Closing Date), taken as a whole, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. (r) Benefit to Guarantor. The Guarantor has determined that its liability and obligation under this Guaranty will substantially benefit it directly, and its board of directors has made that determination. The Borrower, the Guarantor and the other Subsidiaries of the Company are mutually dependent on each other in the conduct of their respective businesses and do business together as an integrated business enterprise. The maintenance and improvement of the Company's financial condition is vital to sustaining the Guarantor's business and the transactions contemplated in the Credit Agreement produce distinct and identifiable financial and economic direct and indirect benefits to the Guarantor. The representations and warranties set forth in this Section 6 shall survive the execution and delivery of this Guaranty. Section 7. Further Assurances. (a) As long as any of the Obligations remain outstanding, the Commitments have not expired and there are Letters of Credit outstanding, the Guarantor shall, unless the Majority Banks waive compliance in writing, comply with all the covenants related to the Guarantor contained in the Credit Agreement. Page 8 9 (b) The Guarantor agrees that at any time and from time to time, at the expense of the Guarantor, the Guarantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, to enable the Agent to protect and to exercise and enforce its rights and remedies hereunder. Section 8. Application of Payments. Any payment received by the Agent from the Guarantor (or from any Bank pursuant to Section 13 below), shall be applied by the Agent as follows: First, to the payment of reasonable costs and expenses of collection and all reasonable expenses (including, without limitation, any legal fees and disbursements and the reasonable allocated cost of in-house counsel), liabilities and advances made or incurred by the Agent in connection therewith; Next, to the Banks pro rata, based on the then outstanding amount of the Obligations owed to each in payment in full of the Obligations; and Finally, after payment in full of all Obligations and the termination of the Commitments and expiration of all outstanding Letters of Credit, the payment to the Guarantor, or its successors and assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. Section 9. Decisions Relating to Exercise of Remedies. Notwithstanding anything in this Guaranty to the contrary, the Agent may exercise, and at the request of the Majority Banks shall exercise or refrain from exercising, all rights and remedies provided for herein and provided by law. Section 10. No Waiver. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 11. Amendments, Etc. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed, in the case of amendments, by the Guarantor and by the Agent and, in the case of consent or waivers, by the Agent and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given. Page 9 10 Section 12. Notices. All notices, requests and other communications provided for hereunder shall be in writing and given to Agent as provided in Section 11.03 of the Credit Agreement. All communications and notices hereunder to Guarantor shall be given to the Guarantor c/o BJ Services Company at the following address: 5500 Northwest Central Drive Houston, Texas 77092 Attention: Mr. Trey Whichard Treasurer Telephone: (713) 895-5847 Facsimile: (713) 895-5851 with a copy to: Margaret Shannon, Esq. General Counsel BJ Services Company 5500 Northwest Central Drive Houston, Texas 77092 Telephone: (713) 895-5867 Facsimile: (713) 895-5603 or, at such other address as shall be designated by Guarantor in a written notice to Agent. Section 13. Right to Set-off. (a) Upon the occurrence and during the continuance of any Event of Default under the Credit Agreement, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Guarantor against any and all of the Obligations, irrespective of whether or not such Bank shall have made any demand under this Guaranty and although such Obligations may be contingent and unmatured. Each Bank which sets-off pursuant to this Section 13(a) shall give prompt notice to the Guarantor following the occurrence thereof; provided that the failure to give such notice shall not affect the validity of the set-off. (b) Any payment obtained pursuant to Section 13(a) above (or in any other manner directly from the Guarantor) by any Bank shall be remitted to the Agent and distributed among the Banks in accordance with the provisions of Section 8 above. Section 14. Continuing Guaranty. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until payment in full (after the termination of the Commitments and expiration of all outstanding Letters of Credit) of the Obligations and all other amounts payable under this Guaranty; (b) be binding upon the Guarantor, its successors and assigns; and (c) inure to the benefit of the Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Bank may assign or otherwise transfer its rights and obligations under the Credit Agreement to any other Person or entity, and such other Person or entity shall thereupon become vested with all the benefits in respect thereof granted to the Bank herein or otherwise, all as provided in, and to the extent set forth in, Sections 11.08 and 11.09 of the Credit Agreement. Section 15. Subordination of the Credit Parties' Obligations to the Guarantor. The Guarantor hereby expressly covenants and agrees for the benefit of the Agent and the Banks that all obligations and liabilities of each of the Borrowers, the Other Guarantors (as defined in Section 17 of this Guaranty) and each of their respective Subsidiaries to the Guarantor of whatsoever description (including, without limitation, all intercompany receivables of the Guarantor from the Borrowers, other Guarantors and Subsidiaries) shall be subordinated and junior in right of payment to the Obligations. Following the occurrence of an Event of Default, Page 10 11 any indebtedness of the Borrowers, Other Guarantors and their Subsidiaries to the Guarantor shall, if the Agent shall so request, be collected and received by the Guarantor as trustee for the Agent and the Banks and paid over to the Agent and the Banks on account of the Obligations. Section 16. Financial Reporting. Guarantor shall furnish to the Agent all such financial statements and other information relating to the financial condition, properties and affairs of Guarantor as any Bank, acting through the Agent, may from time to time reasonably request. Section 17. Other Guarantors. Guarantor acknowledges that other Subsidiaries of the Company (collectively, the "Other Guarantors") have guaranteed the payment and performance of the Obligations pursuant to other guaranty agreements executed in connection with the Credit Agreement (the "Other Guaranty Agreements"), and to the extent Guarantor is required to satisfy all or any part of the Obligations pursuant to the terms of this Guaranty, Guarantor shall have and be entitled to rights of contribution against the Other Guarantors. The Guarantor agrees that in the event a payment shall be made by any Other Guarantor under any Other Guaranty Agreement, the Other Guarantor (the "Claiming Guarantor") shall have and be entitled to rights of contribution against the Guarantor pursuant to and in accordance with applicable law. In the event the Guarantor makes any such payment to a Claiming Guarantor, the Guarantor shall be subrogated to the rights of such Claiming Guarantor to the extent of such payment. Notwithstanding any provision of this Agreement to the contrary, all rights of the Other Guarantors under this Section and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full of the Obligations. No failure on the part of the Guarantor or any Other Guarantor to make the payments required by this Section (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of the Guarantor or any Other Guarantor with respect to any Guaranty, and the Guarantor and each Other Guarantor shall remain liable for the full amount of the obligations under the guaranty agreement executed by it. This Section 17 is intended only to confirm the relative rights of the Guarantor and all Other Guarantors, and nothing set forth in this sentence is intended to or shall impair the obligations of the Guarantor and Other Guarantors, jointly and severally, to pay to the Agent and the Banks, or any one or more of them, as the case may be, the Obligations as and when the same shall become due and payable in accordance with the terms of this Guaranty. Section 18. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Guaranty which are valid. Page 11 12 Section 19. Taxes. (a) Any and all payments by the Guarantor to each Bank or the Agent under this Guaranty and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Guarantor shall pay all Other Taxes. (b) The Guarantor agrees to indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor. In the event the Agent or a Bank is required to pay Taxes or Other Taxes for which the Agent or such Bank seeks indemnity hereunder, the Agent or such Bank, as applicable, shall make written request to the Guarantor within 60 days after paying such Taxes or Other Taxes; provided, however, that a Bank's failure to timely give notice of such Taxes or Other Taxes shall not impair the Guarantor's obligations to indemnify such Bank against such Taxes or such Other Taxes. (c) If the Guarantor shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Guarantor shall make such deductions and withholdings; (iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Guarantor shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, all additional reasonable amounts which the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Guarantor of Taxes or Other Taxes, the Guarantor shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. SECTION 20. GOVERNING LAW AND JURISDICTION. (a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT Section 5-1401 OF THE Page 12 13 GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK); PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON- EXCLUSIVE JURISDICTION OF THOSE COURTS. THE GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION, WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE GUARANTOR AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SCHEDULE 11.03 OF THE CREDIT AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION. THE GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. (c) THE GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. SECTION 21. WAIVER OF JURY TRIAL. THE GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON Page 13 14 OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE GUARANTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS. SECTION 22. ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. _____________________________________ By: _________________________________ Taylor M. Whichard III Treasurer Page 14 EX-23.1 5 CONSENT OF PRICE WATERHOUSE 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-36754, 33-52506, 33-62098, 33-58637 and 33-58639) of BJ Services Company and in the Registration Statement on Form S-4 (No. 33-58017) of BJ Services Company of our report dated February 22, 1995 relating to the financial statements of The Western Company of North America, which appears in this Current Report on Form 8-K/A of BJ Services Company. PRICE WATERHOUSE LLP Houston, Texas May 28, 1995 -----END PRIVACY-ENHANCED MESSAGE-----