-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GEWbPEsvmbpPHayr8IUX9LZY0hQ2CxBZKda/z8WFQ8Yh98hCHh7XN5nRw0opnj59 28yeg1+lcP2aHwWmcFs1ig== 0000950129-96-000566.txt : 19960408 0000950129-96-000566.hdr.sgml : 19960408 ACCESSION NUMBER: 0000950129-96-000566 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960405 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: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02287 FILM NUMBER: 96544674 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES INTERNATIONAL INC CENTRAL INDEX KEY: 0001009965 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02287-01 FILM NUMBER: 96544675 BUSINESS ADDRESS: STREET 1: 5500 STREET 2: 5500 NORTHWEST CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77092 BUSINESS PHONE: 7134624239 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO MIDDLE EAST CENTRAL INDEX KEY: 0001009966 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02287-02 FILM NUMBER: 96544676 BUSINESS ADDRESS: STREET 1: 5500 STREET 2: 5500 NORTHWEST CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77092 BUSINESS PHONE: 7134624239 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO USA CENTRAL INDEX KEY: 0001009967 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02287-03 FILM NUMBER: 96544677 BUSINESS ADDRESS: STREET 1: 5500 STREET 2: 5500 NORTHWEST CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77092 BUSINESS PHONE: 7134624239 S-4 1 BJ SERVICES COMPANY - FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ BJ SERVICES COMPANY DELAWARE 1389 63-0084140 BJ SERVICES COMPANY, U.S.A. DELAWARE 1389 76-0310419 BJ SERVICE INTERNATIONAL, INC. DELAWARE 1389 95-2902194 BJ SERVICES COMPANY MIDDLE EAST DELAWARE 1389 76-0344390 (Exact name of Registrant as (State or other (Primary Standard (I.R.S. Employer specified in its charter) jurisdiction of incorporation Industrial Classification Identification or organization) Code Number) Number)
------------------------------------ 5500 NORTHWEST CENTRAL DRIVE MARGARET BARRETT SHANNON, ESQ. HOUSTON, TEXAS 77092 VICE PRESIDENT -- GENERAL COUNSEL (713) 462-4239 5500 NORTHWEST CENTRAL DRIVE HOUSTON, TEXAS 77092 (Address, including zip code, (713) 462-4239 and telephone number, including area code, of Registrant's Principal Executive Offices) (Name, address, including zip code, and telephone number, including area code, of agent for service)
------------------------------------ COPIES TO: ANDREWS & KURTH L.L.P. 4200 TEXAS COMMERCE TOWER HOUSTON, TEXAS 77002 ROBERT V. JEWELL, ESQ. (713) 220-4200 ------------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / ------------------------------------ CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------ AMOUNT TO PROPOSED PROPOSED AMOUNT OF TITLE OF EACH CLASS BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE (1) FEE(1) - ------------------------------------------------------------------------------------------------------ 7% Series B Notes due 2006....... $125,000,000 100% $125,000,000 $43,104 - ------------------------------------------------------------------------------------------------------ Subsidiary Guarantees............ -- -- -- (2) - ------------------------------------------------------------------------------------------------------
(1) Calculated in accordance with Rule 457(f)(2). For purposes of this calculation, the Offering Price per Series B Note was assumed to be the stated principal amount of each Series A Note that may be received by the Registrant in the exchange transaction in which the Series B Notes will be offered. (2) Each registrant other than BJ Services Company is a subsidiary of BJ Services Company and is guaranteeing payment of the Notes. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to these guarantees. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 BJ SERVICES COMPANY CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS - ------------------------------------------------------ ------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus................. Front cover page 2. Inside Front and Outside Back Cover Pages of Prospectus..................................... Inside front cover page; "Available Information"; Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information.......................... Summary 4. Terms of the Transaction......................... "Summary"; "The Exchange Offer"; "Description of the Notes" 5. Pro Forma Financial Information.................. Not applicable 6. Material Contacts with the Company Being Acquired....................................... Not applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters................................... Not applicable 8. Interests of Named Experts and Counsel........... Not applicable 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................................... Not applicable 10. Information with Respect to S-3 Registrants...... "Incorporation of Certain Documents by Reference" 11. Incorporation of Certain Information by Reference...................................... "Incorporation of Certain Documents by Reference" 12. Information with Respect to S-2 or S-3 Registrants.................................... Not applicable 13. Incorporation of Certain Information by Reference...................................... Not applicable 14. Information with Respect to Registrants Other Than S-2 or S-3 Registrants.................... Not applicable 15. Information with Respect to S-3 Companies........ Not applicable 16. Information with Respect to S-2 or S-3 Companies...................................... Not applicable 17. Information with Respect to Companies Other Than S-2 or S-3 Companies........................... Not applicable 18. Information if Proxies, Consents or Authorizations are to be Solicited............. Not applicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer................................. "Incorporation of Certain Documents by Reference"; "Management"
- --------------- *Not Applicable (i) 3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED APRIL , 1996 PROSPECTUS BJ SERVICES COMPANY OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF 7% SERIES B NOTES DUE 2006 FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING 7% SERIES A NOTES DUE 2006 ($125,000,000 IN PRINCIPAL AMOUNT OUTSTANDING) ------------------------------ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED ------------------------------ BJ Services Company, a Delaware corporation (as used below, the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal, to exchange $1,000 principal amount of its 7% Series B Notes due 2006 (the "Exchange Notes"), in a transaction registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for each $1,000 principal amount of the outstanding 7% Series A Notes due 2006 (the "Existing Notes"), of which $125,000,000 aggregate principal amount is outstanding (the "Exchange Offer"). The Exchange Notes and the Existing Notes are sometimes referred to herein collectively as the "Notes." The Company will accept for exchange any and all Existing Notes that are validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date the Exchange Offer expires, which will be , 1996 unless the Exchange Offer is extended (the "Expiration Date"). Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange offer is not conditioned upon any minimum principal amount of Existing Notes being tendered for exchange. However, the Exchange Offer is subject to certain conditions that may be waived by the Company and to the terms and provisions of the Registration Rights Agreement (as defined herein). See "The Exchange Offer." Existing Notes may be tendered only in denominations of $1,000 and integral multiples thereof. The Company has agreed to pay the expenses of the Exchange Offer. The Exchange Notes will be obligations of the Company entitled to the benefits of the Indenture (as defined herein) relating to the Existing Notes. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Existing Notes except that the Exchange Notes will be issued in a transaction registered under the Securities Act. The holders of Existing Notes will continue to be subject to the existing restrictions on transfer thereof and, as a general matter, the Company will not have any further obligation to such holders to provide for registration under the Securities Act of the Existing Notes held by them. To the extent that Existing Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered and tendered but unaccepted Existing Notes could be adversely affected. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer." The Existing Notes were sold by the Company on February 20, 1996, to Merrill Lynch & Co., CS First Boston, BA Securities, Inc. and Chase Securities, Inc. (the "Initial Purchasers") in transactions not registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act. The Initial Purchasers subsequently placed the Existing Notes with qualified institutional buyers in reliance upon Rule 144A under the Securities Act. Accordingly, the Existing Notes may not be reoffered, resold or otherwise transferred in the United States unless such transaction is registered under the Securities Act or an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereby in order to satisfy the obligations of the Company under the Registration Rights Agreement. (continued on next page) THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------ THE DATE OF THIS PROSPECTUS IS , 1996. 4 The Exchange Notes will bear interest from February 20, 1996, the date of issuance of the Existing Notes that are tendered in exchange for the Exchange Notes (or the most recent date on which interest was paid or duly provided for on the Existing Notes surrendered in exchange for the Exchange Notes). Accordingly, holders of Existing Notes that are accepted for exchange will not receive interest that is accrued but unpaid on such Existing Notes at the time of tender. The Notes will mature on February 1, 2006 and will not be redeemable prior to maturity. Existing Notes were initially represented by a single, global Existing Note (the "Existing Global Note") in registered form, registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC" or the "Depositary"), as depositary. The Exchange Notes exchanged for Existing Notes represented by the Existing Global Note will be represented by a single, global Exchange Note (the "Exchange Global Note") in registered form, registered in the name of the Depositary. See "Description of Notes -- Book-Entry, Delivery and Form." Subject to certain conditions, any person having a beneficial interest in the Exchange Global Note may, upon request to the Trustee (as defined herein), exchange such interest for Exchange Notes in definitive form, in denominations of $1,000 and integral multiples thereof. See "Description of Notes -- Certificated Securities." The Existing Notes are, and the Exchange Notes will be, senior unsecured obligations of the Company ranking pari passu in right of payment with all other senior unsecured indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. The Company's obligations under the Exchange Notes will be unconditionally guaranteed by certain of its subsidiaries so that the Exchange Notes will not be structurally subordinated to the Company's obligations under its bank credit facility or any other funded indebtedness of the Company that is guaranteed, from time to time, by subsidiaries of the Company. The indenture relating to the Notes provides for the release and addition of subsidiaries of the Company as Guarantors. The guarantee of the Notes by any subsidiary may be released if, but only so long as, no other funded indebtedness of the Company is guaranteed by such subsidiary. See "Capitalization" and "Description of Notes -- The Guarantors." The Indenture contains covenants that limit the Company's ability to incur indebtedness secured by certain liens and to engage in certain sale/leaseback transactions. Based on an interpretation of the Securities and Exchange Commission (the "Commission"), Exchange Notes issued pursuant to this Exchange Offer in exchange for Existing Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchased such Existing Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" of the Company or any Guarantor (within the meaning of Rule 405 of the Securities Act)), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Existing Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the consummation of the Exchange Offer, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Prior to this Exchange Offer, there has been no public market for the Existing Notes or the Exchange Notes. The Company intends to apply for the listing of the Exchange Notes on the New York Stock Exchange ("NYSE"). There can be no assurance that an active market for the Exchange Notes will develop. To the 2 5 extent that a market for the Exchange Notes does develop, future trading prices of the Exchange Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities and other factors, including the financial condition of the Company. The Exchange Notes may trade at a discount from their principal amount. Although the Initial Purchasers have informed the Company that, following completion of the Exchange Offer, they each currently intend to make a market in the Exchange Notes, they are not obligated to do so and any market-making activities with respect to the Exchange Notes may be discontinued at any time without notice. The Company will not receive any proceeds from the Exchange Offer. No dealer-manager is being used in connection with the Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. 3 6 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (the "Registration Statement," which term shall include all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission and to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Commission. All such information and items or information omitted from this Prospectus but contained or incorporated by reference in the Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following Regional Offices of the Commission: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and New York Regional Office, 7 World Trade Center, New York, New York 10048. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and such information may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. In addition, the Company's common stock, par value $.10 per share (including the associated preferred share purchase rights), warrants to purchase common stock and 12 7/8% Senior Notes due 2002 are listed for trading on the NYSE. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company incorporates herein by reference the following documents (File No. 1-10570): (a) Annual Report on Form 10-K for the fiscal year ended September 30, 1995; (b) Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1995; (c) Current Report on Form 8-K filed April 28, 1995, as amended by Form 8-K/A filed May 31, 1995, and Current Report on Form 8-K filed February 6, 1996; (d) The sections of the Company's Proxy Statement for the January 25, 1996 Annual Meeting of Stockholders entitled "Voting Securities," "Election of Directors," "Executive Compensation -- Summary Compensation Table," "-- Option/SAR Grants in Last Fiscal Year," "-- Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values," "-- Long-Term Incentive Plans -- Awards in Last Fiscal Year" and "Severance Agreements"; and (e) All other documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to termination of the offering made hereby. Any statement contained herein or in a document all or a portion of which is incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. As used herein, the terms "Prospectus" and "herein" mean this Prospectus, including the documents incorporated or deemed to be incorporated herein by reference, as the same may be amended, supplemented 4 7 or otherwise modified from time to time. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document, copies of which are available from the Company as described below, each such statement being qualified in all respects by such reference. THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM BJ SERVICES COMPANY, 5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092, ATTENTION: CORPORATE COMMUNICATIONS MANAGER, TELEPHONE NUMBER (713) 462-4239. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1996. The Company undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, upon the written or oral request of any such person, a copy of any or all of the documents incorporated by reference herein, other than the exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates. Written or oral requests for such copies should be directed to the address set forth above. 5 8 SUMMARY The following is a summary of certain information contained elsewhere in this Prospectus and does not purport to be complete. Reference is made to, and this Summary is qualified in its entirety by and should be read in conjunction with, the more detailed information contained elsewhere herein or incorporated by reference in this Prospectus. Unless otherwise defined herein, capitalized terms used in this Summary have the respective meanings ascribed to them elsewhere in this Prospectus or in the indenture with respect to the Notes (the "Indenture"). References in this Prospectus to "BJ Services" and the "Company," unless the context requires otherwise, are to BJ Services Company and its subsidiaries, which include former subsidiaries of The Western Company of North America ("Western") following the acquisition of Western by BJ Services on April 13, 1995 (the "Western Acquisition"). In references to the issuer of the Notes, the "Company" means BJ Services Company. Financial and other information included in this Prospectus for the year ended September 30, 1995 includes the Western operations since April 1, 1995. THE COMPANY BJ Services is a leading provider of pressure pumping and other oilfield services for the petroleum industry worldwide. Pressure pumping services offered by BJ Services consist of cementing, well stimulation, sand control and coiled tubing services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. These services are provided through domestic and international locations to customers in most of the major oil and natural gas producing regions of the United States, Latin America, Europe, Southeast Asia, Africa and the Middle East. The Company believes that it is the third largest provider of pressure pumping services worldwide, with a particularly strong presence in the Alaskan North Slope, the Gulf of Mexico, the North Sea, Indonesia and most of Latin America. The Company believes that it is also one of the largest suppliers of casing and tubular services in the U.K. North Sea and is continuing to expand these services in Latin America, the Middle East and Southeast Asia. The Company provides commissioning and leak detection services to offshore platforms and pipelines, primarily in the United Kingdom, and also provides production and industrial chemicals to the oil, gas, refining and petrochemical industries in the United States. On April 13, 1995, the Company completed the Western Acquisition for a total purchase price of $511.4 million, which was paid approximately half in cash and half in shares of the Company's common stock and warrants to purchase common stock. The Western Acquisition provides the Company with a greater "critical mass" with which to compete in both domestic and international markets and the opportunity to realize significant consolidation benefits. The Western Acquisition has increased the Company's existing total revenue base by approximately 75% and has more than doubled the Company's existing domestic revenue base. In addition, approximately $40 million in annual overhead and redundant operating costs have been eliminated by combining the two companies. During the year ended September 30, 1995, the Company generated approximately 39% of its revenue from cementing services, 47% from stimulation services and 14% from product and equipment sales and other oilfield services (37%, 48% and 15%, respectively, during the portion of the 1995 fiscal year since the Western Acquisition). Over the same period, the Company generated approximately 55% of its revenue from domestic operations and 45% from international operations (60% and 40%, respectively, since the Western Acquisition). The Company's capital spending and expansion efforts (other than the Western Acquisition) have been primarily focused outside of the United States. Recently, these expansion efforts have included: (i) the expansion of pumping services into several key international oil and gas markets, including Saudi Arabia, Qatar and Vietnam; (ii) the expansion of tubular services and commissioning and leak detection services into geographic regions outside of the North Sea; (iii) the addition of pumping service capacity in certain important Latin American markets, including Argentina and Venezuela and (iv) certain strategic international acquisitions. The management of BJ Services continues to believe that opportunities exist for geographic and service line expansions in international markets. The Company's principal executive offices are located at 5500 Northwest Central Drive, Houston, Texas 77092, and its telephone number is (713) 462-4239. 6 9 SUMMARY OF TERMS OF EXCHANGE OFFER The Exchange Offer relates to the exchange of up to $125,000,000 aggregate principal amount of Exchange Notes for up to an equal aggregate principal amount of Existing Notes. The Exchange Notes will be obligations of the Company entitled to the benefits of the Indenture. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Existing Notes, except that the offering of the Exchange Notes has been registered under the Securities Act and, therefore, the Exchange Notes are not entitled to the benefits of the Registration Rights Agreement and provisions relating to the contingent increases in the interest rates provided for under certain circumstances pursuant thereto. See "Description of the Notes." THE EXCHANGE OFFER............ $1,000 principal amount of Exchange Notes will be issued in exchange for each $1,000 principal amount of Existing Notes validly tendered and accepted pursuant to the Exchange Offer. As of the date hereof, $125,000,000 in aggregate principal amount of Existing Notes are outstanding. The Company will issue the Exchange Notes to tendering holders of Existing Notes promptly following the Expiration Date. RESALE........................ Based on existing interpretations of the Securities Act by the staff of the Commission set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by the holders thereof (other than holders who are broker-dealers) without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of Notes who is an affiliate of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretations by the staff of the Commission set forth in the above-mentioned no-action letters, (ii) will not be able to tender its Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. The Company does not intend to seek its own no-action letter and there is no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Notes as it has in such no-action letters to third parties. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "Plan of Distribution." EXPIRATION DATE............... 5:00 p.m., New York City time, on , 1996, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." ACCRUED INTEREST ON THE EXCHANGE NOTES AND THE EXISTING NOTES................ The Exchange Notes will bear interest from February 20, 1996, the date of issuance of the Existing Notes that are tendered in exchange for the Exchange Notes (or the most recent date on 7 10 which interest was paid or duly provided for on the Existing Notes surrendered in exchange for the Exchange Notes). Accordingly, holders of Existing Notes that are accepted for exchange will not receive interest that is accrued but unpaid on such Existing Notes at the time of tender. Interest on the Exchange Notes will be payable semi-annually on each February 1 and August 1, commencing on the first such date following their date of issuance. See "The Exchange Offer Interest on the Exchange Notes." TERMINATION OF THE EXCHANGE OFFER......................... The Company may terminate the Exchange Offer if it determines that its ability to proceed with the Exchange Offer could be materially impaired due to the occurrence of certain conditions. The Company does not expect any of the foregoing conditions to occur, although there can be no assurance that such conditions will not occur. Holders of Existing Notes will have certain rights against the Company under the Registration Rights Agreement should the Company fail to consummate the Exchange Offer. See "The Exchange Offer -- Termination" and "Description of the Notes -- Registration Rights Agreement." PROCEDURES FOR TENDERING EXISTING NOTES................ Each holder of Existing Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Existing Notes to be exchanged and any other required documentation to Bank of Montreal Trust Company, as Exchange Agent, at the address set forth herein and therein or effect a tender of Existing Notes pursuant to the procedures for book-entry transfer as provided for herein and therein. By executing the Letter of Transmittal, each holder will represent to the Company that, among other things, the Exchange Notes pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and neither the holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or any Guarantor. Following the consummation of the Exchange Offer, holders of Existing Notes not tendered as a general matter will not have any further registration rights, and the Existing Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Existing Notes could be adversely affected. See "The Exchange Offer -- Procedures for Tendering." SPECIAL PROCEDURES FOR BENEFICIAL OWNERS............. Any beneficial owner whose Existing Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to 8 11 completing and executing the Letter of Transmittal and delivering his Existing Notes, either make appropriate arrangements to register ownership of the Existing Notes in such holder's name or obtain a properly completed bond power from the registered holder or endorsed certificates representing the Existing Notes to be tendered. The transfer of record ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." GUARANTEED DELIVERY PROCEDURES.................... Holders of Existing Notes who wish to tender their Existing Notes and whose Existing Notes are not immediately available, or who cannot deliver their Existing Notes (or complete the procedure for book-entry transfer) and deliver a properly completed Letter of Transmittal and any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date may tender their Existing Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS............. Tenders of Existing Notes may be withdrawn at any time prior to the Expiration Date by furnishing a written or facsimile transmission notice of withdrawal to the Exchange Agent containing the information set forth in "The Exchange Offer -- Withdrawal of Tenders." ACCEPTANCE OF EXISTING NOTES AND DELIVERY OF EXCHANGE NOTES......................... Subject to certain conditions (as summarized above in "Termination of the Exchange Offer" and described more fully in "The Exchange Offer -- Termination"), the Company will accept for exchange any and all Existing Notes that are properly tendered in the Exchange Offer prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. EXCHANGE AGENT................ Bank of Montreal Trust Company, the Trustee under the Indenture, is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. The mailing address of the Exchange Agent and the address for deliveries by overnight courier is Bank of Montreal Trust Company, 77 Water Street, 4th Floor, New York, New York 10005, and the address for hand deliveries is Bank of Montreal Trust Company, 77 Water Street, 5th Floor Window, New York, New York 10005. For assistance and requests for additional copies of this Prospectus, the Letter of Transmittal or the Notice of Guaranteed Delivery, the telephone number for the Exchange Agent is (212) 701-7653, and the facsimile number for the Exchange Agent is (212) 701-7684. See "The Exchange Offer" for more detailed information concerning the terms of the Exchange Offer. 9 12 SUMMARY OF TERMS OF EXCHANGE NOTES SECURITIES OFFERED............ $125,000,000 principal amount of 7% Series B Notes. MATURITY DATE................. February 1, 2006. INTEREST PAYMENT DATES........ February 1 and August 1 of each year. The August 1, 1996 interest payment (the first interest payment date with respect to the Exchange Notes) will include accrued but unpaid interest from February 20, 1996. REDEMPTION.................... The Notes are not redeemable prior to maturity. RANKING AND GUARANTEES........ The Notes are senior unsecured indebtedness of the Company and will rank pari passu in right of payment with the Company's obligations under the Bank Credit Facility and certain other indebtedness and senior in right of payment to all future indebtedness that is, by its terms, expressly subordinated to the Notes. See "Capitalization." The Company's obligations under the Notes are unconditionally guaranteed by certain of its subsidiaries so that the Notes will not be structurally subordinated to the Company's obligations under the Bank Credit Facility or any other funded indebtedness of the Company that is guaranteed, from time to time, by subsidiaries of the Company. The Indenture will provide for the release and addition of subsidiaries of the Company as guarantors and for the limitation of the obligations of each guarantor under certain circumstances. The guarantee of the Notes by any subsidiary may be released if, but only so long as, no other funded indebtedness of the Company is guaranteed by such subsidiary. See "Description of the Notes." COVENANTS..................... The Indenture contains covenants that limit the Company's ability to incur indebtedness secured by certain liens and to engage in certain sale/leaseback transactions. These limitations are subject to certain qualifications and exceptions. See "Description of the Notes -- Certain Covenants." USE OF PROCEEDS............... The Company will not receive any proceeds from the Exchange Offer. DENOMINATIONS................. The Exchange Notes will be issued in denominations of $1,000 and any integral multiple thereof. ABSENCE OF MARKET FOR THE NOTES......................... The Exchange Notes will be a new issue of securities for which there currently is no market. Although the initial Purchasers have informed the Company that they each currently intend to make a market in the Exchange Notes, they are not obligated to do so, and any market-making activities with respect to the Exchange Notes may be discontinued at any time without notice. The Company intends to apply for the listing of the Exchange Notes on the New York Stock Exchange ("NYSE"). There can be no assurance that an active market for the Exchange Notes will develop. See "Description of the Notes" for more detailed information regarding the terms of the Exchange Notes. 10 13 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth summary consolidated financial data for the Company and its subsidiaries as of and for the five years ended September 30, 1995 and as of and for the three-month periods ended December 31, 1995 and 1994. The operations of Western and its subsidiaries are included since April 1, 1995. The summary consolidated financial data have been derived from the Company's consolidated financial statements. The financial information presented below as of and for the three-month periods ended December 31, 1995 and 1994, reflects all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the Company's consolidated results of operations and financial position for such periods. The information shown for the three-month periods is not necessarily indicative of full-year results. The following data should be read in conjunction with the Company's consolidated financial statements and notes thereto included herein. See "Consolidated Financial Statements."
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, -------------------- ---------------------------------------------------- 1995(1) 1994 1995(1) 1994 1993 1992 1991 --------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS) STATEMENT OF OPERATIONS DATA: Revenue..................................... $ 206,501 $119,415 $633,660 $434,476 $394,363 $330,028 $390,296 Operating expenses, excluding unusual charges and goodwill amortization......... 187,602 111,710 592,905 414,493 373,934 316,305 358,475 Goodwill amortization....................... 1,342 289 3,266 1,298 691 Unusual charges(2).......................... 17,200 15,700 Operating income (loss)..................... 17,557 7,416 20,289 18,685 19,738 (1,977) 31,821 Interest expense............................ (5,538) (2,307) (15,164) (7,383) (5,414) (2,977) (3,135) Other income -- net......................... 600 836 2,734 877 2,014 297 1,736 Income tax expense (benefit)................ 3,553 1,338 (1,102) 2,006 1,593 (3,657) 5,170 Income (loss) before cumulative effect of accounting change......................... 9,145 4,744 9,889 10,770 14,561 (1,104) 24,422 Cumulative effect of change in accounting principle, net of tax(3).................. (10,400) Net income (loss)........................... 9,145 4,744 9,889 370 14,561 (1,104) 24,422 Net income (loss) per share................. $ .33 $ .30 $ .46 $ .02 $ .94 $ (.08) $ 1.88 OTHER DATA: Depreciation and amortization(4)............ $ 14,371 $ 6,675 $ 42,064 $ 25,335 $ 24,170 $ 12,742 $ 14,497 Capital expenditures(5)..................... 10,408 6,093 30,966 39,345 37,350 26,197 34,588 Operating income before depreciation and amortization and unusual charges(6)....... 31,928 14,091 79,553 44,020 43,908 26,465 46,318 Ratio of earnings to fixed charges(7)....... 2.75x 2.61x 1.37x 1.89x 2.76x 5.58x FINANCIAL POSITION DATA (AT END OF PERIOD): Property -- net............................. $ 414,792 $195,192 $416,810 $198,844 $183,962 $171,420 $134,139 Total assets................................ 1,002,098 411,172 989,683 410,066 369,531 328,799 265,686 Long-term debt, including current maturities................................ 291,581 98,400 295,166 105,900 90,500 56,500 32,396 Stockholders' equity........................ 478,271 195,287 466,795 189,927 187,132 134,794 135,307
- --------------- (1) Includes the effect of the Western Acquisition, which was accounted for as a purchase in accordance with generally accepted accounting principles. (2) Unusual charges for the year ended September 30, 1995 represent nonrecurring costs associated with the Western Acquisition, including a non-cash charge for impairment of facilities (approximately $3.6 million) and charges for severance of employees of BJ Services and other Western Acquisition-related costs. Unusual charges for 1992, which primarily represent a provision for restructuring the Company's North American operations, include non-cash charges of approximately $10.6 million for asset writedowns. (3) In the year ended September 30, 1994, the Company changed its method of accounting for postretirement benefits other than pensions. (4) In October 1991, the Company revised the estimated salvage values and remaining useful lives of certain of its U.S. pumping services equipment to more closely reflect expected remaining lives. The effect of this change in accounting estimate resulted in a decrease of $2.9 million, or $.22 per share, in the Company's net loss for 1992. (5) Excluding acquisitions of businesses. 11 14 (6) Operating income before depreciation and amortization and unusual charges is a supplemental financial measurement used by the Company in the evaluation of its business and presented solely as a supplemental disclosure, and should not be construed as an alternative to operating income or to cash flows from operating activities, or any other measure of financial performance presented in accordance with generally accepted accounting principles. (7) For the purpose of calculating this ratio, earnings consist of earnings before income taxes and fixed charges. Fixed charges consist of interest expense and capitalized interest and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of the lease rentals). For the year ended September 30, 1992, earnings were inadequate to cover fixed charges by $4.4 million because of the unusual charges. RECENT DEVELOPMENTS On April 1, 1996, the Company made an oral offer to Nowsco Well Service Ltd.("Nowsco"), a well service company based in Calgary, Canada, to acquire all of its outstanding common shares for a price per share of $27.00 in Canadian dollars (approximately $19.88 per share in U.S. dollars at the exchange rate in effect on April 3, 1996). At December 31, 1995, Nowsco had 20,806,546 outstanding common shares. For the fiscal year ended December 31, 1995, Nowsco reported revenues of $480.1 million, operating income of $16.5 million and net income of $16.2 million, or $.78 per share, in Canadian dollars. Nowsco's operations are conducted in Canada, the United States, Europe, Africa, the Middle East, Southeast Asia, Argentina, Australia, China and Russia and include oil and gas pressure pumping, coiled tubing, commissioning and pipeline service businesses. Nowsco announced that it has established a committee to evaluate the Company's offer and other strategic alternatives available to Nowsco and its shareholders. No assurance can be given that the Company will be successful in its efforts to consummate a transaction with Nowsco or, if it is successful, on what terms. 12 15 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Existing Notes were sold by the Company on February 20, 1996, to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently placed the Existing Notes with qualified institutional buyers ("Qualified Institutional Buyers") in reliance on Rule 144A under the Securities Act. As a condition to the purchase of the Existing Notes by the Initial Purchasers, the Company and the Guarantors entered into a registration rights agreement with the Initial Purchasers (the "Registration Rights Agreement"), which requires, among other things, that promptly following the issuance and sale of the Existing Notes, the Company and the Guarantors file with the Commission the Registration Statement with respect to the Exchange Notes, use their reasonable best efforts to cause the Registration Statement to become effective under the Securities Act and, upon the effectiveness of the Registration Statement, offer to the holders of the Existing Notes the opportunity to exchange their Existing Notes for a like principal amount of Exchange Notes, which will be issued without a restrictive legend and may be reoffered and resold by the holder without restrictions or limitations under the Securities Act. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The term "holder" with respect to the Exchange Offer means any person in whose name Existing Notes are registered on the Company's books or any other person who has obtained a properly completed bond power from the registered holder or any person whose Existing Notes are held of record by the Depositary who desires to deliver such Existing Notes by book-entry transfer of the Depositary. Based on existing interpretations of the Securities Act by the staff of the Commission set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by the holders thereof (other than holders who are broker-dealers) without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of Notes who is an affiliate of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretations by the staff of the Commission set forth in the above-mentioned no-action letters, (ii) will not be able to tender its Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. As a result of the filing and effectiveness of the Registration Statement of which this Prospectus is a part, the Company and the Guarantors will not be required to pay an increased interest rate on the Existing Notes. Following the consummation of the Exchange Offer, holders of Existing Notes not tendered will not have any further registration rights except in certain limited circumstances requiring the filing of a Shelf Registration Statement (as defined herein), and the Existing Notes will continue to be subject to certain restrictions on transfer. See "Description of Notes -- Registration Rights Agreement." Accordingly, the liquidity of the market for the Existing Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept all Existing Notes properly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Existing Notes accepted in the Exchange Offer. Holders may tender some or all of their Existing Notes pursuant to the Exchange Offer in denominations of $1,000 and integral multiples thereof. Each holder of the Notes (other than certain specified holders) who wishes to exchange Notes for Exchange Notes in the Exchange Offer will be required to represent that (i) it is not an affiliate of the 13 16 Company or any Guarantor, (ii) any Exchange Notes to be received by it were acquired in the ordinary course of its business and (iii) it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the date of the consummation of the Exchange Offer, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Existing Notes except that the Exchange Notes will be issued in a transaction registered under the Securities Act and therefore will not bear legends restricting transfer thereof. The Exchange Notes will evidence the same debt as the Existing Notes. The Exchange Notes will be issued under and entitled to the benefits of the Indenture. As of the date of this Prospectus, $125,000,000 aggregate principal amount of the Existing Notes is outstanding. In connection with the issuance of the Existing Notes, the Company arranged for the Existing Notes, which were initially purchased by Qualified Institutional Buyers, to be issued and transferable in book-entry form through the facilities of the Depositary, acting as depositary. The Exchange Notes will also be issuable and transferable in book-entry form through the Depositary. This Prospectus, together with the accompanying Letter of Transmittal, is initially being sent to all registered holders as of the close of business on , 1996. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act, and the rules and regulations of the Commission thereunder, including Rule 14e-1, to the extent applicable. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Existing Notes being tendered, and holders of the Existing Notes do not have any appraisal or dissenters' rights under the General Corporation Law of the State of Delaware or under the Indenture in connection with the Exchange Offer. The Company shall be deemed to have accepted validly tendered Existing Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent for the tendering holders for the purpose of receiving Exchange Notes from the Company and delivering Exchange Notes to such holders. If any tendered Existing Notes are not accepted for exchange because of an invalid tender or the occurrence of certain other events set forth herein, certificates for any such unaccepted Existing Notes will be returned, at the Company's cost, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Existing Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Existing Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "-- Solicitation of Tenders; Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1996, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. The Company expressly reserves the right, in its sole discretion (i) to delay acceptance of any Existing Notes, to extend the Exchange Offer or to terminate the Exchange Offer and to refuse to accept Existing 14 17 Notes not previously accepted, if any of the conditions set forth herein under "-- Termination" shall have occurred and shall not have been waived by the Company (if permitted to be waived by the Company), by giving oral or written notice of such delay, extension or termination to the Exchange Agent and (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof by the Company to the registered holders of the Existing Notes. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of such amendment. Without limiting the manner in which the Company may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the Exchange Offer, the Company shall have no obligation to publish, advise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from February 20, 1996, the date of issuance of the Existing Notes that are tendered in exchange for the Exchange Notes (or the most recent date on which interest was paid or duly provided for on the Existing Notes surrendered in exchange for the Exchange Notes). Accordingly, holders of Existing Notes that are accepted for exchange will not receive interest that is accrued but unpaid on such Existing Notes at the time of tender. Interest on the Exchange Notes will be payable semi-annually on each February 1 and August 1, commencing on the first such date following their date of issuance. PROCEDURES FOR TENDERING Only a holder may tender its Existing Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal or a facsimile thereof, have the signatures thereof guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Existing Notes (unless such tender is being effected pursuant to the procedure for book-entry transfer described below) and any other required documents, to the Exchange Agent, prior to 5:00 p.m. New York City time, on the Expiration Date. Any financial institution that is a participant in the Depositary's Book-Entry Transfer Facility system may make book-entry delivery of the Existing Notes by causing the Depositary to transfer such Existing Notes into the Exchange Agent's account in accordance with the Depositary's procedure for such transfer. Although delivery of Existing Notes may be effected through book-entry transfer into the Exchange Agent's account at the Depositary, the Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at its address set forth herein under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The tender by a holder will constitute an agreement between such holder, the Company and the Exchange Agent in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT, AMONG OTHER THINGS, (1) THE EXCHANGE NOTES RECEIVED PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF THE COMPANY OR ANY GUARANTOR, (4) THE HOLDER IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE 15 18 EXCHANGE NOTES, AND (5) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN THE EXCHANGE ACT) (A) IT ACQUIRED THE EXISTING NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS NOT ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY, ANY GUARANTOR OR ANY "AFFILIATE" OF THE COMPANY OR ANY GUARANTOR (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. In the case of a broker-dealer that receives Exchange Notes for its own account in exchange for Existing Notes which were acquired by it as a result of market-making or other trading activities, the Letter of Transmittal will also include an acknowledgment that the broker-dealer will deliver a copy of this Prospectus in connection with the resale by it of Exchange Notes received pursuant to the Exchange Offer. See "Plan of Distribution." The method of delivery of Existing Notes and the Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the Exchange Agent prior to the Expiration Date. No Letter of Transmittal or Existing Notes should be sent to the Company. Holders may also request that their respective brokers, dealers, commercial banks, trust companies or nominees effect such tender for holders in each case as set forth herein and in the Letter of Transmittal. Any beneficial owner whose Existing Notes are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering his Existing Notes, either make appropriate arrangements to register ownership of the Existing Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Existing Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" of the Letter of Transmittal or (ii) for the account of an Eligible Institution. If the Letter of Transmittal is signed by a person other than the registered holder listed therein, such Existing Notes must be endorsed or accompanied by appropriate bond powers which authorize such person to tender the Existing Notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the Existing Notes. If the Letter of Transmittal or any Existing Notes or bond powers are signed or endorsed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with such Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered Existing Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Existing Notes not properly tendered or any Existing Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the absolute right to waive any irregularities or conditions of tender as to particular Existing Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Existing Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Existing Notes, neither the Company, the Exchange Agent nor any 16 19 other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Existing Notes nor shall any of them incur any liability for failure to give such notification. Tenders of Existing Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Existing Notes received by the Exchange Agent that the Company determines are not properly tendered or the tender of which is otherwise rejected by the Company and as to which the defects or irregularities have not been cured or waived by the Company will be returned by the Exchange Agent to the tendering holder unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to (a) purchase or make offers for any Existing Notes that remain outstanding subsequent to the Expiration Date, or, as set forth under "-- Termination," to terminate the Exchange Offer and (b) to the extent permitted by applicable law, purchase Existing Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the Exchange Offer. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Existing Notes and (i) whose Existing Notes are not immediately available, or (ii) who cannot deliver their Existing Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, or if such holder cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmittal, mail or hand delivery) setting forth the name and address of the holder, the certificate number or numbers of such holder's Existing Notes and the principal amount of such Existing Notes tendered, stating that the tender is being made thereby, and guaranteeing that, within five business days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing the Existing Notes to be tendered in proper form for transfer and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing all tendered Existing Notes in proper form for transfer (or confirmation of a book-entry transfer into the Exchange Agent's account at the Depositary of Existing Notes delivered electronically) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Existing Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Existing Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Existing Notes to be withdrawn (the "Depositor"), (ii) identify the Existing Notes to be withdrawn (including the certificate number or numbers and principal amount of such Existing Notes or, in the case of Existing Notes transferred by book-entry transfer, the name and number of the account at the Depositary to be credited), (iii) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal by which such Existing Notes were tendered (including any required signature guarantee) or be accompanied by documents of transfer sufficient to permit the Trustee with respect to the Existing Notes to register the transfer of such Existing Notes into the name of the Depositor withdrawing the tender and (iv) specify the name in which any such Existing Notes are to be registered, if 17 20 different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Existing Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer, and no Exchange Notes will be issued with respect thereto unless the Existing Notes so withdrawn are validly retendered. Any Existing Notes that have been tendered but are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Existing Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. TERMINATION Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or to exchange Exchange Notes for, any Existing Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Existing Notes if, in the Company's judgment, the Company's ability to proceed with the Exchange Offer can reasonably be expected to be impaired as a result of certain events set forth in the Registration Rights Agreement. Accordingly, the Exchange Offer is subject to the following conditions: (i) that the Exchange Offer, or the making of any exchange by a holder, does not violate applicable law or any applicable interpretation of the staff of the Commission, (ii) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency or body with respect to the Exchange Offer, (iii) that there shall not have been adopted or enacted any law, statute, rule or regulation that can reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer, (iv) that there shall not have been declared by United States federal or Texas or New York state authorities a banking moratorium, (v) that trading on the New York Stock Exchange or generally in the United States over-the-counter market shall not have been suspended by order of the Commission or any other governmental agency and (vi) other conditions reasonably acceptable to the Initial Purchasers. If the Company determines that it may terminate the Exchange Offer for any of the reasons set forth above, the Company may (i) refuse to accept any Existing Notes and return any Existing Notes that have been tendered to the holders thereof, (ii) extend the Exchange Offer and retain all Existing Notes tendered prior to the Expiration Date of the Exchange Offer, subject to the rights of such holders of tendered Existing Notes to withdraw their tendered Existing Notes or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Existing Notes that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such period. 18 21 EXCHANGE AGENT Bank of Montreal Trust Company, the Trustee under the Indenture, has been appointed as Exchange Agent for the Exchange Offer. In such capacity, the Exchange Agent has no fiduciary duties and will be acting solely on the basis of directions of the Company. Requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: By Mail or Overnight Courier: Bank of Montreal Trust Company 77 Water Street, 4th Floor New York, New York 10005 By Hand Delivery: Bank of Montreal Trust Company 77 Water Street, 5th Floor Window New York, New York 10005 Facsimile Transmission: (212) 701-7684 Confirm by Telephone: (212) 701-7653
SOLICITATION OF TENDERS; FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Company. The principal solicitation pursuant to the Exchange Offer is being made by mail. Additional solicitations may be made by officers and regular employees of the Company and its affiliates in person, by telegraph, telephone or telecopier. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses in connection therewith and will indemnify the Exchange Agent for all losses and claims incurred by it as a result of the Exchange Offer. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus, Letters of Transmittal and related documents to the beneficial owners of the Existing Notes and in handling or forwarding tenders for exchange. The expenses to be incurred in connection with the Exchange Offer, including fees and expenses of the Exchange Agent and Trustee and accounting and legal fees and printing costs, will be paid by the Company. The Company will pay all transfer taxes, if any, applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Existing Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Existing Notes tendered, or if tendered Existing Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Existing Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed by the Company directly to such tendering holder. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Existing Notes, as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer. The expenses of the Exchange Offer will be amortized by the Company over the term of the Exchange Notes. 19 22 FEDERAL INCOME TAX CONSEQUENCES The exchange of Exchange Notes for Existing Notes pursuant to the Exchange Offer should not be treated as an "exchange" for United States federal income tax purposes because the Exchange Notes should not be considered to differ materially in kind or extent from the Existing Notes. Rather, the Exchange Notes received by a United States holder should be treated as a continuation of the Existing Notes in the hands of such holder. As a result, there should be no United States federal income tax consequences to United States holders exchanging Existing Notes for Exchange Notes pursuant to the Exchange Offer. OTHER Participation in the Exchange Offer is voluntary. Holders of the Existing Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered Existing Notes pursuant to the terms of, this Exchange Offer, the Company will have fulfilled a covenant contained in the terms of the Registration Rights Agreement. Holders of the Existing Notes who do not tender their certificates in the Exchange Offer will continue to hold such certificates and will be entitled to all the rights, and subject to the limitations applicable thereto, under the Indenture, except for any such rights under the Registration Rights Agreement that by their terms terminate or cease to have further effect as a result of the making of this Exchange Offer. See "Description of the Notes." All untendered Existing Notes will continue to be subject to the restrictions on transfer set forth in the Indenture. To the extent that Existing Notes are tendered and accepted in the Exchange Offer, the trading market for untendered Existing Notes could be adversely affected. The Company may in the future seek to acquire untendered Existing Notes in the open market or through privately negotiated transactions, through subsequent exchange offers or otherwise. The Company intends to make any such acquisitions of Existing Notes in accordance with the applicable requirements of the Exchange and the rules and regulations of the Commission thereunder, including Rule 14e-1, to the extent applicable. The Company has no present plan to acquire any Existing Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Existing Notes that are not tendered pursuant to the Exchange Offer. USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Existing Notes in like principal amount, the terms of which are identical in all material respects to the Exchange Notes except that the Exchange Notes will be issued in a transaction registered under the Securities Act and hence will not bear legends restricting the transfer thereof. The Existing Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in a change in the indebtedness of the Company. RECENT DEVELOPMENTS On April 1, 1996, the Company made an oral offer to Nowsco Well Service Ltd.("Nowsco"), a well service company based in Calgary, Canada, to acquire all of its outstanding common shares for a price per share of $27.00 in Canadian dollars (approximately $19.88 per share in U.S. dollars at the exchange rate in effect on April 3, 1996). At December 31, 1995, Nowsco had 20,806,546 outstanding common shares. For the fiscal year ended December 31, 1995, Nowsco reported revenues of $480.1 million, operating income of $16.5 million and net income of $16.2 million, or $.78 per share, in Canadian dollars. Nowsco's operations are conducted in Canada, the United States, Europe, Africa, the Middle East, Southeast Asia, Argentina, Australia, China and Russia and include oil and gas pressure pumping, coiled tubing, commissioning and pipeline service businesses. Nowsco announced that it has established a committee to evaluate the Company's offer and other strategic alternatives available to Nowsco and its shareholders. No assurance can be given that the Company will be successful in its efforts to consummate a transaction with Nowsco or, if it is successful, on what terms. 20 23 CAPITALIZATION The following table sets forth the short-term borrowings and the capitalization of the Company at December 31, 1995 and as adjusted to reflect the issuance of the Existing Notes and the use of the net proceeds therefrom of approximately $123 million.
AS OF DECEMBER 31, 1995 ------------------------ ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Short-term borrowings:.............................................. $ 8,281 $ 8,281 ======== ======== Long-term debt: 7% Notes due 2006, net of discount............................... $ $ 124,238 12 7/8 Senior Notes due 2002...................................... 2,166 2,166 9.2% Notes due August 1998....................................... 18,000 18,000 Notes payable to banks............................................ 271,415 148,415 -------- -------- Total long-term debt, including current maturities............. 291,581 292,819 -------- -------- Stockholders' equity: Preferred stock, $1.00 par value; 5,000,000 shares authorized, none issued.................................................... Common stock, $.10 par value; 80,000,000 shares authorized, 28,046,264 outstanding(1)...................................... 2,805 2,805 Capital in excess of par.......................................... 417,224 417,224 Retained earnings, less cumulative translation adjustment......... 58,242 58,242 -------- -------- Total stockholders' equity..................................... 478,271 478,271 -------- -------- Total capitalization................................................ $769,852 $ 771,090 ======== ========
- --------------- (1) As of December 31, 1995, the Company had 4,792,402 outstanding warrants to purchase common stock at an exercise price of $30.00 per share. In addition, as of such date, 1,726,334 shares of common stock were reserved for issuance pursuant to outstanding stock options and other outstanding awards under the Company's employee benefit plans. The funding for the cash portion of the consideration for the Western Acquisition was provided through the Bank Credit Facility, a committed, unsecured facility entered into in April 1995. The Bank Credit Facility currently provides for a six-year term loan in an aggregate principal amount of $225.0 million and a five-year revolving loan facility in an aggregate principal amount at any one time outstanding of up to $175.0 million. The borrowers and guarantors under the Bank Credit Facility are the Company and three of its subsidiaries, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East. The subsidiary borrowers and guarantors of the borrowings under the Bank Credit Facility are also guarantors of the Notes. As of December 31, 1995, $271.0 million was outstanding at a weighted average rate of 6.4% and an additional $125.0 million was available under the Bank Credit Facility. As of December 31, 1995, pursuant to certain note agreements entered into in August 1991, the Company had $18.0 million aggregate principal amount outstanding under its 9.2% Notes Due August 1, 1998 (the "9.2% Notes"). BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East are also borrowers under the 9.2% Notes. The principal amount of the 9.2% Notes is payable annually on August 1 in installments of $6.0 million until maturity on August 1, 1998. 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's operations are primarily driven by the number of oil and gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. Drilling activity, in turn, is largely dependent on the price of oil and natural gas. This is especially true in the United States, where the Company generates approximately 60% of its revenues after giving effect to the Western Acquisition. Due to weak energy prices and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986 and 1992. As a result, pumping service companies have been unable to recapitalize their aging United States fleets due to the inability, under current market conditions, to generate adequate returns on new capital investments. The Company believes it is important to operate with a greater critical mass in key U.S. markets to improve returns in this environment. This conclusion led to the decision to withdraw from certain low activity areas in the past several years and to consolidate its remaining operations with those acquired in April 1995 from Western, which had a larger presence in the United States. The rig count in the United States averaged 739 active drilling rigs during fiscal 1995, a 6% and 2% decline, compared with 1994 and 1993, respectively, and the second lowest count on record. The rig count in the United States averaged 765 active drilling rigs during the three months ended December 31, 1995, a 7% decline compared with the prior year's first fiscal quarter. Much of the activity decline was the result of a reduction in drilling for natural gas in the central U.S. While international drilling activity (excluding Canada) has historically been less volatile than domestic drilling activity, the international active rig count had declined in each of the last four years prior to fiscal 1995 due to weak oil prices and economic and political instability in certain overseas countries. The most significant declines in international drilling activity occurred in the North Sea, Italy, Nigeria and Mexico. The activity decline has leveled off somewhat with the active rig count for 1995 up slightly from 1994. International drilling activity increased by 5% during the most recent quarter compared with the prior year's first fiscal quarter on the strength of development work in Latin America, especially Argentina and Venezuela, and renewed exploration programs in the U.K. North Sea. In both the U.S. and internationally, there has been a continuing trend by oil and gas companies toward "alliances" with the service companies. These alliances take various forms including packaged or integrated services, single source suppliers and turnkey agreements. Approximately 20% of the Company's revenues are generated under such alliances, or approximately $117 million of the Company's revenues during 1995. EXPANSIONS AND ACQUISITIONS Management believes the primary opportunities for geographic and product expansion remain in international markets. As a result, other than the Western Acquisition, the Company's capital spending and expansion efforts have been primarily focused outside of the United States. The Company's expansion efforts during the past three years have included expanding pumping services into several key international markets, including Saudi Arabia, Qatar and Vietnam; expanding tubular services and commissioning and leak detection services into geographic regions outside the North Sea; adding additional pumping service capacity in key Latin American markets; and acquiring Norsk Bronnservice A/S ("NBS") in April 1993, Italog S.p.A. ("SIAT") in July 1993, the remaining 50% ownership of its joint venture in Egypt in February 1994 and the remaining 60% of the Company's Brazilian joint venture in December 1995. On April 13, 1995, the Company completed the Western Acquisition for a total purchase price of $511.4 million (including transaction costs of $7.2 million), which was paid approximately half in cash and half in shares of the Company's common stock and warrants to purchase common stock. The Western Acquisition provides the Company with a greater critical mass with which to compete in domestic and international markets and the opportunity to realize significant consolidation benefits. The Western Acquisi- 22 25 tion has increased the Company's existing total revenue base by approximately 75% and has more than doubled the Company's domestic revenue base beginning in the June 1995 quarter. In addition, approximately $40 million in overhead and redundant operating costs have been eliminated annually by combining the two companies. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 Revenue: Revenue increased by 73% during the quarter, primarily as a result of the acquisition of Western and continued strong international operations. U.S. revenue more than doubled during the quarter as a result of adding the former Western operations. On a pro forma basis, however, U.S. revenue declined by 14%, primarily as a result of the significant activity reductions in natural gas drilling activity, especially by independent operators in the Rocky Mountain region, which comprised a significant portion of the former Western operations. In addition, weather-related disruptions in the Gulf of Mexico resulted in the loss of approximately 10 working days in that area. Management expects U.S. natural gas drilling activity to remain weak during at least the next fiscal quarter. The Company's international operations continue to show significant quarter-over-quarter revenue increases with a 25% increase from the prior year (18% on a pro forma basis). This represents the twelfth consecutive quarter of international revenue improvement. Each of the Company's international regions and service lines experienced revenue increases during the quarter. Much of the revenue improvement occurred in Latin America (up 46%) from strong activity increases in Argentina as well as revenue increases in Venezuela and Colombia from recent capital investments. Revenue from the Company's expansions into Vietnam, Saudi Arabia and Brazil, combined with improving activity in the U.K. and Nigeria, also contributed to the international revenue growth. Management expects the year over year international revenue increases to continue over the next several quarters, however, at a much lower growth rate. The Company recently decided to "warm stack" a stimulation vessel acquired from Western, the Renaissance. The vessel's hull will ultimately be liquidated with the proceeds used to reduce outstanding debt, while the vessel's fracturing equipment will be redeployed to more profitable opportunities. The Company believes that the liquidation of the vessel, if consummated, will not have a material adverse impact on the Company's operating results. Operating Income: Operating income more than doubled as a result of the revenue increase and higher operating margins resulting from efficiencies derived from the combination of the Company's and former Western operations and the continued growth of the Company's international operations. The cost of sales and services as a percentage of revenue during the quarter was 2.5% lower than the prior year's first quarter primarily as a result of cost reduction efforts implemented after the acquisition of Western and the economies of scale in having a larger U.S. operation. Other operating expenses, excluding goodwill amortization, increased by 69% primarily as a result of additional overhead from the former Western operations, along with increased marketing expenses related to international expansions. Marketing expenses represent a higher percentage of revenue than previously due to the higher concentration of the additional revenues being in the U.S., which requires a relatively greater marketing effort. The increase in goodwill amortization also resulted from the Western Acquisition, which was accounted for under the purchase method of accounting. Interest expense increased by $3.2 million from the prior year's first quarter due to increased borrowings to fund the Western Acquisition. See "Financial Condition -- Capital Resources and Liquidity for the Three Months Ended December 31, 1995 and 1994." Other income was a net gain in both periods primarily as a result of royalty income from one of the Company's proprietary products. The effective tax rate increased to 28% from 22% in the prior year's first quarter primarily due to marginal tax rates on higher U.S. profitability. 23 26 RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 The following table sets forth selected key operating statistics reflecting industry rig count and the Company's financial results:
YEAR ENDED SEPTEMBER 30, ---------------------------- 1995 1994 1993 ------ ------ ------ Average active rigs:(1) U.S. ........................................................ 739 784 755 International (excluding Canada)............................. 750 747 783 Revenue per rig (in thousands)................................. $425.6 $283.8 $256.4 Revenue per employee (in thousands)............................ $168.3 $160.4 $151.4 Percentage of gross profit to revenue(2)....................... 15.1% 13.1% 14.3% Percentage of marketing expense to revenue..................... 4.2% 3.3% 3.3% Percentage of general and administrative expense to revenue.... 4.5% 5.2% 5.8%
- --------------- (1) Industry estimate of average active rigs published by Baker Hughes Incorporated. (2) Gross profit represents revenue less cost of sales and services and research and engineering expenses. Revenue: Revenue increased by 10% in 1994 and 46% during 1995, the third consecutive yearly increase. The increase in 1994 was driven primarily by the Company's international expansion program and an increase in domestic natural gas drilling and stimulation activity. In 1995, the increase was due primarily to continued growth of the international expansion, increased activity in Latin America and the Western Acquisition. U.S. revenues increased by 6% and 67% in 1994 and 1995, respectively. The 1994 increase was due primarily to a 12% increase in the active rig count for gas-related drilling, partially offset by a 4% decline in the rig count for oil-related drilling. In addition, customer alliances contributed an additional $14.5 million in revenues during the year. During the first six months of 1995 (prior to the Western Acquisition), the Company's revenues increased 5% over the same period in 1994 due primarily to the increased placement of cementing units and the addition of a stimulation vessel in the Gulf of Mexico. With the Western Acquisition, the Company's U.S. revenues over the balance of the year more than doubled, accounting for the remainder of the 67% increase for 1995. In the last quarter of 1995, continued weak natural gas prices caused many of the Company's customers to significantly curtail their drilling activity. During this period, management believes it retained most of the key customers of both the Company and Western. However, since the former Western operations were more heavily concentrated in the natural gas regions of the United States, the decline in natural gas drilling activity significantly impacted the Company's operations. While pricing for the Company's U.S. pumping services remained relatively stable during 1995, pricing remains depressed compared to levels realized in the past. Management expects these competitive pricing conditions to remain until a significant increase in drilling activity occurs. International revenues increased by 14% and 27% during 1994 and 1995, respectively. The increases were primarily attributable to three factors: (a) continued geographic expansion of the Company's tubular services andcommissioning and leak detection service lines, (b) significant increase in Latin America business and (c) acquisitions. The tubular services and commissioning and leak detection product lines have now been expanded into 13 countries, including parts of the Middle East, Africa, South America, Southeast Asia and Australia. Most of the revenue growth in Latin America (up 36% and 46% in 1994 and 1995, respectively) was a result of increased cementing and stimulation activity with both private and national oil and gas companies in Argentina and the addition of a stimulation vessel in 1994 and a coiled tubing barge in 1995 to service the Lake Maracaibo, Venezuela market. The acquisitions which contributed to the Company's revenue growth were NBS in April 1993, SIAT in July 1993, the former Egypt joint venture in February 1994 and Western in April 1995, which added international operations in Indonesia, Hungary and Nigeria. These acquisitions 24 27 added approximately $14 million and $30 million in international revenue during 1994 and 1995, respectively, compared with 1993. Operating Income: Operating income decreased by $1.1 million in 1994 and increased by $1.6 million in 1995. In 1994, the decrease was due primarily to lower margins on the Company's North Sea stimulation business caused by lower activity and pricing, and a decline in U.S. pricing. In 1995, the increase was primarily due to the revenue increases described above, partially offset by a $17.2 million unusual charge incurred in 1995. The unusual charge was taken in conjunction with a consolidation program that is designed to improve efficiencies and reduce costs resulting from the Western Acquisition. Included in the unusual charge is an adjustment to the carrying value of duplicate operating facilities, severance and related benefit costs, benefits due under agreements covering the Company's executives which were triggered as a result of the Western Acquisition, and legal and other costs that would not have been incurred had the Western Acquisition not occurred. The cost of sales and services as a percentage of revenue decreased to 83.0% in 1995 as compared to 84.9% and 83.4% in 1994 and 1993, respectively. The increase from 1993 to 1994 was due primarily to a decline in U.S. pricing, which negatively impacted margins by $5.5 million, and lower margins on the Company's North Sea stimulation business caused by lower activity and pricing. The reduction in 1995 was primarily as a result of cost reduction efforts implemented after the Western Acquisition and the economies of scale by having a larger U.S. operation. Other operating expenses, excluding the unusual charge and goodwill amortization, increased by 1% and 47% in 1994 and 1995, respectively. The 1994 increase was attributable to higher marketing expenses from international expansion efforts and corporate marketing and alliance programs, partially offset by lower research and engineering and general and administrative expenses due to the Company's continued overhead reduction efforts. The 1995 increase was primarily attributable to overhead from the former Western operations, along with increased marketing expenses related to international expansions. Marketing expenses are expected to increase as a percentage of sales due to the higher concentration of Western's revenues earned in the United States, which requires a relatively greater marketing effort. The increase in goodwill amortization resulted from the aforementioned acquisitions, most significantly Western, which will result in annual goodwill amortization expense of $4.4 million. Other: Interest expense increased by $2.0 million and $7.8 million in 1994 and 1995, respectively. The 1994 increase resulted from higher interest rates and increased borrowings to fund the Company's international expansions and acquisitions. While interest rates continued to increase marginally during 1995, the additional interest expense is primarily attributed to borrowings incurred to finance the Western Acquisition. See "-- Financial Condition -- Capital Resources and Liquidity for the Fiscal Years Ended September 30, 1995, 1994 and 1993" and Notes 4 and 5 of the Notes to Consolidated Financial Statements. Other income was a net gain in both 1994 and 1995 due to nonrecurring gains on asset sales and, in 1995, $1.4 million of royalty income from one of the Company's proprietary products. Primarily as a result of profitability in international jurisdictions where the statutory rate is below the U.S. rate and the availability of tax benefits from the Company's reorganization pursuant to its initial public offering in 1990, the Company's effective tax rate remained below the U.S. statutory rate during 1995. Additionally, certain nonrecurring benefits have reduced the Company's effective tax rate, including $1.3 million in 1993 resulting from a change in the valuation reserve for net operating losses and from changes in tax laws in the U.S. and other countries, $1.9 million in 1994 from a change in the valuation reserve for net operating losses and $1.5 million in 1995 from the favorable settlement of a tax audit and from tax losses attributable to foreign exchange fluctuations in certain international jurisdictions. Minority interest expense declined in both 1994 and 1995, as a result of lower profitability of the Company's Southeast Asian joint ventures and losses by the Company's Nigerian joint venture. Results in 1994 include a $16.0 million ($10.4 million after tax) charge for the cumulative effect of an accounting change for retiree health benefits. See Note 9 of the Notes to Consolidated Financial Statements. 25 28 FINANCIAL CONDITION Capital resources and liquidity: Net cash provided from operating activities for the three months ended December 31, 1995 increased by $3.6 million from the prior year's first quarter. Higher profitability and depreciation was partially offset by increased inventory levels from international expansions and the payment of merger-related and various other expenses previously accrued for. Cash flows from operating activities increased to $26.3 million in 1994 and $39.4 in 1995 as compared to cash used in operating activities of $.3 million in 1993. The 1994 improvement resulted primarily from a smaller increase in both receivables and other current assets and liabilities compared with 1993. In 1995, cash flows from operating activities increased primarily as a result of higher profitability and higher noncash expenses during the period. Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Excess cash generated is used to pay down outstanding borrowings. In April 1995, the Company replaced its existing credit facility with a committed, unsecured bank credit facility (the "Bank Credit Facility") executed to accommodate the Western Acquisition. The Bank Credit Facility consists of a five-year $175.0 million revolving credit facility and a six-year $225.0 million term loan, providing an aggregate of $400.0 million in available principal borrowings to the Company. At December 31, 1995, borrowings outstanding under the Bank Credit Facility amounted to $271.0 million consisting of $221.0 million under the term loan and $50.0 million borrowed under the revolver. At December 31, 1995, principal reductions of term loans under the Bank Credit Facility are due in aggregate installments of $25,600,000; $31,200,000; $43,200,000; $48,400,000; $48,400,000 and $24,200,000 in the years ending September 30, 1996, 1997, 1998, 1999, 2000 and 2001, respectively. The outstanding balance of the Company's 9.2% Notes, issued in 1991, was $18.0 million at December 31, 1995. Principal reductions of $6.0 million are required annually each August until maturity on August 1, 1998. The Company's interest-bearing debt represented 38.5% of its total capitalization at December 31, 1995, a slight decrease from 38.9% at the previous fiscal year-end. The Company's Bank Credit Facility and 9.2% Notes contain various customary covenants, including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments. Management believes that the Bank Credit Facility, combined with other discretionary credit facilities and cash flow from operations, will provide the Company with sufficient capital resources and liquidity to manage its routine operations and fund projected capital expenditures. At December 31, 1995, the Company had approximately $512 million of U.S. tax net operating loss carryforwards expiring between 2000 and 2010. With the Western Acquisition, the Company acquired approximately $375 million of tax net operating loss carryforwards, subject to certain limitations, expiring between 2000 and 2008. Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), the Company is required to record a deferred tax asset for the future tax benefit of these tax net operating loss carryforwards, as well as other items, if realization is "more likely than not." As previously discussed, the Western Acquisition gives the Company a greater critical mass with which to compete in the U.S. as it has more than doubled the Company's U.S. revenue base. In addition, with the combination of the Company and Western, the Company has realized significant consolidation benefits. Management estimates that approximately $40 million of overhead and redundant operating costs have been eliminated annually as a result of the combination of the two companies. Management has concluded that the Company's future U.S. taxable income will be sufficient over the remaining carryforward periods to realize the tax benefits represented by approximately $332 million of tax net operating loss carryforwards acquired with Western and generated by the Company's operations prior to the Western Acquisition. The tax benefits resulting from the Western Acquisition have been included in the approximately $84 million net deferred tax asset recognized in the purchase price allocation at the acquisition date. Valuation allowances have been established for the benefits of the tax net operating loss carryforwards that are estimated to expire prior to their utilization. 26 29 Requirements for Capital: Excluding acquisitions, capital expenditures during the three months ended December 31, 1995 were $10.4 million, or $4.3 million higher than the spending in the comparable quarter of the prior year. The current quarter's spending related primarily to international expansion opportunities, primarily in Latin America, and upgrades of the Company's information systems. Other investing activities included the acquisition of the remaining 60% interest in the Company's joint venture in Brazil for total consideration of $5.4 million consisting of $3.7 million of cash and $1.7 million of debt assumed by the Company. Excluding acquisitions, capital expenditures during 1995 were $31.0 million, or $8.4 million below 1994 spending. Spending for 1995 related primarily to offshore operations both in the United States and abroad, and international growth opportunities, including geographic expansions and expansions of services. The prior year's spending included approximately $11 million for the construction of two offshore stimulation vessels. Investing activities in the fiscal year ended September 30, 1995 included $5.4 million of proceeds from the sale of a duplicate facility and other disposals of assets. Capital expenditures for fiscal 1996 are projected to be approximately $45 million, excluding acquisitions, and are expected to include spending for continued geographic expansions of all service lines, construction or upgrading of at least two offshore vessels, additional capacity in certain high margin locations and normal levels of replacement capital. The actual amount of fiscal 1996 capital expenditures will be primarily dependent upon the availability of expansion opportunities and will be funded by cash flows from operating activities and available credit facilities. Management believes cash flows from operating activities and available lines of credit, if necessary, will be sufficient to fund projected capital expenditures. BUSINESS GENERAL The Company, whose operations trace back to the Byron Jackson Company (which was founded in 1872), was organized in 1990 under the corporate laws of the State of Delaware. The Company is a leading provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. The Company's pressure pumping services consist of well stimulation, cementing, sand control and coiled tubing services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. Other oilfield services include casing and tubular services provided to the oil and gas exploration and production industry, commissioning and leak detection services provided to offshore platforms and pipelines, primarily in the United Kingdom, and specialty chemical services. On April 13, 1995, the Company completed the Western Acquisition for a total purchase price of $511.4 million (including transaction costs of $7.2 million), which was paid approximately half in cash and half in shares of the Company's common stock and warrants to purchase common stock. The Western Acquisition provides the Company with a greater critical mass with which to compete in both domestic and international markets and the opportunity to realize significant consolidation benefits. The Western Acquisition has increased the Company's existing total revenue base by approximately 75% and has more than doubled the Company's existing domestic revenue base. In addition, approximately $40 million in annual overhead and redundant operating costs have been eliminated by combining the two companies. During the year ended September 30, 1995, the Company generated approximately 39% of its revenue from cementing services, 47% from stimulation services and 14% from product and equipment sales and other oilfield services (37%, 48% and 15%, respectively, during the portion of the 1995 fiscal year since the Western Acquisition). Over the same period, the Company generated approximately 55% of its revenue from domestic operations and 45% from international operations (60% and 40%, respectively, since the Western Acquisition). CEMENTING SERVICES The Company's cementing services, which accounted for approximately 39% of the Company's total revenue during 1995 (37% since the Western Acquisition), consist of blending cement and water with various solid and liquid additives to create a slurry that is pumped into a well between the casing and the wellbore. The additives and the properties of the slurry are designed to ensure the proper pump time, compressive strength 27 30 and fluid loss control, and vary depending upon the well depth, downhole temperatures and pressures and formation characteristics. The Company provides regional laboratory testing services to evaluate slurry properties, which vary with cement supplier and local water properties. Job design recommendations are developed by the Company's field engineers to achieve desired porosity and bonding characteristics. There are a number of specific applications for cementing services used in oilfield operations. The principal application is the cementing between the casing pipe and the wellbore during the drilling and completion phase of a well ("primary cementing"). Primary cementing is performed to (1) isolate fluids behind the casing between productive formations and other formations which would damage the productivity of hydrocarbon producing zones or damage the quality of freshwater aquifers, (2) seal the casing from corrosive formation fluids and (3) provide structural support for the casing string. Cementing services are also utilized when recompleting wells from one producing zone to another and when plugging and abandoning wells. STIMULATION SERVICES The Company's stimulation services, which accounted for approximately 47% of the Company's total revenue during 1995 (48% since the Western Acquisition), consist of hydraulic fracturing, acidizing, sand control, nitrogen and coiled tubing services designed to improve the flow of oil and gas from producing formations and are summarized as follows: Fracturing. Fracturing is performed to enhance the production of oil and gas from formations having such low permeability that the natural flow is restricted. The fracturing process consists of pumping a fluid gel into a cased well at sufficient pressure to "fracture" the formation. Sand, bauxite or synthetic proppant which is suspended in the gel is pumped into the fracture to prop it open. The size of a fracturing job is generally expressed in terms of the pounds of proppant. The main pieces of equipment used in the fracturing process are the blender, which blends the proppant and chemicals into the fracturing fluid, and the pumping unit, which is capable of pumping significant volumes at high pressures. The Company's fracturing pump units are capable of pumping slurries at pressures of up to 14,000 pounds per square inch at rates of up to four barrels per minute. In some cases, fracturing is performed by an acid solution pumped under pressure without a proppant or with small amounts of proppant. An important element of fracturing services is the design of the fracturing treatment, which includes determining the proper fracturing fluid, proppants and injection program to maximize results. The Company's field engineering staff provides technical evaluation and job design recommendations as an integral element of its fracturing service for the customer. Technological developments in the industry over the past three to four years have focused on proppant concentration control (i.e., proppant density), liquid gel concentrate capabilities, computer design and monitoring of jobs and cleanup properties for fracturing fluids. Over the past decade, the Company has successfully introduced equipment to respond to these technological advances. During 1991, the Company introduced a patented, borate-based fracturing fluid, Spectra Frac G(R). During 1993, the Company introduced two additional fracturing fluids, Medallion FracSM and Spartan FracSM. These fracturing fluids are now used in most of the Company's fracturing treatments. During 1994, the Company commercialized a proprietary enzyme chemistry used in conjunction with the three fracturing fluids. These "enzyme breakers" can significantly enhance the production of oil and gas in a wide range of wells. Acidizing. Acidizing is performed to enhance the flow rate of oil and gas from wells with reduced flow caused by formation damage due to drilling or completion fluids, or the buildup over time of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and gas. The Company maintains a fleet of mobile acid transport and pumping units to provide acidizing services for the onshore market. Sand Control. Sand control services involve the pumping of gravel to fill the cavity created around the wellbore during drilling. The gravel provides a filter for the exclusion of formation sand from the producing 28 31 pathway. Oil and gas is then free to move through the gravel into the wellbore to be produced. These services are primarily provided in the Gulf of Mexico, the North Sea, Venezuela, Trinidad and Indonesia. Nitrogen. There are a number of uses for nitrogen, an inert gas, in pressure pumping operations. Used alone, it is effective in displacing fluids during drill stem testing. However, nitrogen services are used principally in applications which support the Company's cementing and fracturing services. Coiled Tubing Services. Coiled tubing services involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations. The application of coiled tubing to drilling operations also has increased in recent years due to improvements in coiled tubing technology. Coiled tubing is a flexible steel pipe with a diameter of less than three inches manufactured in lengths of thousands of feet and wound or coiled along a large reel on a truck or skid-mounted unit. Due to the small diameter of coiled tubing, it can be inserted through production pipe and used to perform workovers without using a larger, more costly workover rig. The other principal advantages of employing coiled tubing in a workover include (i) not having to "shut-in" the well during such operations, thereby allowing production to continue and reducing the risk of formation damage to the well, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, which must be jointed and unjointed, (iii) the ability to direct fluids into a wellbore with more precision, allowing for localized stimulation treatments and providing a source of energy to power a downhole motor or manipulate downhole tools and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit. Recent technological improvements to coiled tubing have increased its dependability and durability, expanding coiled tubing's potential uses and markets. The Company participates in the offshore stimulation market through the use of skid-mounted pump units and through operation of several stimulation vessels including the "Vestfonn" in the North Sea, the "Sea Hero," "Tad Tide" and "Jan Tide" in the Gulf of Mexico and the "BJ003" and "BJ007" on Lake Maracaibo in Venezuela. The Jan Tide and BJ003 were commissioned in the spring of 1994 and the BJ007 in the summer of 1995. The Renaissance, formerly used as a stimulation vessel in the North Sea, has been "warm stacked" and is proposed to be sold for use other than as a stimulation vessel. The Company believes that as production continues to decline in key producing fields of the U.S. and certain international regions, the demand for fracturing and stimulation services is likely to increase. The Company has recently increased its pressure pumping capabilities in certain international markets. OTHER SERVICES The Company's other services, including product and equipment sales for cementing and stimulation services, as well as the following services, accounted for approximately 14% of the Company's total revenue in 1995 (15% since the Western Acquisition). Such products and equipment sales to customers are generally made in the course of providing cementing and stimulation services to certain customers and, other than the specialty chemical business, the Company generally does not sell proprietary products to other companies involved in well servicing. Casing and Tubular Services. Casing services principally consist of installing (or "running") pipe in a wellbore to protect the structural integrity of the wellbore and to seal various zones in the well. These services are primarily provided during the drilling and completion phases of a well. Tubular services, which consist of running pipe inside the casing to improve the flow of oil and gas, are principally provided during workovers. The Company expects that workover activity and the demand for tubular services in the North Sea should increase during at least the next several years as operators there attempt to mitigate the decline in production from the North Sea's mature fields. Commissioning and Leak Detection Services. Leak detection services, provided through the Company's Comtec division, involve the inspection and testing of the integrity of pipe connections in offshore drilling and production platforms, onshore and offshore pipelines and industrial plants, and are provided during the commissioning, decommissioning, installation or construction stages of these infrastructures, as well as during routine maintenance checks. 29 32 Specialty Chemical Services. Specialty chemical services, provided through the Company's Unichem division acquired as part of Western, include corrosion and scale inhibitors, as well as process chemicals and paraffin control for the treatment of oil wells and for refining, gas processing plant and petrochemical facility maintenance and flow improvement. OPERATIONS The Company's cementing and stimulation services are used in the completion of new oil and gas wells and in remedial work on existing wells. These services are provided through domestic and international locations to customers in most of the major oil and natural gas producing regions of the United States, Latin America, Europe, Southeast Asia, Africa and the Middle East. The Company believes that it is the third largest provider of cementing and stimulation services worldwide, with a particularly strong presence in the Alaskan North Slope, the Gulf of Mexico, the North Sea, Indonesia and most of Latin America. Cementing and stimulation services are provided to both land-based and offshore customers on a 24-hour, on-call basis, through regional and district facilities in over 70 locations worldwide, utilizing complex, truck- or skid-mounted equipment designed and constructed for the particular service furnished. After such equipment is moved to a well location, it is configured with appropriate connections to perform the specific services required. The mobility of this equipment permits the Company to provide cementing and stimulation services to changing geographic areas. Management believes that the Company's cementing and stimulation equipment is adequate to service both current and projected levels of market activity in the near term. The Company maintains a fleet of mobile cement blending and pumping equipment for onshore operations. Offshore operations are performed with skid-mounted cement pumping units. The Company has successfully utilized its patented RAM (Recirculating Averaging Mixer) both for onshore applications and as an offshore skid. In 1991, the Company introduced a sand control blender, the Cyclone, which also has pressure pumping and fracturing applications. Responding to its customers' monitoring needs, in 1992 the Company introduced its computerized monitor which allows for real-time monitoring of the cementing process. Principal materials utilized in the cementing and stimulation business include cement, fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company generally utilizes more than one supplier for each item. The Company also produces certain of its specialized products through company-owned blending facilities in Germany and Singapore. Sufficient material inventories are maintained to allow the Company to provide on-call services to its customers to whom the materials are resold in the course of providing cementing and stimulation services. Repair parts and maintenance items for cementing and stimulation equipment are carried in inventory to ensure continued operations without significant downtime caused by parts shortages. The Company has not experienced significant difficulty in obtaining necessary supplies of these materials or replacing equipment parts and does not anticipate a shortage in the foreseeable future. The Company believes that coiled tubing and other materials utilized in performing coiled tubing services are and will continue to be widely available from a number of manufacturers. Although there are only two principal manufacturers of the reels around which the coiled tubing is wrapped, the Company is not aware of any difficulty in obtaining coiled tubing reels in the past, and the Company anticipates no such difficulty in the future. The Company's operations are subject to hazards inherent in the oil and gas industry, such as fire, explosion, blowouts and oil spills, which can cause personal injury or loss of life, damage to property, equipment, the environment and marine life, and suspension of operations. In addition, claims for loss of oil and gas production and damages to formations are incidental to the pressure pumping business. The Company maintains insurance coverage that it believes to be customary in the industry against these hazards and whenever possible obtains agreements from customers providing indemnification against liability to others. However, such insurance provides for substantial deductibles and premium adjustments based on claims experience and excludes coverage for damages resulting from breach of contract or based on alleged fraud or 30 33 deceptive trade practices. Neither insurance nor indemnity agreements can provide complete protection against casualty losses. ENGINEERING AND SUPPORT SERVICES The Company maintains a manufacturing and research and development center near Houston, Texas. The Company's research and development organization is divided into three distinct areas-Petroleum Engineering, Instrumentation Engineering and Mechanical Engineering. Petroleum Engineering. The Petroleum Engineering laboratory specializes in designing fluids with enhanced performance characteristics in the fracturing, acidizing and cementing operations (i.e., "frac fluids" and "cement slurries"). As fluids must perform under a wide range of downhole pressures, temperatures and other conditions, this design process is a critical element in developing products to meet customer needs. In addition to fluids technology, the Company's Petroleum Engineering group develops and supports a wide range of proprietary software utilized in the monitoring of both cement and stimulation job parameters. This software, combined with the Company's internally developed monitoring hardware, allows for real-time job control as well as post-job analysis. Instrumentation Engineering. The pumping services industry utilizes an array of both monitoring and control instrumentation as an integral element of providing cementing and stimulation services. The Company's monitoring and control instrumentation, developed by its Instrumentation Engineering group, complements its products and equipment and provides customers with desired real-time monitoring of critical applications. Mechanical Engineering. Though similarities exist between the major competitors in the general design of their pumping equipment, the actual engine/transmission configurations as well as the mixing and blending systems differ significantly. Additionally, different approaches to the integrated control systems result in equipment designs which are usually distinct in performance characteristics for each competitor. The Company's Mechanical Engineering group is responsible for the design and manufacturing of virtually all of the Company's primary pumping and blending equipment. However, some peripheral support equipment that is generic to the industry is purchased externally. The Company's Mechanical Engineering group provides new product design as well as support to the rebuilding and field maintenance functions. MANUFACTURING In addition to the engineering facility, the Company's technology and research center houses its main equipment and instrumentation manufacturing facility. This operation currently occupies approximately 65,000 square feet and includes complete fabrication, engine and transmission rebuilding, pump manufacturing and assembly capabilities. As a result of the Western Acquisition, the Company acquired a research and engineering center located in The Woodlands, north of Houston, Texas. The Company also has ancillary manufacturing facilities in Singapore and Scotland. The Company employs outside vendors for some fabrication but is not dependent on any one source. COMPETITION Pressure Pumping Services. The Company competes with larger pumping service companies, in particular Halliburton Company ("Halliburton") and a division of Schlumberger Limited ("Schlumberger"), in all areas of the U.S. in which the Company participates and in most international regions. Several smaller companies compete with the Company in certain areas of the U.S. and in certain foreign countries. The principal methods of competition which apply to the Company's business are its prices, service record and reputation in the industry. While Halliburton and Schlumberger are significantly larger in terms of overall revenues, the Company has a number one or a number two share position in several pumping service markets, including many regions in the United States, the North Sea and Latin America. Other Services. The Company believes that it is one of the largest suppliers of casing and tubular services in the U.K. North Sea and is expanding such services in Latin America. The largest provider of casing 31 34 and tubular services in Europe is Weatherford Enterra, Inc. In the U.K., casing and tubular services are typically provided under long-term contracts which limit the opportunities to compete for business until the end of the contract term. In continental Europe, shorter-term contracts are typically available for bid by the provider of casing and tubular services. The Company believes it and is one of the largest suppliers of commissioning and leak detection services in the U.K. North Sea. In specialty chemical services, there are several major chemical suppliers significantly larger than the Company's Unichem division. MARKETS AND CUSTOMERS General. Demand for the Company's services and products depends primarily upon the number of oil and gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. The Company's principal customers consist of major and independent oil and gas producing companies. During 1995, the Company provided oilfield services to over 2,500 customers, none of which accounted for more than 5% of consolidated revenues. While the loss of certain of the Company's largest customers could have a material adverse effect on Company revenues and operating results in the near term, management believes the Company would be able to obtain other customers for its services in the event it lost any of its largest customers. In both the U.S. and internationally, there has been a continuing trend by oil and gas companies toward "alliances" with the service companies. These alliances take various forms including packaged or integrated services, single source suppliers and turnkey agreements. Approximately 20% of the Company's revenues are generated under such alliances, or approximately $117 million of the Company's revenues during 1995. United States. The Company provides its pumping services to its U.S. customers through a network of over 40 locations, a majority of which offer both cementing and stimulation services. Demand for the Company's services in the U.S. is primarily driven by oil and natural gas drilling activity, which is affected by the current and anticipated prices of oil and natural gas. Due to weak energy prices and lower-cost sources of oil internationally, drilling activity in the U.S. has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986 and 1992. As a result, pumping service companies have been unable to recapitalize their aging U.S. fleets due to the inability, under current market conditions, to generate adequate returns on new capital investments. Management believes it is important to operate with a greater critical mass in key U.S. markets to improve returns in this environment. This conclusion led to the decision to withdraw from certain low activity areas in the past several years and to consolidate the Company's operations with those acquired from Western, which had a larger presence in the U.S. International. The Company operates in more than 30 countries in the major international oil and natural gas producing areas of Latin America, Europe, Africa, Southeast Asia and the Middle East. The Company generally provides services to its international customers through wholly owned foreign subsidiaries. Additionally, the Company holds certain controlling and minority interests in joint venture companies, through which it conducts a portion of its international operations. For geographic information, see Note 8 of the Notes to Consolidated Financial Statements. The international market is somewhat less volatile than the U.S. market despite energy price fluctuations. Due to the significant investment and complexity in international projects, management believes drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and gas pricing. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating flexibility than the typical independent producer in the U.S. International activities have been increasingly important to the Company's results of operations since 1992, when it implemented a strategy to expand its international presence. In general, the Company operates in those international markets where it can achieve and maintain both a significant share position and an attractive return on its investment. The Company's major international revenue and income producing operations are in the North Sea in the European market; Indonesia and Malaysia in the Southeast Asian market; and Argentina, Venezuela, Ecuador and Colombia in the Latin 32 35 American market. In Brazil, the Company recently completed the acquisition of the 60% interest of its local joint venture partner. Foreign operations are subject to special risks that can materially affect the sales and profits of the Company, including currency exchange rate fluctuations, the impact of inflation, governmental expropriation, exchange controls, political instability and other risks. EMPLOYEES At September 30, 1995, the Company had a total of 4,777 employees. Approximately 37% of the Company's employees are employed outside the United States. GOVERNMENTAL AND ENVIRONMENTAL REGULATION The Company's business is affected both directly and indirectly by governmental regulations relating to the oil and gas industry in general, as well as environmental and safety regulations which have specific application to the Company's business. The Company, through the routine course of providing its services, handles and stores bulk quantities of hazardous materials. In addition, leak detection services involve the inspection and testing of facilities for leaks of hazardous or volatile substances. If leaks or spills of hazardous materials handled, transported or stored by the Company occur, the Company may be responsible under applicable environmental laws for costs of remediating damage to the surface, sub-surface or aquifers incurred in connection with such occurrence. Accordingly, the Company has implemented and continues to implement various procedures for the handling and disposal of hazardous materials. Such procedures are designed to minimize the occurrence of spills or leaks of these materials. The Company has implemented and continues to implement various procedures to further assure its compliance with environmental regulations. Such procedures generally pertain to the operation of underground storage tanks, disposal of empty chemical drums, improvement to acid and wastewater handling facilities and cleaning of certain areas at the Company's facilities. The estimated cost for such procedures, including other environmental investigations and remedial actions, is approximately $14 million which will be distributed over a period of several years, for which the Company has provided appropriate reserves. In addition, the Company maintains insurance for certain environmental liabilities which the Company believes is reasonable based on its knowledge of the industry. The Comprehensive Environmental Response, Compensation and Liability Act, also known as "Superfund," imposes liability without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a "hazardous substance" into the environment. Certain disposal facilities used by the Company or its predecessors have been investigated under state and federal superfund statutes, and the Company has been named as a potentially responsible party for cleanup at 10 such sites. Although the Company's level of involvement varies at each site, in general, the Company is one of numerous parties named and will be obligated to pay an allocated share of the cleanup costs. While it is not feasible to predict the outcome of these matters with certainty, management is of the opinion that their ultimate resolution should not have a material effect on the Company's operations or financial position. RESEARCH AND DEVELOPMENT; PATENTS Research and development activities are directed primarily toward improvement of existing products and services and the design of new products and processes to meet specific customer needs. Research and development expenses for each of the three fiscal years ended September 30, 1995 were approximately $6.8 million, $6.4 million and $6.5 million, respectively. The Company currently holds numerous patents relating to products and equipment used in its pumping services business. While such patents, in the aggregate, are important to maintaining the Company's competitive position, no single patent is considered to be of a critical or essential nature. 33 36 Additionally, the Company operates under various license arrangements, generally ranging from 10 to 20 years in duration, relating to certain products or techniques. None of these license arrangements is of a material nature. To remain competitive, the Company devotes significant resources to developing technological improvements to its products. In 1991, the Company introduced a borate-based fracturing fluid, Spectra Frac G(R), which is being widely used in the U.S. stimulation market and the North Sea. In 1993, this product was complemented with two additional fracturing fluids, Spartan FracSM and Medallion FracSM, which have expanded the Company's service line offerings to cover a broader range of economic and downhole design variables. These products replaced several products previously made available to customers. During 1994, the Company commercialized a proprietary enzyme chemistry used in conjunction with the three fracturing fluids. These "enzyme breakers" significantly enhance the production of oil and gas in a wide range of wells. In 1991, the Company introduced its "Cyclone" blender which, along with Western's completion tool technology, have helped address the growing sand control and frac pack markets in the Gulf of Mexico and the North Sea. The Company believes that these products and equipment have enabled the Company to maintain or increase its market share in the United States, the Gulf of Mexico and the North Sea. In 1995, the Company developed Sandstone Acid(TM), a matrix acidizing chemistry used in sandstone formations. While still in the early stages of testing, management believes this product offers significant advantages over conventional acidizing methods in sandstone reservoirs. The Company intends to continue to devote significant resources to its research and development efforts. MANAGEMENT The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ------------------------------ --- -------------------------------------------------------- J. W. Stewart................. 51 Director, Chairman of the Board, President and Chief Executive Officer Michael McShane............... 41 Director, Vice President -- Finance and Chief Financial Officer David D. Dunlap............... 34 Vice President -- International Operations Thomas H. Koops............... 49 Vice President -- Technology and Logistics Margaret B. Shannon........... 46 Vice President -- General Counsel Kenneth A. Williams........... 45 Vice President -- North American Operations Matthew D. Fitzgerald......... 38 Controller Taylor M. Whichard............ 37 Treasurer Stephen A. Wright............. 48 Director of Human Resources L. William Heiligbrodt........ 54 Director John R. Huff.................. 49 Director William J. Johnson............ 61 Director Don D. Jordan................. 63 Director R. A. LeBlanc................. 65 Director James E. McCormick............ 68 Director Michael E. Patrick............ 53 Director
Mr. Stewart, director (Class III) of the Company since 1990, joined Hughes Tool Company in 1969 as Project Engineer. He served as Vice President -- Legal and Secretary of Hughes Tool Company and as Vice President -- Operations for a predecessor of the Company prior to being named President of the Company in 1986. 34 37 Mr. McShane, director (Class II) of the Company since 1990, joined the Company in 1987 from Reed Tool Company, an oilfield tool company, where he was employed for seven years. At Reed Tool Company he held various financial management positions, including Corporate Controller and Regional Controller of Far East Operations. Mr. Dunlap joined the Company in 1984 as a District Engineer and was named Vice President -- International Operations in 1995. He has previously served as Vice President -- Sales for the Coastal Division of North America and U.S. Sales and Marketing Manager. Mr. Koops joined the Company as Manager -- Products and Technical Services in 1976, prior to being named Vice President -- Manufacturing and Logistics of the Company in 1988 and to his current position in 1992. Ms. Shannon joined the Company in February 1994 as Vice President -- General Counsel from the law firm of Andrews & Kurth L.L.P., where she had been a partner since 1984. Mr. Williams joined the Company in 1973 and has since held various positions in the U.S. operations. Prior to being named Vice President -- North American Operations in 1991, he served as Region Manager -- Western U.S. and Canada. Mr. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes Incorporated, where he was the Director of Corporate Audit. Prior thereto, he was a Senior Manager with the certified public accounting firm of Ernst & Whinney. Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from Weatherford International, where he was the Tax Manager. Prior to being named Treasurer in 1992, he served in various positions, including Tax Director and Assistant Treasurer. Mr. Wright joined the Company as Manager of Compensation and Benefits in 1985 from Global Marine Inc., an offshore drilling company, and was named to his current position with the Company in 1987. Mr. Heiligbrodt, director (Class III) of the Company since 1992, is President, Chief Operating Officer and a director of Service Corporation International, a funeral services corporation ("SCI"). He has served in various management positions with SCI since February 1990. Prior to joining SCI, Mr. Heiligbrodt served as President of Provident Services, Inc. from March 1988 to February 1990. Prior to that, he served for five years as Vice Chairman and Chief Executive Officer of WEDGE Group, Incorporated, a multi-industry holding company. He is Chairman of the Nominating Committee and a member of the Executive Compensation Committee. Mr. Huff, director (Class I) of the Company since 1992, is Chairman, President and Chief Executive Officer of Oceaneering International, Inc., an oilfield services corporation. Mr. Huff has been President, Chief Executive Officer and a director of Oceaneering since 1986 and Chairman of the Board of Oceaneering since 1990. Mr. Huff is also a director of Production Operators Corp. He is a member of the Audit Committee and the Executive Compensation Committee. Mr. Johnson, director (Class II) of the Company since April 1995, has been an independent oil and natural gas producer and consultant since May 1994; President and Chief Operating Officer and a director of Apache Corporation, an independent oil and gas exploration and production company, from 1991 to 1994; President, Chief Executive Officer and a director of TEX/CON Oil & Gas Company, a subsidiary of British Petroleum P.L.C., from 1989 to 1991. Mr. Johnson also serves as a director of Camco International, Inc., a provider of oil and natural gas production equipment and services, and of Snyder Oil Corporation, an independent oil and gas exploration and production company, and as an advisory member of the board of directors of Texas Commerce Bank National Association. He is a member of the Nominating Committee. Mr. Jordan, director (Class II) of the Company since 1990, is Chairman, Chief Executive Officer and a director of Houston Industries Incorporated, a public utility holding company with interests in domestic and international electric utility companies and projects. Mr. Jordan has been employed by various subsidiaries of Houston Industries Incorporated since 1956. He currently serves as a director of Texas Commerce 35 38 Bancshares, UTECH Joint Venture and AEGIS Insurance Services. He is Chairman of the Executive Compensation Committee and a member of the Audit Committee. Mr. LeBlanc, director (Class I) of the Company since 1994, served in various executive positions with Keystone International, Inc., a manufacturer of flow control products, including Chairman of the Board, Chief Executive Officer and a director, from 1959 until his retirement in July 1995. Mr. LeBlanc also serves as an advisory member of the board of directors of Texas Commerce Bank National Association. He is a member of the Audit Committee and the Nominating Committee. Mr. McCormick, director (Class III) of the Company since 1990, served in various executive positions with ORYX Energy Company, a diversified energy company, including President and Chief Operating Officer and a director, from 1977 until his retirement on March 1, 1992. Mr. McCormick currently serves on the board of directors of Lone Star Technology, Snyder Oil Company and Texas Commerce Bank National Association. He is Chairman of the Audit Committee and a member of the Executive Compensation Committee and the Nominating Committee. Mr. Patrick, director (Class I) of the Company since April 1995, Chief Investment Officer of the Meadows Foundation since December 1, 1995; consultant from 1994 to 1995; President of Lomas Information Systems, Inc., a subsidiary of Lomas Financial Corporation, from 1993 to 1994; Executive Vice President, Chief Financial Officer and a director of Lomas Financial Corporation and President and Chief Operating Officer of its Lomas Mortgage USA subsidiary, both of which are engaged in mortgage banking, real estate and information services, from 1992 until 1994; and Executive Vice Chancellor for Asset Management of the University of Texas System, where he was responsible for the investment of all endowment funds, from 1984 to 1991. He is a member of the Executive Compensation Committee. The terms of the Class I, Class II and Class III directors expire in 1997, 1998 and 1996, respectively. A Special Committee of the Board of Directors is responsible for administering certain employee arrangements related to the acquisition of Western. The Special Committee is composed of Messrs. McCormick (Chairman), LeBlanc, Johnson and Patrick. DESCRIPTION OF THE NOTES GENERAL The Existing Notes were issued under an indenture, dated as of February 1, 1996 (the "Indenture"), by and among the Company, the Guarantors and Bank of Montreal Trust Company, as trustee under the Indenture (the "Trustee"). The Exchange Notes will be issued under the same Indenture. The Exchange Notes will be issued solely in exchange for an equal principal amount of Existing Notes pursuant to the Exchange Offer. The form and terms of the Exchange Notes will be identical in all material respects to the form and terms of the Existing Notes except that the offering of the Exchange Notes has been registered under the Securities Act and, therefore, the Exchange Notes are not entitled to the benefits of the Registration Rights Agreement and provisions relating to the contingent increases in the interest rates provided for under certain circumstances pursuant thereto. See "-- Registration Rights Agreement." The Notes are subject to the terms stated in the Indenture, a copy of which has been filed as an exhibit to the Registration Statement, and holders of the Notes are referred thereto for a statement of those terms. The statements and definitions of terms under this caption relating to the Notes and the Indenture described below are summaries and do not purport to be complete. Such summaries make use of certain terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture. Certain terms used herein are defined below under "-- Certain Definitions." The Existing Notes and the Exchange Notes will constitute a single series of debt securities under the Indenture. If the Exchange Offer is consummated, holders of Existing Notes who do not exchange their Existing Notes for Exchange Notes will vote together with holders of the Exchange Notes for all relevant purposes under the Indenture. In that regard, the Indenture requires that certain actions by the holders thereunder (including acceleration following an Event of Default) must be taken, and certain rights must be 36 39 exercised, by specified minimum percentages of the aggregate principal amount of the outstanding securities issued under the Indenture. In determining whether holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the Indenture, any Existing Notes that remain outstanding after the Exchange Offer will be aggregated with the Exchange Notes, and the holders of such Existing Notes and the Exchange Notes will vote together as a single series for all such purposes. Accordingly, all references herein to specified percentages in aggregate principal amount of the outstanding Notes shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentages in aggregate principal amount of the Existing Notes and the Exchange Notes then outstanding. Each Note will mature on February 1, 2006 and will bear interest at the rate per annum stated on the cover page hereof from February 20, 1996, payable semiannually on February 1 and August 1 of each year, commencing August 1, 1996, to the person in whose name the Note is registered at the close of business on the January 15 or July 15 next preceding such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal and interest will be payable at the offices of the Trustee, provided that, at the option of the Company, payment of interest will be made by check mailed to the address of the person entitled thereto as it appears in the register of the Notes (the "Register") maintained by the Registrar. The Notes will be transferable and exchangeable at the office of the Registrar and any co-registrar and will be issued in fully registered form, without coupons, in denominations of $1,000 and any integral multiple thereof. The Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection with certain transfers and exchanges. The Notes may not be redeemed prior to maturity and will not be subject to any sinking fund. Following the consummation of the Exchange Offer, holders of Existing Notes not tendered as a general matter will not have any further registration rights under the Registration Rights Agreement. RANKING AND GUARANTEES The Notes are senior unsecured obligations of the Company and rank pari passu in right of payment with the Company's obligations under the Bank Credit Facility and the 9.2% Notes and senior in right of payment to all future indebtedness of the Company that is, by its terms, expressly subordinated to the Notes. The following Subsidiaries of the Company, each of which also is a borrower and a guarantor of the Company's obligations under the Bank Credit Facility and a co-obligor on the 9.2% Notes (collectively, the "Guarantors"), have unconditionally guaranteed (the "Guarantees") on a joint and several basis the Company's obligations to pay principal and interest with respect to the Notes: BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East. Each of the Guarantees is an unsecured obligation of the Guarantor providing such Guarantee and ranks pari passu with the guarantee provided by and the obligations of such Guarantor under the Bank Credit Facility and the obligations of such Guarantor under the 9.2% Notes and with all existing and future unsecured indebtedness of such Guarantor that is not, by its terms, expressly subordinated in right of payment to such Guarantee. Under the terms of the Indenture, a Guarantor may be released from its Guarantee if such Guarantor is not a guarantor of (or co-obligor on) any Funded Indebtedness of the Company other than the Notes and other than Funded Indebtedness of the Company (i) subject to a release provision similar to the release provision described in this paragraph and (ii) the related guarantee (or obligation) of which will be released substantially concurrently with the release of the Guarantee of such Guarantor pursuant to such release provision, provided that no Default or Event of Default under the Indenture has occurred and is continuing. The Indenture also provides that if any Subsidiary of the Company guarantees or becomes a co-obligor on any Funded Indebtedness of the Company other than the Notes at any time subsequent to the date on which the Notes are originally issued (including, without limitation, following any release of such Subsidiary from its Guarantee as described above), then the Company will cause the Notes to be equally and ratably guaranteed by such Subsidiary, which shall thereupon become a Guarantor. The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor 37 40 under its Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. Although holders of the Notes are direct creditors of the Company's principal direct Subsidiaries by virtue of the Guarantees, existing or future creditors of the Guarantors could avoid or subordinate Guarantees, in whole or in part, under fraudulent conveyance laws to the extent they were successful in establishing that (i) a Guarantee was incurred with intent to hinder, delay or defraud any present or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (ii) any of the Guarantors did not receive fair consideration or reasonably equivalent value for issuing its Guarantee and that it (w) was insolvent at the time of such issuance, or (x) was rendered insolvent by reason of such issuance, or (y) was engaged in a business or transaction for which its assets constituted unreasonably small capital to carry on its business or (z) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured. Under the circumstances referred to in clause (ii), but not clause (i), above, the provision of the Indenture described in the previous paragraph generally limit the obligations of each Guarantor to the maximum amount that would not constitute a fraudulent conveyance or transfer under applicable law. To the extent any Guarantee is avoided as a fraudulent conveyance or held unenforceable for any other reason (or limited pursuant to such provision), the holders of the Notes will cease to have any claim (or, as applicable, have only a limited claim) in respect of a Guarantor, and will be solely creditors of the Company or any Guarantor whose Guarantee was not avoided or held unenforceable (or to the extent not so limited). In such event (and to the extent of any such limitation), the claims of the holders of the Notes would be subject to the prior payment of all liabilities of the Subsidiaries of the Company who were not valid Guarantors. Substantially all of the Company's operating income and cash flow is generated by its Subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its Subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's Subsidiaries, could limit the Company's ability to obtain cash from its Subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes are direct creditors of the Company's principal direct Subsidiaries by virtue of the Guarantees, the Company has Subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantors, and such Subsidiaries are not obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. CERTAIN COVENANTS Limitation on Liens. The Indenture provides that the Company will not, and will not permit any Subsidiary of the Company to, issue, assume or guarantee any Indebtedness for borrowed money secured by any Lien on any property or asset now owned or hereafter acquired by the Company or such Subsidiary without making effective provision whereby any and all Notes then or thereafter outstanding will be secured by a Lien equally and ratably with any and all other obligations thereby secured for so long as any such obligations shall be so secured. The foregoing restriction does not, however, apply to: (a) Liens existing on the date on which the Notes are originally issued or provided for under the terms of agreements existing on such date; (b) Liens on property securing (i) all or any portion of the cost of acquiring, constructing, altering, improving or repairing any property or assets, real or personal, or improvements used or to be used in connection with such property or (ii) Indebtedness incurred by the Company or any Subsidiary of the Company prior to or within one year after the later of the acquisition, the completion of construction, 38 41 alteration, improvement or repair or the commencement of commercial operation thereof, which Indebtedness is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; (c) Liens securing Indebtedness owed by a Subsidiary of the Company to the Company or to any other Subsidiary of the Company; (d) Liens on the property of any Person existing at the time such Person becomes a Subsidiary of the Company and not incurred as a result of (or in connection with or in anticipation of) such Person becoming a Subsidiary of the Company, provided that such Liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries other than the property encumbered at the time such Person becomes a Subsidiary of the Company and do not secure Indebtedness with a principal amount in excess of the principal amount outstanding at such time; (e) Liens on any property securing (i) Indebtedness incurred in connection with the construction, installation or financing of pollution control or abatement facilities or other forms of industrial revenue bond financing or (ii) Indebtedness issued or guaranteed by the United States or any State thereof or any department, agency or instrumentality of either; (f) any Lien extending, renewing or replacing (or successive extensions, renewals or replacements of) any Lien of any type permitted under clause (a), (b), (d) or (e) above, provided that such Lien extends to or covers only the property that is subject to the Lien being extended, renewed or replaced and that the principal amount of the Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement; or (g) Liens (exclusive of any Lien of any type otherwise permitted under clauses (a) through (f) above) securing Indebtedness for borrowed money of the Company or any Subsidiary of the Company in an aggregate principal amount which, together with the aggregate amount of Attributable Indebtedness deemed to be outstanding in respect of all Sale/Leaseback Transactions entered into pursuant to clause (a) of the covenant described under "Limitation on Sale/Leaseback Transactions" below (exclusive of any such Sale/Leaseback Transactions otherwise permitted under clauses (a) through (f) above), does not at the time such Indebtedness is incurred exceed 10% of the Consolidated Net Worth of the Company (as shown in the most recent audited consolidated balance sheet of the Company and its Subsidiaries). Limitation on Sale/Leaseback Transactions. The Indenture provides that the Company will not, and will not permit any Subsidiary to, enter into any Sale/Leaseback Transaction with any person (other than the Company or a Subsidiary) unless: (a) the Company or such Subsidiary would be entitled to incur Indebtedness, in a principal amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction, secured by a Lien on the property subject to such Sale/Leaseback Transaction pursuant to the covenant described under "Limitation on Liens" above without equally and ratably securing the Notes pursuant to such covenant; (b) after the date on which the Notes are originally issued and within a period commencing six months prior to the consummation of such Sale/Leaseback Transaction and ending six months after the consummation thereof, the Company or such Subsidiary shall have expended for property used or to be used in the ordinary course of business of the Company and its Subsidiaries an amount equal to all or a portion of the net proceeds of such Sale/Leaseback Transaction and the Company shall have elected to designate such amount as a credit against such Sale/Leaseback Transaction (with any such amount not being so designated to be applied as set forth in clause (c) below); or (c) the Company, during the 12-month period after the effective date of such Sale/Leaseback Transaction, shall have applied to the voluntary defeasance or retirement of Notes or any Pari Passu Indebtedness an amount equal to the greater of the net proceeds of the sale or transfer of the property leased in such Sale/Leaseback Transaction and the fair value, as determined by the Board of Directors of 39 42 the Company, of such property at the time of entering into such Sale/Leaseback Transaction (in either case adjusted to reflect the remaining term of the lease and any amount expended by the Company as set forth in clause (b) above), less an amount equal to the principal amount of Notes and Pari Passu Indebtedness voluntarily defeased or retired by the Company within such 12-month period and not designated as a credit against any other Sale/Leaseback Transaction entered into by the Company or any Subsidiary during such period. LIMITATIONS ON MERGERS AND CONSOLIDATIONS The Indenture provides that neither the Company nor any Guarantor (other than any Guarantor that shall have been released from its Guarantee pursuant to the provisions of the Indenture) will consolidate with or merge into any Person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of its assets to any Person, unless: (i) the Person formed by or surviving such consolidation or merger (if other than the Company or such Guarantor, as the case may be), or to which such sale, lease, conveyance, transfer or other disposition shall be made (collectively, the "Successor"), is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia (or, alternatively, in the case of a Guarantor organized under the laws of a jurisdiction outside the United States, a corporation organized and existing under the laws of such foreign jurisdiction), and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee all of the obligations of the Company or such Guarantor, as the case may be, under the Indenture and under the Notes; and (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. CERTAIN DEFINITIONS The following is a summary of certain defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms and for the definitions of other capitalized terms used herein and not defined below. "Adjusted Net Assets" of a Guarantor at any date means the lesser of (x) the amount by which the fair value of the property of such Guarantor at such date exceeds the total amount of liabilities, including, without limitation, the probable amount of contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date) of such Guarantor at such date, but excluding liabilities under the Guarantee of such Guarantor, and (y) the amount by which the present fair saleable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of any obligations of such Subsidiary under the Guarantee of such Guarantor), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. "Attributable Indebtedness," when used with respect to any Sale/Leaseback Transaction, means, as at the time of determination, the present value (discounted at the rate set forth or implicit in the terms of the lease included in such transaction) of the total obligations of the lessee for rental payments (other than amounts required to be paid on account of property taxes, maintenance, repairs, insurance, assessments, utilities, operating and labor costs and other items which do not constitute payments for property rights) during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Capitalized Lease Obligation" of any Person means any obligation of such Person to pay rent or other amounts under a lease of property, real or personal, that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles; and the amount of such obligation shall be the capitalized amount thereof determined in accordance with generally accepted accounting principles. "Consolidated Net Worth" of the Company means the consolidated stockholders' equity of the Company and its Subsidiaries, as determined in accordance with generally accepted accounting principles. 40 43 "Funded Indebtedness" means all Indebtedness (including Indebtedness incurred under any revolving credit, letter of credit or working capital facility) that matures by its terms, or that is renewable at the option of any obligor thereon to a date, more than one year after the date on which such Indebtedness is originally incurred. "Indebtedness" of any Person at any date means, without duplication, (i) all indebtedness of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), other than standby letters of credit and performance bonds issued by such Person in the ordinary course of business, to the extent not drawn or, to the extent drawn, if such drawing is reimbursed not later than the third Business Day following demand for reimbursement, (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred in the ordinary course of business, (v) all Capitalized Lease Obligations of such Person, (vi) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, (vii) all Indebtedness of others guaranteed by such Person to the extent of such guarantee and (viii) all Hedging Obligations of such Person. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law. For the purposes of the Indenture, the Company or any Subsidiary of the Company shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement relating to such asset. "Non-Recourse Indebtedness" means, at any date, the aggregate amount at such date of Indebtedness of the Company or a Subsidiary of the Company in respect of which the recourse of the holder of such Indebtedness, whether direct or indirect and whether contingent or otherwise, is effectively limited to specified assets, and with respect to which neither the Company nor any of its Subsidiaries provides any credit support. "Pari Passu Indebtedness" means any Indebtedness of the Company, whether outstanding on the date on which the Notes are originally issued or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall be subordinated in right of payment to the Notes. "Sale/Leaseback Transaction" means any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company, for a period of more than three years, of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing. "Significant Subsidiary" has the meaning set forth in Regulation S-X under the Exchange Act. EVENTS OF DEFAULT An Event of Default is defined in the Indenture as being: (i) default by the Company or any Guarantor for 30 days in payment of any interest on the Notes; (ii) default by the Company or any Guarantor in any payment of principal of the Notes; (iii) default by the Company or any Guarantor in compliance with any of its other covenants or agreements in, or provisions of, the Notes, the Guarantees or the Indenture which shall not have been remedied within 60 days after written notice by the Trustee or by the holders of at least 25% in principal amount of the Notes then outstanding; (iv) the acceleration of the maturity of any Indebtedness (other than the Notes or any Non-Recourse Indebtedness) of the Company or any Subsidiary of the Company having an outstanding principal amount of $20 million or more individually or in the aggregate, or a default in the payment of any principal or interest in respect of any Indebtedness (other than the Notes or any Non-Recourse Indebtedness) of the Company or any Subsidiary of the Company having an outstanding principal amount of $20 million or more individually or in the aggregate and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, effecting a cure of such 41 44 default; (v) a judgment or order for the payment of money in excess of $20 million (net of applicable insurance coverage) having been rendered against the Company, a Guarantor or any Significant Subsidiary of the Company and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (vi) certain events involving bankruptcy, insolvency or reorganization of the Company, a Guarantor or any Significant Subsidiary of the Company. Pursuant to the Indenture, Guarantors may not be released from their Guarantees if a Default or Event of Default has occurred and is continuing. The obligations of any Subsidiary of the Company that becomes a Guarantor are not dependent upon whether such Subsidiary becomes a Guarantor prior to or after an Event of Default. The Indenture will provide that the Trustee may withhold notice to the holders of the Notes of any default (except in payment of principal of or interest on the Notes) if the Trustee considers it in the interest of the holders of the Notes to do so. The Indenture provides that if an Event of Default occurs and is continuing with respect to the Indenture, the Trustee or the holders of not less than 25% in principal amount of the Notes outstanding may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company or a Guarantor occurs and is continuing, the principal of and interest on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. The amount due and payable on the acceleration of any Note will be equal to 100% of the principal amount of such Note, plus accrued interest to the date of payment. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. The Indenture provides that no holder of a Note may pursue any remedy under the Indenture unless (i) the Trustee shall have received written notice of a continuing Event of Default, (ii) the Trustee shall have received a request from holders of at least 25% in principal amount of the Notes to pursue such remedy, (iii) the Trustee shall have been offered indemnity reasonably satisfactory to it and (iv) the Trustee shall have failed to act for a period of 60 days after receipt of such notice and offer of indemnity; however, such provision does not affect the right of a holder of a Note to sue for enforcement of any overdue payment thereon. The holders of a majority in principal amount of the Notes then outstanding have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee under the Indenture, subject to certain limitations specified in the Indenture. The Indenture requires the annual filing by the Company with the Trustee of a written statement as to compliance with the covenants contained in the Indenture. MODIFICATION AND WAIVER The Indenture provides that modifications and amendments to the Indenture or the Notes may be made by the Company, the Guarantors and the Trustee with the consent of the holders of a majority in principal amount of the Notes then outstanding; provided that no such modification or amendment may, without the consent of the holder of each Note then outstanding affected thereby, (i) reduce the amount of Notes whose holders must consent to an amendment, supplement or waiver; (ii) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (iii) reduce the principal of or change the fixed maturity of any Note; (iv) make any Note payable in money other than that stated in the Note; (v) impair the right to institute suit for the enforcement of any payment of principal of or interest on any Note; (vi) make any change in the percentage of principal amount of Notes necessary to waive compliance with certain provisions of the Indenture; or (vii) waive a continuing Default or Event of Default in the payment of principal of or interest on the Notes. The Indenture provides that modifications and amendments of the Indenture may be made by the Company, the Guarantors and the Trustee without the consent of any holders of Notes in certain limited circumstances, including (a) to cure any ambiguity, omission, defect or inconsistency, (b) to provide for the assumption of the obligations of the Company or any Guarantor under the Indenture upon the merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or any such Guarantor, (c) to provide for uncertificated Notes in addition to or in place of certificated Notes, (d) to reflect the release of any Guarantor from its Guarantee, or the addition of any Subsidiary of the Company as a Guarantor, in the manner provided by the Indenture, (e) to comply with any 42 45 requirement in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act of 1939 or (f) to make any change that does not adversely affect the rights of any holder of Notes in any material respect. The Indenture provides that the holders of a majority in aggregate principal amount of the Notes then outstanding may waive any past default under the Indenture, except a default in the payment of principal or interest. DISCHARGE AND TERMINATION Defeasance of Certain Obligations. The Indenture provides that the Company and the Guarantors may terminate certain of their obligations under the Indenture, including those described under the section "Certain Covenants," if (i) the Company irrevocably deposits in trust with the Trustee cash or non-callable U.S. Government Obligations or a combination thereof sufficient to pay principal of and interest on the Notes to maturity, and to pay all other sums payable by it under the Indenture; (ii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iii) the Company shall have delivered to the Trustee an Opinion of Counsel from nationally recognized counsel acceptable to the Trustee or a tax ruling to the effect that the holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its option under such section and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised; (iv) the Company delivers to the Trustee certain other documents called for by the Indenture, including an Officers' Certificate and Opinions of Counsel; and (v) certain other conditions are satisfied. The Company's payment obligations and the Guarantors' Guarantees shall survive until the Notes are no longer outstanding. Discharge. The Indenture provides that the Indenture shall cease to be of further effect (subject to certain exceptions relating to compensation and indemnity of the Trustee and repayment to the Company of excess money or securities) when (i) either (A) all outstanding Notes theretofore authenticated and issued (other than destroyed, lost or stolen Notes that have been replaced or paid) have been delivered to the Trustee for cancellation; or (B) all outstanding Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable or (y) will become due and payable at their stated maturity within one year and the Company has deposited or caused to be deposited with the Trustee as funds (immediately available to the holders in the case of clause (x) in trust for such purpose an amount which, together with earnings thereon, will be sufficient to pay and discharge the entire indebtedness on such Notes for principal and interest to the date of such deposit (in the case of Notes which have become due and payable) or to the stated maturity, as the case may be; (ii) the Company has paid all other sums payable by it under the Indenture; and (iii) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of the Indenture have been complied with, together with an Opinion of Counsel to the same effect. GOVERNING LAW The Indenture and the Notes are governed by and will be construed in accordance with the laws of the State of New York, but without giving effect to applicable principles of conflicts of law to the extent the application of the laws of another jurisdiction would be required thereby. THE TRUSTEE Bank of Montreal Trust Company is the Trustee under the Indenture. Its address is 77 Water Street, 4th Floor, New York, New York 10005. The Company has also appointed the Trustee as the initial Registrar and as initial Paying Agent under the Indenture. Bank of Montreal Trust Company is an affiliate of Bank of Montreal, which is a lender under the Company's Bank Credit Facility. Bank of Montreal received a portion of the repayment by the Company of borrowings under the Bank Credit Facility from the proceeds of the offering of the Existing Notes. 43 46 The Indenture contains certain limitations on the right of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust Indenture Act of 1939, as amended), it must eliminate such conflict or resign. The Indenture provides that in case an Event of Default shall occur (and be continuing), the Trustee will be required to use the degree of care and skill of a prudent man in the conduct of his own affairs. The Trustee will be under no obligation to exercise any of its powers under the Indenture at the request of any of the holders of the Notes, unless such holders shall have offered the Trustee indemnity reasonably satisfactory to it. BOOK-ENTRY, DELIVERY AND FORM The Existing Notes were initially issued in the form of the Existing Global Note. Upon issuance, the Existing Global Note was deposited with, or on behalf of, the Depositary and registered in the name of Cede & Co., as nominee of the Depositary. The Existing Notes, to the extent directed by their holders in their Letters of Transmittal, will be exchanged through book-entry electronic transfer for the Exchange Global Note in definitive, fully registered form, without coupons, registered in the name of Cede & Co., as nominee of the Depositary. References to "Global Note" shall be references to the Exchange Global Note and the Existing Global Note. Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in the Global Notes will be shown on, and the transfer of these ownership interests will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). So long as DTC, or its nominee, is the registered owner or holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. In addition, no beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with the applicable procedures of DTC and, if applicable, Cedel, societe anonyme ("Cedel"), and Morgan Guaranty Trust Company of New York, as operator of the Euroclear system ("Euroclear") (in addition to those under the Indenture referred to herein). Payments on Global Notes will be made to DTC or its nominee, as the registered owner thereof. None of the Company, the Guarantors, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC or its nominee, upon receipt of any payment in respect of a Global Note representing any Notes held by it or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note for such Notes as shown on the records of DTC or its nominee. The Company also expects that payments by participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules. The laws of some states require that certain Persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons may be limited. Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants (as defined below) and certain banks, the ability of a Person having a beneficial interest in a Global Note to pledge such interest to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate of such interest. 44 47 DTC has advised the Company as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants deposit with DTC and facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly ("indirect participants"). The rules applicable to DTC and its participants are on file with the Commission. Although DTC, Euroclear and Cedel are expected to follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC, Euroclear and Cedel, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Guarantors or the Trustee will have any responsibility for the performance by DTC, Euroclear or Cedel or the participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES Subject to certain conditions, any Person having a beneficial interest in a Global Note may, upon request to the Company or the Trustee, exchange such beneficial interest for Notes in the form of Certificated Securities. Upon any such issuance, the Trustee is required to register such Notes in the name of, and cause the same to be delivered to, such Person or Persons (or the nominee of any thereof). In addition, if (i) DTC or any successor depositary (the "Depositary") notifies the Company in writing that the Depositary is no longer willing or able to act as a depositary and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Securities under the Indenture, then, upon surrender by the registered owner or holder of a Global Note (a "Global Note Holder") of its Global Note, Notes in such form will be issued to each Person that such Global Note Holder and the Depositary identify as the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the related Global Note Holder or the Depositary in identifying the beneficial owners of the related Notes, and each such Person may conclusively rely on, and will be protected in relying on, instructions from such Global Note Holder or of the Depositary for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Notes to be issued). SAME-DAY SETTLEMENT AND PAYMENT Secondary market trading activity in the Notes will be required by the Depositary to be settled in immediately available funds. No assurance can be given as to the effect, if any, of such settlement arrangements on trading activity in the Notes. REGISTRATION RIGHTS AGREEMENT The Company and the Guarantors entered into the Registration Rights Agreement with the Initial Purchasers for the benefit of the holders of the Notes wherein the Company and the Guarantors agreed, for the benefit of the holders of the Notes, to (i) use their reasonable best efforts, to the extent not prohibited by law, to file with the Commission, within 60 days after the date of original issuance of the Notes, the Exchange Offer Registration Statement relating to the Exchange Offer for the Exchange Notes, which will have terms identical in all material respects to the Existing Notes (except that the Exchange Notes will not contain terms with respect to transfer restrictions and will not provide for any increase in the interest rate thereon under the 45 48 circumstances described below) and (ii) use their reasonable best efforts, to the extent not prohibited by law, to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 120 days after the date of original issuance of the Notes. Based on existing interpretations of the Securities Act by the staff of the Commission set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by the holders thereof (other than holders who are broker-dealers) without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of Notes who is an affiliate of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretations by the staff of the Commission set forth in the above-mentioned no-action letters, (ii) will not be able to tender its Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. The Company does not intend to seek its own no-action letter and there is no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Notes as it has in such no-action letters to third parties. Each holder of the Notes (other than certain specified holders) who wishes to exchange Notes for Exchange Notes in the Exchange Offer will be required to represent that (i) it is not an affiliate of the Company or any Guarantor, (ii) any Exchange Notes to be received by it were acquired in the ordinary course of its business and (iii) it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. In addition, in connection with any resales of Exchange Notes, any broker-dealer who acquired the Notes for its own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer") must deliver a prospectus meeting the requirements of the Securities Act. The staff of the Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Company and the Guarantors will be required, for a period of 180 days following the consummation of the Exchange Offer, to use their reasonable best efforts to allow Participating Broker-Dealers to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of Exchange Notes received in exchange for Notes acquired by such Participating Broker-Dealers for their own account as a result of market-making or other trading activities. In the event that any changes in law or the applicable interpretations of the staff of the Commission do not permit the Company and the Guarantors to effect the Exchange Offer, or if for any reason the Exchange Offer Registration Statement is not declared effective within 120 days following the date of original issuance of the Notes or the Exchange Offer is not consummated within 180 days after such date, or upon the request of the Initial Purchasers in certain circumstances, the Company and the Guarantors will, in lieu of effecting (or, in the case of such a request by the Initial Purchasers, in addition to effecting) the registration of the Exchange Notes pursuant to the Exchange Offer Registration Statement (i) as promptly as practicable, file with the Commission the Shelf Registration Statement covering resales of the Notes, (ii) use their reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act by the 180th day after the date of original issue of the Notes (or promptly in the event of a request by the Initial Purchasers) and (iii) use their reasonable best efforts to keep effective the Shelf Registration Statement until three years after its effective date (or until one year after such effective date if such Shelf Registration Statement is filed at the request of the Initial Purchasers) or until all of the Notes covered by such Shelf Registration Statement have been sold. The Company will, in the event of the filing of a Shelf Registration Statement, provide to each holder of the Notes copies of the prospectus which is a part of the Shelf Registration Statement and notify each such holder when the Shelf Registration Statement has become effective. A holder of Notes that sells such Notes pursuant to the Shelf Registration Statement generally will 46 49 be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). In addition, each holder of the Notes will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement in order to have their Notes included in the Shelf Registration Statement and to benefit from the provisions regarding the increase in the interest rate borne by the Notes described in the second succeeding paragraph. Each Existing Note will contain a legend to the effect that the holder of such Notes by its acceptance thereof, will be deemed to have agreed to be bound by the provisions of the Registration Rights Agreement. In that regard, each holder will be deemed to have agreed that, upon receipt of notice from the Company of the occurrence of any event which makes any statement in the prospectus which is part of the Shelf Registration Statement (or, in the case of Participating Broker Dealers, the prospectus which is a part of the Exchange Offer Registration Statement) untrue in any material respect or which requires the making of any changes in such prospectus in order to make the statements therein not misleading or of certain other events specified in the Registration Rights Agreement, such holder (or Participating Broker-Dealer, as the case may be) will suspend the sale of Notes pursuant to such prospectus until the Company and the Guarantors have amended or supplemented such prospectus to correct such misstatement or omission have furnished copies of the amended or supplemented prospectus to such holder (or Participating Broker-Dealer, as the case may be) or the Company and the Guarantors have given notice that the sale of the Notes may be resumed, as the case may be. If the Company and the Guarantors shall give such notice to suspend the sale of the Notes, they shall extend the relevant period referred to above during which they are required to keep effective the Shelf Registration Statement (or the period during which Participating Broker-Dealers are entitled to use the prospectus included in the Exchange Offer Registration Statement in connection with the resale of Exchange Notes, as the case may be) by the number of days during the period from and including the date of the giving of such notice to and including the date when holders shall have received copies of the supplemented or amended prospectus necessary to permit resales of the Notes or to and including the date on which the Company and the Guarantors have given notice that the sale of Notes may be resumed, as the case may be. The Registration Rights Agreement provides that in the event that either (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 60th day following the date of original issuance of the Notes, (b) the Exchange Offer Registration Statement is not declared effective on or prior to the 120th day following the date of original issuance of the Notes or (c) the Exchange Offer is not consummated or a Shelf Registration Statement with respect to the Notes is not declared effective on or prior to the 180th day following the date of original issuance of the Notes, the interest rate borne by the Notes shall be increased by .50% per annum following such 60th day in the case of clause (a) above, such 120th day in the case of clause (b) above and such 180th day in the case of clause (c) above; provided that the aggregate amount of any such increase in the interest rate on the Notes pursuant to the foregoing provisions shall in no event exceed .50% per annum; and provided, further, that if the Exchange Offer Registration Statement is not declared effective on or prior to the 120th day following the date of original issuance of the Notes and the Company shall request holders of Notes to provide the information called for by the Registration Rights Agreement for inclusion in the Shelf Registration Statement, then Notes owned by holders who do not deliver such information to the Company or who do not provide comments on the Shelf Registration Statement when required pursuant to the Registration Rights Agreement will not be entitled to any such increase in the interest rate for any day after the 180th day following the date of original issuance of the Notes. Upon (x) the filing of the Exchange Offer Registration Statement after the 60th day described in clause (a) above, (y) the effectiveness of the Exchange Offer Registration Statement after the 120th day described in clause (b) above or (z) the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement, as the case may be, after the 180th day described in clause (c) above, the interest rate on the Notes from the date of such filing, effectiveness or consummation, as the case may be, will be reduced to the original interest rate set forth on the cover page of this Prospectus; provided, however, that the interest rate on the Notes will be reduced to the original interest rate only if all of the events set forth in the immediately preceding sentence causing the interest rate on the Notes to increase have been cured. 47 50 The Registration Rights Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, which is filed as an exhibit to the Registration Statement. In addition, the information set forth above concerning certain interpretations of and positions taken by the staff of the Commission is not intended to constitute legal advice, and prospective investors should consult their own legal advisors with respect to such matters. PLAN OF DISTRIBUTION In case of a broker-dealer which acquired Existing Notes for its own account as a result of market making activities or other trading activities, such broker-dealer may, if it is able to make the representations set forth in the second paragraph under "The Exchange Offer -- Procedures for Tendering," obtain Exchange Notes in the Exchange Offer and may resell such Exchange Notes without registration under the Securities Act, provided that such broker-dealer delivers to the purchaser of such Exchange Notes a copy of a prospectus relating thereto, which may be this Prospectus as supplemented or amended from time to time. Such broker-dealer may offer the Exchange Notes for sale from time to time in negotiated transactions or otherwise, at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices, and any resale may be made directly to purchasers or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or purchasers of any such Exchange Notes. The Letter of Transmittal (i) requires that any broker-dealer who acquired Existing Notes for its own account as a result of market-making activities or other trading activities must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Notes pursuant to the Exchange Offer but (ii) states that such broker-dealer, by so delivering a prospectus, will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on no-action letters issued by the staff of the Commission, the Company and the Guarantors believe that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Existing Notes may be offered for resale, resold and otherwise transferred by any holder of such Exchange Notes (other than any such holder which is an "affiliate" of the Company and the Guarantors within the meaning of Rule 405 under the Securities Act and certain broker-dealers and their affiliates) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. There currently is no market for the Notes. The Company intends to apply for the listing of the Exchange Notes on the NYSE. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. LEGAL MATTERS Certain legal matters with respect to the Notes offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas. 48 51 EXPERTS The consolidated financial statements and the related financial statement schedule of the Company as of September 30, 1995 and 1994 and for each of the three years in the period ended September 30, 1995, included or incorporated by reference in this Registration Statement, have been audited by Deloitte & Touche LLP, independent accountants, as stated in their reports, which are included or incorporated by reference herein, and have been so included or incorporated by reference in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of The Western Company of North America as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994 incorporated by reference in this Registration Statement have been so incorporated by reference in reliance on the report of Price Waterhouse LLP, independent accountants, and have been so incorporated by reference in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 49 52 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants..................................... F-2 Consolidated Statement of Operations for the Years Ended September 30, 1995, 1994 and 1993................................................. F-3 Consolidated Statement of Financial Position as of September 30, 1995 and 1994............................................................ F-4 Consolidated Statement of Stockholders' Equity for the Years Ended September 30, 1995, 1994 and 1993................................... F-5 Consolidated Statement of Cash Flows for the Years Ended September 30, 1995, 1994 and 1993................................................. F-6 Notes to Consolidated Financial Statements............................ F-7 Consolidated Condensed Statement of Operations (Unaudited) -- Three months ended December 31, 1995 and 1994............................. F-31 Consolidated Condensed Statement of Financial Position -- December 31, 1995 (Unaudited) and September 30, 1995............................. F-32 Consolidated Condensed Statement of Cash Flows (Unaudited) -- Three months ended December 31, 1995 and 1994............................. F-33 Notes to Unaudited Consolidated Condensed Financial Statements........ F-34
F-1 53 REPORT OF INDEPENDENT ACCOUNTANTS Stockholders of BJ Services Company: We have audited the accompanying consolidated statements of financial position of BJ Services Company and its subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BJ Services Company and its subsidiaries at September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. As described in Note 9 to the consolidated financial statements, the Company changed its method of account for postretirement benefits other than pensions effective October 1, 1993 to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE LLP Houston, Texas November 21, 1995 (March 28, 1996 as to Note 15) F-2 54 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue.................................................... $633,660 $434,476 $394,363 Operating Expenses: Cost of sales and services............................... 525,859 368,994 329,042 Research and engineering................................. 12,299 8,621 9,098 Marketing................................................ 26,429 14,169 12,969 General and administrative............................... 28,318 22,709 22,825 Goodwill amortization.................................... 3,266 1,298 691 Unusual charge........................................... 17,200 -------- -------- -------- Total operating expenses................................. 613,371 415,791 374,625 -------- -------- -------- Operating income........................................... 20,289 18,685 19,738 Interest expense........................................... (15,164) (7,383) (5,414) Interest income............................................ 899 729 500 Other income -- net........................................ 2,734 877 2,014 -------- -------- -------- Income before income taxes, minority interest and cumulative effect of accounting change................... 8,758 12,908 16,838 Income tax expense (benefit)............................... (1,102) 2,006 1,593 -------- -------- -------- Income before minority interest and cumulative effect of accounting change........................................ 9,860 10,902 15,245 Minority interest.......................................... (29) 132 684 -------- -------- -------- Income before cumulative effect of accounting change....... 9,889 10,770 14,561 Cumulative effect of change in accounting principle, net of tax benefit of $5,600,000................................ (10,400) -------- -------- -------- Net income....................................... $ 9,889 $ 370 $ 14,561 ======== ======== ======== Net Income Per Share: Income per share before cumulative effect of accounting change................................................ $ .46 $ .69 $ .94 Cumulative effect of change in accounting principle, net of tax................................................ (.67) -------- -------- -------- Net income per share............................. $ .46 $ .02 $ .94 ======== ======== ======== Weighted average shares outstanding.............. 21,376 15,665 15,456 ======== ======== ========
See Notes to Consolidated Financial Statements F-3 55 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, --------------------- 1995 1994 -------- -------- (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents...................................................... $ 1,842 $ 3,218 Receivables, less allowance for doubtful accounts: 1995, $7,483,000; 1994, $2,184,000................................................................... 168,771 103,754 Inventories: Finished goods............................................................... 46,242 30,970 Work in process.............................................................. 2,392 1,118 Raw materials................................................................ 18,217 6,591 -------- -------- Total inventories....................................................... 66,851 38,679 Deferred income taxes.......................................................... 9,370 4,478 Other current assets........................................................... 10,101 8,230 -------- -------- Total current assets.................................................... 256,935 158,359 Property: Land........................................................................... 13,031 12,031 Buildings...................................................................... 83,205 47,042 Machinery and equipment........................................................ 634,692 446,739 -------- -------- Total property.......................................................... 730,928 505,812 Less accumulated depreciation.................................................. 314,118 306,968 -------- -------- Property -- net.............................................................. 416,810 198,844 Goodwill, net of amortization.................................................... 193,263 20,998 Deferred income taxes............................................................ 107,889 20,607 Investments and other assets..................................................... 14,786 11,258 -------- -------- $989,683 $410,066 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable -- trade...................................................... $ 85,675 $ 54,609 Short-term borrowings.......................................................... 2,000 2,250 Current portion of long-term debt.............................................. 35,600 31,200 Accrued employee compensation and benefits..................................... 24,885 10,521 Income taxes................................................................... 5,915 7,719 Taxes other than income........................................................ 5,460 2,751 Accrued insurance.............................................................. 12,867 2,637 Other accrued liabilities...................................................... 31,869 9,162 -------- -------- Total current liabilities............................................... 204,271 120,849 Long-term debt................................................................... 259,566 74,700 Deferred income taxes............................................................ 11,496 7,194 Accrued postretirement benefits.................................................. 25,146 15,834 Minority interest and other long-term liabilities................................ 22,409 1,562 Commitments and contingencies Stockholders' Equity: Preferred stock (authorized 5,000,000 shares) Common stock, $.10 par value (authorized 80,000,000 shares; issued and outstanding 1995 -- 27,951,784 shares, 1994 -- 15,670,903 shares)............ 2,795 1,567 Capital in excess of par....................................................... 415,242 151,340 Retained earnings.............................................................. 53,505 43,616 Cumulative translation adjustment.............................................. (4,747) (4,133) Unearned compensation.......................................................... (2,463) -------- -------- Total stockholders' equity.............................................. 466,795 189,927 -------- -------- $989,683 $410,066 ========= =========
See Notes to Consolidated Financial Statements F-4 56 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL CUMULATIVE COMMON IN EXCESS UNEARNED RETAINED TRANSLATION STOCK OF PAR COMPENSATION EARNINGS ADJUSTMENT TOTAL ------ --------- ------------ -------- ----------- -------- (IN THOUSANDS) Balance, September 30, 1992........ $1,304 $ 105,374 $ $ 28,685 $ (569) $134,794 Net income....................... 14,561 14,561 Issuance of stock for: Business acquisition.......... 250 40,537 40,787 Stock options................. 3 504 507 Stock purchase plan........... 4 619 623 Stock performance awards...... 2,855 (2,855) Amortization of unearned compensation.................. 500 500 Cumulative translation adjustment.................... (4,640) (4,640) ------ --------- -------- -------- ------- -------- Balance, September 30, 1993........ 1,561 149,889 (2,355) 43,246 (5,209) 187,132 Net income....................... 370 370 Issuance of stock for: Stock options................. 2 294 296 Stock purchase plan........... 4 680 684 Stock performance awards...... 944 (944) Buyback of stock rights.......... (155) (155) Amortization of unearned compensation.................. 524 524 Revaluation of stock performance awards........................ (312) 312 Cumulative translation adjustment.................... 1,076 1,076 ------ --------- -------- -------- ------- -------- Balance, September 30, 1994........ 1,567 151,340 (2,463) 43,616 (4,133) 189,927 Net income....................... 9,889 9,889 Issuance of stock for: Business acquisition.......... 1,204 262,347 263,551 Stock options................. 2 535 537 Stock purchase plan........... 5 733 738 Stock performance awards...... 17 287 1,803 2,107 Amortization of unearned compensation.................. 660 660 Cumulative translation adjustment.................... (614) (614) ------ --------- -------- -------- ------- -------- Balance, September 30, 1995........ $2,795 $ 415,242 $ $ 53,505 $(4,747) $466,795 ====== ======== ========== ======= ======== ========
See Notes to Consolidated Financial Statements F-5 57 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1995 1994 1993 -------- ------- ------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................... $ 9,889 $ 370 $14,561 Adjustments to reconcile net income to cash provided from (used for) operating activities: Cumulative effect of accounting change................ 10,400 Depreciation and amortization......................... 42,064 25,335 24,170 Net (gain) loss on disposal of assets................. (830) (346) 62 Recognition of unearned compensation.................. 2,463 524 500 Deferred income tax benefit........................... (8,861) (4,959) (4,877) Unusual charge (noncash).............................. 3,646 Minority interest..................................... (29) 132 684 Changes in: Receivables........................................... (1,091) (9,235) (17,550) Accounts payable-trade................................ 7,707 8,417 6,687 Inventories........................................... (8,078) (621) (572) Other current assets and liabilities.................. (1,170) (1,960) (16,481) Other, net............................................ (6,326) (1,802) (7,499) --------- -------- -------- Net cash flows provided from (used for) operating activities............................................... 39,384 26,255 (315) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions......................................... (30,966) (39,345) (37,350) Proceeds from disposal of assets........................... 5,393 2,588 3,982 Acquisitions of businesses, net of cash acquired........... (203,313) (2,000) (7,400) --------- -------- -------- Net cash used for investing activities..................... (228,886) (38,757) (40,768) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock..................... 40,787 Proceeds from exercise of stock options and stock purchase grants................................................... 1,275 980 1,130 Proceeds from (reduction of) borrowings-net................ 192,851 19,120 (689) Principal payment on long-term notes....................... (6,000) (6,000) --------- -------- -------- Net cash flows provided from financing activities.......... 188,126 14,100 41,228 Increase (decrease) in cash and cash equivalents........... (1,376) 1,598 145 Cash and cash equivalents at beginning of year............. 3,218 1,620 1,475 --------- -------- -------- Cash and cash equivalents at end of year................... $ 1,842 $ 3,218 $ 1,620 ========= ======== ========
See Notes to Consolidated Financial Statements F-6 58 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION BJ Services Company is a leading provider of pressure pumping and other oilfield services to the petroleum industry. The consolidated financial statements include the accounts of BJ Services Company and its majority-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts for 1994 and 1993 have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation. The amounts changed were foreign exchange gains and losses, previously classified as other income -- net and now classified in cost of sales and services, and goodwill amortization previously classified as other income -- net and now classified as a separate component of operating expenses. Net income was not affected by these changes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net income per share: Net income per share has been computed by dividing net income by the weighted average number of outstanding common shares. Common stock equivalents had no material dilutive effect on the computation of net income per share for each year presented. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Cash and cash equivalents: The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Inventories: Inventories, which consist principally of (a) products which are consumed in the Company's services provided to customers, (b) spare parts for equipment used in providing these services and (c) manufactured components and attachments for equipment used in providing services, are stated primarily at the lower of average cost or market. Property: Property is stated at cost less amounts provided for permanent impairments and includes capitalized interest of $216,000, $541,000 and $167,000 for the years ended September 30, 1995, 1994 and 1993, respectively, on funds borrowed to finance the construction of capital additions. Depreciation is generally provided using the straight-line method over the estimated useful lives of individual items. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life or the lease term. Goodwill: Goodwill represents the excess of cost over the fair value of the net assets of companies acquired in purchase transactions. Goodwill is being amortized on a straight-line method over periods ranging from 5 to 40 years. Accumulated amortization at September 30, 1995 and 1994 was $5,174,000 and $1,880,000, respectively. The Company utilizes undiscounted cash flows of acquired operations to evaluate any possible impairment of the related goodwill. Investments: Investments in companies in which the Company's ownership interest ranges from 20 to 50 percent and the Company exercises significant influence over operating and financial policies are accounted for using the equity method. Other investments are accounted for using the cost method. Foreign currency translation: Gains and losses resulting from financial statement translation of foreign operations where the U.S. dollar is the functional currency are included in the consolidated statement of operations. Gains and losses resulting from financial statement translation of foreign operations where a F-7 59 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) foreign currency is the functional currency are included as a separate component of stockholders' equity. The Company's foreign operations primarily use the U.S. dollar as the functional currency. Foreign exchange contracts: From time to time, the Company enters into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. Changes in market value are offset against foreign exchange gains or losses on the related assets or liabilities and are included in cost of sales and services. There were no foreign exchange contracts outstanding at September 30, 1995. Environmental remediation and compliance: Environmental remediation and compliance costs are accrued based on estimates of known environmental exposures. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. 3. UNUSUAL CHARGE During 1995, the Company recorded an unusual charge of $17.2 million ($.52 per share after-tax) for costs incurred in connection with the acquisition of The Western Company of North America ("Western"). The components of the unusual charge are as follows:
BALANCE AT 1995 1995 SEPTEMBER 30, PROVISION EXPENDITURES 1995 --------- -------------- ------------- (IN THOUSANDS) Facility closings.............................. $ 5,596(1) $ (5,003)(1) $ 593 Change in control costs........................ 5,381 (4,081) 1,300 Legal and other................................ 4,047 (3,570) 477 Severance costs................................ 2,176 (1,976) 200 ------ -------- ------ Total................................ $ 17,200 $(14,630) $ 2,570 ====== ======== ======
- --------------- (1) Includes $3.6 million noncash impairment of facilities. The Company and Western both operated facilities in many of the same locations. Management has made the decision to close the duplicate facilities previously operated by BJ Services and retain those operated by Western. A provision was recorded to adjust the carrying value of these duplicate facilities to estimated net realizable value and accruals were recorded for the estimated costs associated with their closings, including maintenance of the facilities until their ultimate sale and relocation of assets. Substantially all of the duplicate facilities were closed as of September 30, 1995. The consummation of the Western acquisition triggered the change in control provision under the Company's 1990 Stock Incentive Plan. As a result, 168,547 performance units previously granted to the Company's executive officers became fully vested and 168,547 shares of common stock were subsequently issued. The unusual charge includes an amount for the excess of the value of the performance units on the date of issuance over the estimated amount which otherwise was earned had the acquisition not occurred. The unusual charge also includes legal, severance of BJ employees and other merger-related costs that would not have been incurred had the acquisition of Western not occurred. F-8 60 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS OF BUSINESSES In April 1995, the Company acquired Western for total consideration, including transaction costs, of $511.4 million in cash, Company common stock and warrants to purchase common stock. The transaction may be summarized as follows:
(IN THOUSANDS) -------------- Cash................................................... $247,880 Stock issued (12,036,393 shares)....................... 239,551 Warrants issued (4,800,037 warrants)................... 24,000 ----------- Total consideration............................... 511,431 Net assets acquired.................................... 335,891(1) ----------- Goodwill.......................................... $175,540 ===========
- --------------- (1) Includes cash acquired of $44.5 million. This acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Western are included in the financial statements beginning April 1, 1995. The assets and liabilities of Western have been recorded on the Company's books at estimated fair market value on April 1, 1995 with the remaining purchase price reflected as goodwill, which is being amortized on a straight-line basis over 40 years. The following unaudited pro forma summary presents the consolidated results of operations, excluding estimated consolidation savings, of the Company for the two years ended September 30, 1995 and 1994 as if the acquisition had occurred at the beginning of each fiscal year:
1995 1994 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue........................................................ $807,582 $763,313 Net income (loss) from continuing operations before cumulative effect of accounting change.................................. 2,308 (15,330) Net income (loss).............................................. 2,308 (25,730) Net income (loss) per share from continuing operations before cumulative effect of accounting change....................... .08 (.55) Net income (loss) per share.................................... .08 (.92)
On February 9, 1994, the Company acquired the remaining 50% ownership of its joint venture in Egypt, Hughes Services C.I., Ltd., for $2.0 million. Prior to the acquisition, this joint venture was accounted for using the equity method of accounting. On April 1, 1993, the Company completed a transaction to acquire the assets, including existing service contracts, of Norsk Bronnservice A/S, a subsidiary of Odfjell Drilling & Consulting A/S, for $5.4 million. These operations provide cementing, gravel packing and completion fluids services to the Norwegian oil and gas industry. On July 30, 1993 the Company acquired the coiled tubing operations of Italog, S.p.A. for $2.0 million. Italog is based in Milan, Italy and provides coiled tubing and nitrogen pumping services in Italy and Nigeria, under the name of SIAT. The acquisition included the assets and existing contracts of SIAT. The 1993 and 1994 acquisitions have been accounted for as purchases and accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The excess of the consideration paid over the estimated fair value of net assets acquired has been recorded as goodwill and is being amortized over periods ranging from 5 to 40 years. F-9 61 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT AND BANK CREDIT FACILITIES Long-term debt at September 30, 1995 and 1994 consisted of the following:
1995 1994 -------- -------- (IN THOUSANDS) Notes payable, banks........................................... $275,000 $ 81,900 9.2% notes due August 1998..................................... 18,000 24,000 Other.......................................................... 2,166 -------- -------- 295,166 105,900 Less current maturities of long-term debt...................... 35,600 31,200 -------- -------- Long-term debt................................................. $259,566 $ 74,700 ======== ========
On April 15, 1995, the Company canceled its existing credit facility and the outstanding borrowings were repaid with funds from a committed, unsecured credit facility ("Bank Credit Facility") executed to accommodate the acquisition of Western. The Bank Credit Facility consists of a five-year $175.0 million revolver and a six-year $225.0 million term loan, providing an aggregate of $400.0 million in available principal borrowings to the Company. The Company is charged various fees in connection with this Bank Credit Facility, including a commitment fee based on the average daily unused portion of the commitment. Borrowings outstanding under the Bank Credit Facility at September 30, 1995 amounted to $275.0 million, which is comprised of $225.0 million under the term loan and $50.0 million under the revolver. Interest is charged on outstanding borrowings based on current market rates. The weighted average interest rate for such outstanding borrowings was 6.4% at September 30, 1995. The Bank Credit Facility incorporates a swingline facility allowing the Company to borrow up to $20.0 million for up to seven days in minimum advances of $1.0 million. In addition, standby letters of credit are available in an amount not to exceed $20.0 million. No such borrowings were outstanding at September 30, 1995. At September 30, 1995, long-term debt was due in aggregate annual installments of $35,600,000, $37,200,000, $49,200,000, $48,400,000 and $98,400,000 in the years ending September 30, 1996, 1997, 1998, 1999 and 2000, respectively, and an aggregate of $26,366,000 thereafter. Commitment fees under the Company's credit facilities were $207,206, $16,223 and $63,679 for 1995, 1994 and 1993, respectively. In addition to the committed facility, the Company had $50.0 million in various unsecured, discretionary lines of credit at September 30, 1995 which expire at various dates in 1996. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At September 30, 1995, there were $2.0 million in outstanding borrowings under these lines of credit (none at September 30, 1994). In August 1991, the Company placed $30.0 million of unsecured notes (the "Notes") with private investors. The Notes bear interest at a fixed rate of 9.2% with principal payments due in five equal annual installments the first of which was paid in August 1994. From October 1991 to May 1995, the Company entered into interest rate swap agreements which effectively converted the Notes from fixed rate debt with an interest rate of 9.2% to floating rate debt. The swap agreement was liquidated in May 1995 at a loss of $679,000. The agreements resulted in an average annual effective interest rate of 11.5% (excluding the loss) and 9.3% on the Notes for 1995 and 1994, respectively. F-10 62 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At September 30, 1995, the Company had outstanding letters of credit and performance related bonds totaling $16.6 million and $14.8 million, respectively. The letters of credit are issued to guarantee various trade and insurance activities. The Company's debt agreements contain various customary covenants including maintenance of certain profitability and solvency ratios and restrictions on dividend payments, as defined in the Bank Credit Facility. At September 30, 1995, the Company's debt to capitalization ratio exceeded 35%. As a result, the Company is prohibited, under its Bank Credit Facility from making any dividend payments until such time as the ratio drops below 35%. The Company is also required to make mandatory prepayments from free cash flow (as defined in the Bank Credit Facility) subject to certain ratios as calculated at the end of each fiscal year. At September 30, 1995, an estimate of $4 million of such prepayments has been classified as current maturities of long-term debt. 6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Cash Equivalents, Trade Receivables and Trade Payables: The carrying amount approximates fair value because of the short maturity of those instruments. Long-term Debt: Based on the rates currently available to the Company for debt with similar terms and average maturities, the fair value of the Company's Notes is $19.1 million. Other long-term debt consists of borrowings under the Company's Bank Credit Facility. The carrying amount of such borrowings approximates fair value as the individual borrowings bear interest at current market rates. 7. INCOME TAXES The geographical sources of income (loss) before income taxes, minority interest and cumulative effect of accounting change for the three years ended September 30, 1995, were as follows:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) United States....................................... $(31,879) $(12,793) $(8,540) Foreign............................................. 40,637 25,701 25,378 -------- -------- ------- Income before income taxes, minority interest and cumulative effect of accounting change............ $ 8,758 $ 12,908 $16,838 ======== ======== =======
The provision (benefit) for income taxes for the three years ended September 30, 1995 is summarized as follows:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) Current: United States Foreign........................................... $ 7,759 $ 6,965 $ 6,470 -------- -------- ------- Total current............................. 7,759 6,965 6,470 Deferred: United States..................................... (8,336) (2,831) (4,414) Foreign........................................... (525) (2,128) (463) -------- -------- ------- Total deferred............................ (8,861) (4,959) (4,877) -------- -------- ------- Income tax expense (benefit)........................ $ (1,102) $ 2,006 $ 1,593 ======== ======== =======
F-11 63 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The consolidated effective income tax rates (as a percent of income before income taxes, minority interest and cumulative effect of accounting change) for the three years ended September 30, 1995 varied from the United States statutory income tax rate for the reasons set forth below:
1995 1994 1993 ----- ----- ----- (IN THOUSANDS) Statutory rate............................................ 35.0% 35.0% 35.0% Foreign earnings at varying tax rates..................... (79.8) (17.4) (11.9) Amortization of excess tax basis over book basis resulting from separation from former parent...................... (20.4) (13.8) (10.6) Changes in valuation reserve.............................. (14.5) (3.7) Foreign income recognized domestically.................... 37.2 25.6 4.3 Goodwill amortization..................................... 10.3 1.3 .9 Nondeductible expenses.................................... 6.1 1.0 .7 Other -- net.............................................. (1.0) (1.6) (5.2) ===== ===== ===== Effective income tax rate (benefit)....................... (12.6)% 15.6% 9.5% ===== ===== =====
The income tax provisions for 1994 and 1993 included $1,867,000 and $620,000 of deferred foreign tax benefits related to the recognition of foreign net loss carryforwards which were reserved for in the valuation account at September 30, 1993 and September 30, 1992, respectively. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. Generally, deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The estimated deferred tax effect of temporary differences and carryforwards at September 30, 1995 and 1994 were as follows:
1995 1994 -------- -------- (IN THOUSANDS) Deferred assets: Expenses accrued for financial reporting, not yet deducted for tax................................................... $ 45,469 $ 7,956 Net operating loss carryforwards............................. 181,400 44,621 Valuation allowance.......................................... (54,420) (11,164) -------- -------- Total deferred tax asset....................................... 172,449 41,413 Deferred liabilities: Differences in depreciable basis of property................. (60,520) (16,838) Income accrued for financial reporting, not yet reported for tax....................................................... (6,166) (6,684) -------- -------- Total deferred tax liability................................... (66,686) (23,522) -------- -------- Deferred tax asset -- net...................................... $105,763 $ 17,891 ======== ========
The net change in the deferred tax asset valuation allowance reflects purchase accounting adjustments made to properly state the anticipated future benefit of the combined net operating loss carryforwards of BJ Services and Western. The entire deferred tax asset valuation allowance, if realized, will be recorded as a reduction to goodwill. At September 30, 1995, the Company had approximately $512 million of U.S. tax net operating loss carryforwards expiring in varying amounts between 2000 and 2010. As a result of Western having experienced changes in control as defined in Internal Revenue Code Section 382 in prior years, and in the current year due F-12 64 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to the merger with BJ Services, the usage of approximately $375 million of the tax net operating loss carryforwards is subject to an annual limitation. The potential impact that the annual limitation may have on the usage of tax net operating loss carryforwards has been reflected in the deferred tax asset valuation allowance. The Company also has foreign tax net operating loss carryovers of $6.7 million as of September 30, 1995. The foreign tax net operating loss carryforwards are not subject to an annual limitation and will carryforward indefinitely. The Company does not provide federal income taxes on the undistributed earnings of its foreign subsidiaries that the Company considers to be permanently reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $147 million at September 30, 1995. If these earnings were to be remitted to the Company, any U.S. income taxes payable would be substantially reduced by foreign tax credits generated by the repatriation of the earnings. 8. GEOGRAPHIC INFORMATION The Company operates exclusively in one business segment -- the oilfield services industry. Summarized information concerning geographic areas in which the Company operated at September 30, 1995, 1994 and 1993 and for each of the years then ended is shown as follows:
WESTERN HEMISPHERE -------------------------- EASTERN HEMISPHERE UNITED LATIN AMERICA -------------------- STATES AND CANADA EUROPE OTHER TOTAL -------- ------------- -------- ------- -------- (IN THOUSANDS) 1995: Revenue................ $345,922 $ 111,447 $104,840 $71,451 $633,660 Operating income (loss).............. (13,683) 22,095 4,942 6,935 20,289 Identifiable assets.... 627,545 88,655 201,838 71,645 989,683 1994: Revenue................ $208,279 $ 75,745 $ 95,181 $55,271 $434,476 Operating income (loss).............. (2,634) 9,590 4,560 7,169 18,685 Identifiable assets.... 127,561 72,558 156,594 53,353 410,066 1993: Revenue................ $196,674 $ 60,560 $ 83,553 $53,576 $394,363 Operating income....... 1,694 2,477 6,217 9,350 19,738 Identifiable assets.... 117,543 54,950 150,612 46,426 369,531
Export sales totaled $2,807,000, $1,392,000 and $1,861,000 for the years ended September 30, 1995, 1994 and 1993, respectively. Corporate general and administrative expense, research and engineering expense and certain other expenses related to worldwide manufacturing and other support functions benefit both domestic and international operations. An allocation of these expenses has been made to foreign areas based on total revenues. The expenses allocated totaled $8,357,000, $6,847,000 and $8,390,000 for the years ended September 30, 1995, 1994 and 1993, respectively. 9. EMPLOYEE BENEFIT PLANS The Company has a thrift plan whereby eligible employees elect to contribute from 2% to 12% of their base salaries to an employee benefit trust. Employee contributions are matched by the Company at the rate of $.50 per $1.00 up to 6% of the employee's base salary. In addition, the Company contributes between 2% and 5% of each employee's base salary depending on his age as of January 1 each year as a base contribution. F-13 65 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company matching contributions vest immediately while base contributions become fully vested after five years of employment. The Company's U.S. employees formerly employed by Western are covered under a thrift plan which is being merged into the Company's thrift plan effective December 31, 1995. During the period since the acquisition, the Company intends to match employee contributions at the same rate as the Company's existing thrift plan. The Company's contributions to these thrift plans amounted to $2,862,000, $2,551,000 and $2,324,000 in 1995, 1994 and 1993, respectively. The Company's U.S. employees formerly employed by Western with at least one year of service are also covered under a defined benefit pension plan as a carryover from the Western acquisition. Pension benefits are based on years of service and average compensation for each employee's five consecutive highest paid years during the last ten years worked. Pension benefits are fully vested after five years of service. Management intends to freeze benefits under this plan effective December 31, 1995 and merge all employees under the thrift plan. Management has not yet made a decision on when to terminate the plan and therefore will fund the amounts necessary to meet minimum funding requirements under the Employees' Retirement Income Security Act, as amended. Because management intends to freeze the plan effective December 31, 1995, the accrued pension liability as of the acquisition date and the net pension expense since the acquisition date have been reflected under that assumption. The funded status of this plan as of September 30, 1995 was as follows (in thousands): Vested benefit obligation........................................ $39,669 ======= Accumulated benefit obligation................................... $40,701 Plan assets at fair value........................................ 34,394 ------- Benefit obligation in excess of plan assets...................... 6,307 Unrecognized gain................................................ 71 ------- Net pension liability.................................. $ 6,378 =======
Assumptions used in accounting for the Company's U.S. defined benefit plan are as follows: Weighted average discount rate...................................... 7.3% Weighted average rate of increase in future compensation............ 5.0% Weighted average expected long-term rate of return on assets........ 9.0%
Costs for the period from April 1, 1995 to September 30, 1995 for the Company's U.S. defined benefit plan were as follows (in thousands): Service cost for benefits earned................................. $ 586 Interest cost on projected benefit obligation.................... 1,382 Actual return on plan assets..................................... (3,267) Net amortization and deferral.................................... 1,916 ------- Net pension cost....................................... $ 617 =======
F-14 66 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition, the Company sponsors defined benefit plans for foreign operations which cover substantially all employees in the United Kingdom and Venezuela. Due to differences in foreign pension laws and economics, the defined benefit plans are at least partially unfunded. The funded status of these plans at September 30, 1995 and 1994 was as follows (in thousands):
1995 1994 ------- ------- Actuarial present value of: Vested benefit obligation...................................... $ 5,357 $ 4,789 ======= ======= Accumulated benefit obligation................................. $ 6,474 $ 5,292 ======= ======= Projected benefit obligation..................................... 9,846 7,155 Plan assets at fair value........................................ (6,718) (5,531) ------- ------- Projected benefit obligation in excess of plan assets............ 3,128 1,624 Unrecognized gain (loss)......................................... (1,093) 248 Unrecognized transition asset, net of amortization............... 155 166 Unrecognized prior service cost.................................. (253) (281) ------- ------- Net pension liability............................................ $ 1,937 $ 1,757 ======= =======
Assumptions used in accounting for the Company's international defined benefit pension plans are as follows: Weighted average discount rate....................................... 6-9% Weighted average rate of increase in future compensation............. 5-7% Weighted average expected long-term rate of return on assets......... 9%
Combined costs for the Company's international defined benefit plans for the two years ended September 30, 1995 were as follows (in thousands):
1995 1994 ------ ----- Net periodic foreign pension cost: Service cost for benefits earned................................. $1,090 $ 830 Interest cost on projected benefit obligation.................... 660 497 Actual return on plan assets..................................... (617) (45) Net amortization and deferral.................................... 158 (391) ------ ----- Net pension cost................................................... $1,291 $ 891 ====== =====
The Company also sponsors a plan whereby certain health care and life insurance benefits are provided for retired employees (primarily U.S.) and their eligible dependents if the employee meets specified age and service requirements. These plans are unfunded and the Company retains the right, subject to existing agreements, to modify or eliminate these plans. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"). In accordance with the requirements of SFAS 106, the Company changed its accounting for postretirement benefits from a cash basis to an accrual basis over an employee's period of service. On October 1, 1993, the Company elected to immediately recognize the cumulative effect of the change in accounting principle of $16.0 million ($10.4 million after tax, or $.67 per share). Effective January 1, 1994 the Company amended its postretirement medical benefit plan to provide credits based on years of service which could be used to purchase coverage under the active employee plans. F-15 67 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) This change effectively caps the Company's health care inflation rate at a 4% increase per year. The reduction of approximately $5.7 million in the accumulated postretirement benefit obligation due to this amendment is being amortized over the average period of future service to the date of full eligibility for such postretirement benefits of the active employees. Postretirement medical benefit costs were $946,000, $639,000 and $590,000 in 1995, 1994 and 1993, respectively. Net periodic postretirement benefit costs for the two years ended September 30, 1995 included the following components (in thousands):
1995 1994 ------ ----- Service cost -- benefits attributed to service during the period... $ 807 $ 512 Interest cost on accumulated postretirement benefit obligation..... 1,033 798 Amortization of prior service costs................................ (894) (671) ----- ----- Net periodic postretirement benefit cost........................... $ 946 $ 639 ===== ====
The actuarial and recorded liabilities for these postretirement benefits were as follows at September 30, 1995 and 1994 (in thousands):
1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees....................................................... $ 7,680 $ 5,312 Fully eligible active plan participants........................ 3,525 1,569 Other active plan participants................................. 8,988 3,881 ------- ------- 20,193 10,762 Unrecognized cumulative net gain................................. 776 Unrecognized prior service cost.................................. 4,177 5,072 ------- ------- Accrued postretirement benefit liability......................... $25,146 $15,834 ======= =======
The accumulated postretirement benefit obligation was determined using a discount rate of 7% and a health care cost trend rate of 13%, decreasing ratably to 5.2% in the year 2020 and thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would not have a material impact on the accumulated postretirement benefit obligation or the net periodic postretirement benefit cost because these benefits are effectively "capped" by the Company's 1994 plan amendment. 10. COMMITMENTS AND CONTINGENCIES The Company through performance of its service operations is sometimes named as a defendant in litigation, usually relating to claims for bodily injuries or property damage (including claims for well or reservoir damage). The Company maintains insurance coverage against such claims to the extent deemed prudent by management. The Company believes that there are no existing claims of a potentially material adverse nature for which it has not already provided appropriate accruals. Federal, state and local laws and regulations govern the Company's operation of underground fuel storage tanks. Rather than incur additional costs to restore and upgrade tanks as required by regulations, management has opted to remove the existing tanks. The Company is in the process of removing these tanks and has identified certain tanks with leaks which will require remedial cleanups. In addition, the Company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party at 10 waste disposal sites. The Company has established an accrual of $13,986,000 for such environmental matters which management believes to be its best estimate of the Company's portion of future costs to be incurred. The F-16 68 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company also maintains insurance for environmental liabilities which the Company believes is reasonable based on its knowledge of its industry. Lease Commitments: At September 30, 1995, the Company had long-term operating leases covering certain facilities and equipment with varying expiration dates. Minimum annual rental commitments for the years ended September 30, 1996, 1997, 1998, 1999 and 2000 are $16,198,000, $12,132,000, $10,023,000, $6,866,000 and $5,674,000, respectively, and $35,732,000 in the aggregate thereafter. 11. SUPPLEMENTAL FINANCIAL INFORMATION Supplemental financial information for the three years ended September 30, 1995 is as follows:
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) Consolidated Statement of Operations: Research and development expense................... $ 6,801 $ 6,421 $ 6,500 Rent expense....................................... 16,759 15,580 11,020 Net foreign exchange gain (loss)................... 1,537 (762) 228 Consolidated Statement of Cash Flows: Income taxes paid.................................. $ 5,980 $ 6,233 $ 7,168 Interest paid...................................... 12,798 10,330 5,112 Details of acquisitions: Fair value of assets acquired................... 447,622 1,808 4,483 Liabilities assumed............................. 111,731 501 Goodwill........................................ 175,540 693 2,917 Cash paid for acquisitions, net of cash acquired...................................... 203,313 2,000 7,400
In connection with the Acquisition, the Company issued $263,551,000 of common stock and warrants to Western stockholders. Other income -- net for the three years ended September 30, 1995 is summarized as follows:
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) Gain (loss) on sales of assets -- net................ $ 830 $ 346 $ (62) Gain on Argentine bonds.............................. 400 800 Royalty income....................................... 1,385 Dividend income...................................... 430 Other -- net......................................... 89 131 1,276 -------- ------- ------- Other income -- net.................................. $ 2,734 $ 877 $ 2,014 ======== ======= =======
12. EMPLOYEE STOCK PLANS Stock Option Plans: The Company's 1990 Stock Incentive Plan and 1995 Incentive Plan (the "Plans") provide for the granting of options for the purchase of the Company's common stock ("Common Stock") and other performance based awards to officers, key employees and nonemployee directors of the Company. Such options vest over a three year period and are exercisable for periods ranging from one to ten years. An aggregate of 3,000,000 shares of Common Stock have been reserved for grants, of which 1,324,386 were available at September 30, 1995. F-17 69 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock option activity under the Company's Plans is summarized below:
NUMBER OF SHARES 1995 1994 1993 ----------------------------------------------------------------- ----- --- --- (IN THOUSANDS) Stock options outstanding, beginning of year..................... 767 621 451 Changes during the year: Granted (per share): 1995, $16.89 to $21.62...................................... 697 1994, $19.63 to $22.75...................................... 188 1993, $16.28................................................ 195 Exercised/surrendered (per share): 1995, $16.28 to $21.62...................................... (29) 1994, $13.63 to $23.25...................................... (42) 1993, $19.38 to $23.25...................................... (25) ----- --- --- Stock options outstanding, end of year (per share: $12.00 to $23.25)........................................................ 1,435 767 621 ===== === === Stock options exercisable, end of year (per share: $12.00 to $23.25)........................................................ 630 417 250 ===== === ===
Pursuant to the terms of the 1990 Stock Incentive Plan, during 1993 and 1994 the Company also issued a total of 220,316 Performance Units ("Units") to officers of the Company. Each Unit represented the right to receive from the Company at the end of a stipulated period an unrestricted share of Common Stock, contingent upon achievement of certain financial performance goals over the stipulated period. Should the Company have failed to achieve the specific financial goals as set by the Executive Compensation Committee of the Board of Directors, the Units would have been canceled and the related shares reverted to the Company for reissuance under the plan. The aggregate fair market value of the underlying shares granted under this plan was considered unearned compensation at the time of grant and was adjusted annually based on the current market price for the Company's Common Stock. Compensation expense was determined based on management's current estimate of the likelihood of meeting the specific financial goals and charged ratably over the stipulated period. In connection with the acquisition of Western, which triggered certain change of control provisions in the Company's 1990 Stock Incentive Plan, a total of 168,547 Units were converted into Common Stock and issued to officers, with the remaining 51,769 Units canceled. The difference between the amount accrued as of the acquisition date and the value of the shares issued has been reflected as an unusual charge in the accompanying financial statements (see Note 3). As of September 30, 1995 there were no Units outstanding. Stock Purchase Plan: The Company's 1990 Employee Stock Purchase Plan (the "Purchase Plan") is a plan under which all employees may purchase shares of the Company's Common Stock at 85% of market value on the first or last business day of the twelve-month plan period beginning each October, whichever is lower. Such purchases are limited to 10% of the employee's regular pay. A maximum aggregate of 750,000 shares has been reserved under the Purchase Plan, 576,826 of which were available for future purchase at September 30, 1995. In October 1995, 55,440 shares were purchased at $16.68 per share. 13. STOCKHOLDERS' EQUITY Stockholder Rights Plan: The Company has a Stockholder Rights Plan designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. Under this plan, each outstanding share of the Company's Common Stock includes one F-18 70 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) preferred share purchase right ("Right") which becomes exercisable under certain circumstances, including when beneficial ownership of the Company's Common Stock by any person, or group, equals or exceeds 20% of the Company's outstanding Common Stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series Two Junior Participating Preferred Stock, at a price of $75, subject to adjustment under certain circumstances. Upon the occurrence of certain events specified in the Stockholder Rights Plan, each holder of a Right (other than an Acquiring Person) will have the right, upon exercise of such Right, to receive that number of shares of common stock of the Company (or the surviving corporation) that, at the time of such transaction, would have a market price of two times the purchase price of the Right. No shares of Series Two Junior Participating Preferred Stock have been issued by the Company at September 30, 1995. In January 1994, the former Stockholder Rights Plan was triggered and the Company redeemed all of the preferred share purchase rights issued under its Stockholder Rights agreement to acquire Series One Junior Participating Preferred Stock. The Rights were redeemed at a price of $.01 per Right, a total cost to the Company of $155,000. Stock Purchase Warrants: In connection with the acquisition of Western (see Note 4), the Company issued 4,800,037 stock purchase warrants ("Warrants"). The Warrants were issued on April 14, 1995 at an initial value of $5.00 per Warrant. Each Warrant represents the right to purchase one share of the Company's common stock at an exercise price of $30, until the expiration date of April 13, 2000. As of September 30, 1995, no Warrants had been exercised. F-19 71 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL FIRST SECOND THIRD FOURTH YEAR QUARTER QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fiscal Year 1995: Revenue............................ $119,415 $106,668 $199,542 $208,035 $633,660 Gross profit(a).................... 17,753 13,788 28,782 35,179 95,502 Net income (loss).................. 4,744 1,378 (5,848)(b) 9,615(c)(d) 9,889 Net income (loss) per share........ .30 .09 (.22)(b) .34(c)(d) .46 Fiscal Year 1994: Revenue............................ $104,757 $ 98,451 $106,318 $124,950 $434,476 Gross profit(a).................... 15,071 10,325 13,327 18,138 56,861 Income before cumulative effect of accounting change................ 3,572 445 2,067 4,686(e) 10,770 Cumulative effect of change in accounting principle, net of tax benefit of $5,600,000............ (10,400) (10,400) Net income (loss).................. (6,828) 445 2,067 4,686(e) 370 Net income (loss) per share: Before cumulative effect of accounting change............. .23 .03 .13 .30(e) .69 Cumulative effect of change in accounting principle, net of tax........................... (.67) (.67) Net income (loss) per share........ (.44) .03 .13 .30(e) .02
- --------------- (a) Represents revenue less cost of sales and services and research and engineering expenses. (b) Includes $16.0 million ($10.4 million after tax or $.40 per share) unusual charge resulting from the acquisition of Western. See Note 3. (c) Includes $1.2 million ($.8 million after tax or $.03 per share) unusual charge resulting from the acquisition of Western. See Note 3. (d) Includes $1.5 million ($.05 per share) of nonrecurring tax benefits. (e) Includes $1.3 million ($.08 per share) of nonrecurring tax benefits. 15. SUPPLEMENTAL GUARANTOR INFORMATION On February 20, 1996, BJ Services Company ("Parent") issued $125 million of 7% notes due 2006 ("Notes") as to which its direct subsidiaries BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East (collectively "Guarantor Subsidiaries" and individually "Guarantor") have guaranteed, on a joint and several basis, its obligation to pay principal and interest with respect to the Notes. Each of the guarantees is an unsecured obligation of the Guarantor and ranks pari passu with the guarantees provided by and the obligations of such Guarantor Subsidiaries under the Bank Credit Facility and the obligations of such Guarantor Subsidiaries under the 9.2% Notes and with all existing and future unsecured indebtedness of such Guarantor for borrowed money that is not, by its terms, expressly subordinated in right of payment to such guarantee. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's F-20 72 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantors, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. The following supplemental consolidating condensed financial statements present: 1. Consolidating condensed statements of financial position as of September 30, 1995 and 1994 and consolidating condensed statements of operations and cash flows for each of the three years in the period ended September 30, 1995. 2. The Parent and combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. The Company does not believe that separate financial statements of the Guarantors of the Notes are material to investors in the Notes. F-21 73 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue.............................. $ $392,207 $267,755 $(26,302) $633,660 Operating Expenses: Cost of sales and services......... 345,937 206,224 (26,302) 525,859 Research and engineering........... 11,505 794 12,299 Marketing.......................... 19,146 7,283 26,429 General and administrative......... 16,055 12,263 28,318 Goodwill amortization.............. 2,573 693 3,266 Unusual charge..................... 17,200 17,200 ------ -------- -------- -------- -------- Total operating expenses... 412,416 227,257 (26,302) 613,371 ------ -------- -------- -------- -------- Operating income (loss).............. (20,209) 40,498 20,289 Interest income...................... 1,384 672 (1,157) 899 Interest expense..................... (12,090) (4,231) 1,157 (15,164) Income from equity investees......... 9,889 29,373 (39,262) Other income -- net.................. 2,683 80 2,763 ------ -------- -------- -------- -------- Income (loss) before income taxes.... 9,889 1,141 37,019 (39,262) 8,787 Income tax expense (benefit)......... (8,748) 7,646 (1,102) ------ -------- -------- -------- -------- Net income........................... $9,889 $ 9,889 $ 29,373 $(39,262) $ 9,889 ====== ======== ======== ======== ========
F-22 74 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue............................... $ $249,716 $209,909 $(25,149) $434,476 Operating Expenses: Cost of sales and services.......... 228,071 166,072 (25,149) 368,994 Research and engineering............ 7,671 950 8,621 Marketing........................... 8,608 5,561 14,169 General and administrative.......... 12,025 10,684 22,709 Goodwill amortization............... 1,274 24 1,298 ---- -------- -------- -------- -------- Total operating expenses.... 257,649 183,291 (25,149) 415,791 ---- -------- -------- -------- -------- Operating income (loss)............... (7,933) 26,618 18,685 Interest income....................... 2,869 (2,140) 729 Interest expense...................... (6,685) (2,838) 2,140 (7,383) Income from equity investees.......... 370 17,504 (17,874) Other income (expense) -- net......... 1,830 (1,085) 745 ---- -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting change.............................. 370 7,585 22,695 (17,874) 12,776 Income tax expense (benefit).......... (3,185) 5,191 2,006 ---- -------- -------- -------- -------- Income before cumulative effect of accounting change................... 370 10,770 17,504 (17,874) 10,770 Cumulative effect of change in accounting principle, net of tax.... (10,400) (10,400) ---- -------- -------- -------- -------- Net income............................ $370 $ 370 $ 17,504 $(17,874) $ 370 ==== ======== ======== ======== ========
F-23 75 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1993
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ Revenue............................. $ $228,682 $184,431 $(18,750) $394,363 Operating Expenses: Cost of sales and services........ 205,971 141,821 (18,750) 329,042 Research and engineering.......... 8,035 1,063 9,098 Marketing......................... 8,854 4,115 12,969 General and administrative........ 11,879 10,946 22,825 Goodwill amortization............. 691 691 ------ -------- -------- -------- -------- Total operating expenses................ 235,430 157,945 (18,750) 374,625 ------ -------- -------- -------- -------- Operating income (loss)............. (6,748) 26,486 19,738 Interest income..................... 3,081 (1,099) (1,482) 500 Interest expense.................... (6,268) (628) 1,482 (5,414) Income from equity investees........ 14,561 17,566 (32,127) Other income (expense) -- net....... 1,359 (29) 1,330 ------ -------- -------- -------- -------- Income before income taxes.......... 14,561 8,990 24,730 (32,127) 16,154 Income tax expense (benefit)........ (5,571) 7,164 1,593 ------ -------- -------- -------- -------- Net income.......................... $14,561 $ 14,561 $ 17,566 $(32,127) $ 14,561 ====== ======== ======== ======== ========
F-24 76 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1995 ASSETS
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents........ $ $ 1,842 $ $ $ 1,842 Receivables -- net............... 87,118 81,653 168,771 Inventories -- net............... 38,463 28,388 66,851 Deferred income taxes............ 9,370 9,370 Other current assets............. 3,163 6,938 10,101 -------- -------- -------- --------- -------- Total current assets..... 139,956 116,979 256,935 Investment in subsidiaries....... 171,612 107,653 (279,265) Intercompany advances -- net..... 296,156 (296,156) Property -- net.................. 261,713 155,097 416,810 Deferred income taxes............ 92,447 15,442 107,889 Goodwill and other assets........ 205,403 2,646 208,049 -------- -------- -------- --------- -------- Total assets............. $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 60,677 $ 24,998 $ $ 85,675 Short-term borrowings and current portion of long-term debt..... 37,600 37,600 Accrued employee compensation and benefits...................... 16,277 8,608 24,885 Income and other taxes........... 7 4,097 7,271 11,375 Other accrued liabilities........ 966 29,959 16,648 (2,837) 44,736 -------- -------- -------- --------- -------- Total current liabilities............ 973 148,610 57,525 (2,837) 204,271 Long-term debt..................... 222,566 37,000 259,566 Deferred income taxes.............. 2,248 9,248 11,496 Accrued post retirement benefits and other........................ 46,902 653 47,555 Intercompany advances -- net....... 215,234 78,085 (293,319) Stockholders' equity............... 466,795 171,612 107,653 (279,265) 466,795 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity... $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ========
F-25 77 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1994 ASSETS
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents........ $ $ 3,218 $ $ $ 3,218 Receivables -- net............... 45,086 58,668 103,754 Inventories -- net............... 18,452 20,227 38,679 Deferred income taxes............ 4,478 4,478 Other current assets............. 2,751 5,479 8,230 -------- -------- -------- --------- -------- Total current assets..... 73,985 84,374 158,359 Investment in subsidiaries......... 159,260 84,008 (243,268) Intercompany advances -- net....... 30,674 (30,674) Property -- net.................... 91,270 107,574 198,844 Deferred income taxes.............. 16,365 4,242 20,607 Goodwill and other assets.......... 28,816 3,440 32,256 -------- -------- -------- --------- -------- Total assets............. $189,934 $294,444 $199,630 $ (273,942) $410,066 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 33,812 $ 20,797 $ $ 54,609 Short-term borrowings and current portion of long-term debt..... 31,200 2,250 33,450 Accrued employee compensation and benefits...................... 4,023 6,498 10,521 Income and other taxes........... 7 2,133 8,330 10,470 Other accrued liabilities........ 6,484 6,041 (726) 11,799 -------- -------- -------- --------- -------- Total current liabilities............ 7 77,652 43,916 (726) 120,849 Long-term debt..................... 37,639 37,061 74,700 Deferred income taxes.............. 2,248 4,946 7,194 Accrued post retirement benefits and other........................ 15,895 1,501 17,396 Intercompany advance -- net........ 1,750 28,198 (29,948) Stockholders' equity............... 189,927 159,260 84,008 (243,268) 189,927 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity... $189,934 $294,444 $199,630 $ (273,942) $410,066 ======== ======== ======== ========= ========
F-26 78 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $ 9,889 $ 9,889 $ 29,373 ($39,262) $ 9,889 Adjustments to reconcile net income to cash provided by operating activities: Unusual charge (noncash)......... 3,646 3,646 Depreciation and amortization.... 22,688 19,376 42,064 Net gain on disposal of assets... (27) (803) (830) Recognition of unearned compensation.................. 2,463 2,463 Deferred income taxes (benefit)..................... (8,336) (525) (8,861) Income of equity investees....... (9,889) (29,373) 39,262 Changes in: Receivables...................... 21,894 (22,985) (1,091) Accounts payable................. 3,506 4,201 7,707 Inventories...................... 83 (8,161) (8,078) Other current assets and liabilities................... 966 (10,224) 10,199 (2,111) (1,170) Other, net....................... (2,241) 2,167 (8,392) 2,111 (6,355) ------- -------- -------- -------- --------- Net cash provided by (used for) operating activities............. (1,275) 18,376 22,283 39,384 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions............... (8,263) (22,703) (30,966) Proceeds from disposal of assets........................ 2,662 2,731 5,393 Acquisition of business, net of cash acquired................. (203,313) (203,313) ------- -------- -------- -------- --------- Net cash used for investing activities... (208,914) (19,972) (228,886) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock......................... 1,275 1,275 Proceeds from (reduction of) borrowings -- net............. 189,162 (2,311) 186,851 ------- -------- -------- -------- --------- Net cash provided by (used for) financing activities............. 1,275 189,162 (2,311) 188,126 Decrease in cash and cash equivalents...................... (1,376) (1,376) Cash and cash equivalents at beginning of period.............. 3,218 3,218 ------- -------- -------- -------- --------- Cash and cash equivalents at end of period........................... $ $ 1,842 $ $ $ 1,842 ======= ======== ======== ======== =========
F-27 79 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................ $ 370 $ 370 $ 17,504 $(17,874) $ 370 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect of accounting change............................... 10,400 10,400 Depreciation and amortization........... 9,988 15,347 25,335 Net gain on disposal of assets.......... (148) (198) (346) Recognition of unearned compensation.... 524 524 Deferred income taxes (benefit)......... (2,831) (2,128) (4,959) Income of equity investees.............. (370) (17,504) 17,874 Changes in: Receivables............................. (2,666) (6,569) (9,235) Accounts payable........................ 5,165 3,252 8,417 Inventories............................. 57 (678) (621) Other current assets and liabilities.... (2,786) 1,298 (472) (1,960) Other, net.............................. (980) 2,975 (4,137) 472 (1,670) ----- -------- -------- -------- -------- Net cash provided by (used for) operating activities.......... (980) 3,544 23,691 26,255 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions...................... (13,343) (26,002) (39,345) Proceeds from disposal of assets........ 1,059 1,529 2,588 Acquisition of business, net of cash acquired............................. (2,000) (2,000) ----- -------- -------- -------- -------- Net cash used for investing activities.................... (12,284) (26,473) (38,757) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock......... 980 980 Proceeds from borrowings -- net......... 10,338 2,782 13,120 ----- -------- -------- -------- -------- Net cash provided by financing activities.................... 980 10,338 2,782 14,100 Increase in cash and cash equivalents..... 1,598 1,598 Cash and cash equivalents at beginning of period.................................. 1,620 1,620 ----- -------- -------- -------- -------- Cash and cash equivalents at end of period.................................. $ $ 3,218 $ $ $ 3,218 ===== ======== ======== ======== ========
F-28 80 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1993
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $ 14,561 $ 14,561 $ 17,566 ($32,127) $ 14,561 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.... 9,352 14,818 24,170 Net loss on disposal of assets... 62 62 Recognition of unearned compensation.................. 500 500 Deferred income taxes (benefit)..................... (4,414) (463) (4,877) Income of equity investees....... (14,561) (17,566) 32,127 Changes in: Receivables...................... (5,812) (11,738) (17,550) Accounts payable................. 2,240 4,447 6,687 Inventories...................... 2,476 (3,048) (572) Other current assets and liabilities................... (180) (4,949) (11,088) (264) (16,481) Other, net....................... (15,618) (5,468) 14,007 264 (6,815) -------- -------- -------- -------- -------- Net cash provided by (used for) operating activities............. (15,798) (9,018) 24,501 (315) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions............... (6,809) (30,541) (37,350) Proceeds from disposal of assets........................ 2,043 1,939 3,982 Acquisition of business, net of cash acquired................. (7,400) (7,400) -------- -------- -------- -------- -------- Net cash used for investing activities... (4,766) (36,002) (40,768) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock......................... 41,917 41,917 Proceeds from (reduction of) borrowings -- net............. (26,119) 13,929 11,501 (689) -------- -------- -------- -------- -------- Net cash provided by financing activities... 15,798 13,929 11,501 41,228 Increase in cash and cash equivalents...................... 145 145 Cash and cash equivalents at beginning of period.............. 1,475 1,475 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period........................... $ $ 1,620 $ $ $ 1,620 ======== ======== ======== ======== ========
F-29 81 [THIS PAGE INTENTIONALLY LEFT BLANK] F-30 82 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED DECEMBER 31, --------------------- 1995 1994 -------- -------- Revenue................................................................ $206,501 $119,415 Operating expenses: Cost of sales and services........................................... 167,086 99,599 Research and engineering............................................. 3,744 2,063 Marketing............................................................ 8,283 3,944 General and administrative........................................... 8,489 6,104 Goodwill amortization................................................ 1,342 289 -------- -------- Total operating expenses..................................... 188,944 111,999 -------- -------- Operating income....................................................... 17,557 7,416 Interest expense....................................................... (5,538) (2,307) Interest income........................................................ 79 137 Other income -- net.................................................... 600 836 -------- -------- Income before income taxes............................................. 12,698 6,082 Income taxes........................................................... 3,553 1,338 -------- -------- Net income............................................................. $ 9,145 $ 4,744 ======== ======== Net income per share................................................... $ .33 $ .30 ======== ======== Average shares outstanding............................................. 28,015 15,716 ======== ========
See Notes to Unaudited Consolidated Condensed Financial Statements F-31 83 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, 1995 1995 ---------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................ $ 3,799 $ 1,842 Receivables -- net............................................... 173,633 168,771 Inventories: Finished goods................................................ 56,949 50,665 Work in process............................................... 2,543 2,394 Raw materials................................................. 13,348 13,792 ---------- -------- Total inventories........................................ 72,840 66,851 Deferred income taxes............................................ 11,135 9,370 Other current assets............................................. 11,591 10,101 ---------- -------- Total current assets..................................... 272,998 256,935 Property -- net.................................................... 414,792 416,810 Deferred income taxes.............................................. 106,800 107,889 Goodwill and other assets.......................................... 207,508 208,049 ---------- -------- $1,002,098 $ 989,683 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................. $ 90,534 $ 85,675 Short-term borrowings and current portion of long-term debt...... 47,681 37,600 Accrued employee compensation and benefits....................... 21,169 24,885 Income and other taxes........................................... 13,481 11,375 Accrued insurance................................................ 10,755 12,867 Other accrued liabilities........................................ 29,674 31,869 ---------- -------- Total current liabilities................................ 213,294 204,271 Long-term debt..................................................... 252,181 259,566 Deferred income taxes.............................................. 11,877 11,496 Accrued post retirement benefits and other......................... 46,475 47,555 Stockholders' equity............................................... 478,271 466,795 ---------- -------- $1,002,098 $ 989,683 ========== ========
See Notes to Unaudited Consolidated Condensed Financial Statements F-32 84 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, -------------------- 1995 1994 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................................. $ 9,145 $ 4,744 Adjustments to reconcile net income to cash provided by operating activities: Amortization of unearned compensation................................. 330 330 Depreciation and amortization......................................... 14,371 6,675 Deferred income taxes (benefit)....................................... 571 (1,057) Net (gain) loss on disposal of property............................... 16 (687) Changes in: Receivables........................................................... (1,918) 844 Inventories........................................................... (3,958) (166) Accounts payable...................................................... 4,002 (8,881) Other current assets and liabilities.................................. (9,860) 5,744 Other, net............................................................ 398 1,923 -------- ------- Net cash provided by operating activities..................... 13,097 9,469 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions.................................................... (10,408) (6,093) Proceeds from disposal of assets...................................... 319 3,328 Acquisition of business, net of cash acquired......................... (3,700) -------- ------- Net cash used for investing activities........................ (13,789) (2,765) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (reduction of) borrowings............................... 987 (3,737) Proceeds from issuance of stock....................................... 1,662 749 -------- ------- Net cash provided by (used for) financing activities.......... 2,649 (2,988) Increase in cash and cash equivalents................................... 1,957 3,716 Cash and cash equivalents at beginning of period........................ 1,842 3,218 -------- ------- Cash and cash equivalents at end of period.............................. $ 3,799 $ 6,934 ======== =======
See Notes to Unaudited Consolidated Condensed Financial Statements F-33 85 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. GENERAL In the opinion of management, the unaudited consolidated condensed financial statements for BJ Services Company (the "Company") include all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial position as of December 31, 1995, and the results of operations and cash flows for each of the three month periods ended December 31, 1995 and 1994. The consolidated condensed statement of financial position at September 30, 1995 is derived from the September 30, 1995 audited consolidated financial statements. Although management believes the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and the cash flows for the three-month period ended December 31, 1995 are not necessarily indicative of the results to be expected for the full year. Certain amounts for fiscal 1995 have been reclassified in the accompanying consolidated condensed financial statements to conform to the current year presentation. 2. ACQUISITION OF BUSINESS Effective December 1, 1995, the Company acquired the remaining 60% ownership of its previously unconsolidated joint venture in Brazil, for total consideration of $5.4 million consisting of $3.7 million in cash and $1.7 million in debt assumed by the Company. This acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The consolidated statement of operations includes operating results of the subsidiary acquired since the date of acquisition. This acquisition is not material to the Company's financial statements and therefore pro forma information is not presented. 3. SUPPLEMENTAL GUARANTOR INFORMATION On February 20, 1996, BJ Services Company ("Parent") issued $125 million of 7% notes due 2006 ("Notes") as to which its direct subsidiaries BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East (collectively "Guarantor Subsidiaries" and individually "Guarantor") have guaranteed, on a joint and several basis, its obligation to pay principal and interest with respect to the Notes. Each of the guarantees is an unsecured obligation of the Guarantor and ranks pari passu with the guarantees provided by and the obligation of such Guarantor Subsidiaries under the Bank Credit Facility and the obligations of such Guarantor Subsidiaries under the 9.2% Notes and with all existing and future unsecured indebtedness of such Guarantor for borrowed money that is not, by its terms, expressly subordinated in right of payment to such guarantee. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantors, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. F-34 86 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) The following supplemental consolidating condensed financial statements present: 1. Consolidating condensed statements of financial position as of December 31, 1995 and September 30, 1995 and consolidating condensed statements of operations and cash flows for each of the three-month periods ended December 31, 1995 and 1994. 2. The Parent and combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. The Company does not believe that separate financial statements of the Guarantors of the Notes are material to investors in the Notes. F-35 87 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue.............................. $ $140,027 $ 75,027 $ (8,553) $206,501 Operating Expenses: Cost of sales and services......... 118,296 57,343 (8,553) 167,086 Research and engineering........... 3,558 186 3,744 Marketing.......................... 6,542 1,741 8,283 General and administrative......... 5,177 3,312 8,489 Goodwill amortization.............. 1,167 175 1,342 ------ -------- ------- -------- -------- Total operating expenses... 134,740 62,757 (8,553) 188,944 ------ -------- ------- -------- -------- Operating income..................... 5,287 12,270 17,557 Interest income...................... 363 78 (362) 79 Interest expense..................... (4,808) (1,092) 362 (5,538) Income from equity investees......... 9,145 7,769 (16,914) Other income (expense) -- net........ 623 (23) 600 ------ -------- ------- -------- -------- Income before income taxes........... 9,145 9,234 11,233 (16,914) 12,698 Income tax expense................... 89 3,464 3,553 ------ -------- ------- -------- -------- Net income........................... $9,145 $ 9,145 $ 7,769 $(16,914) $ 9,145 ====== ======== ======= ======== ========
F-36 88 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ Revenue............................. $ $ 68,101 $ 56,468 $ (5,154) $119,415 Operating Expenses: Cost of sales and services........ 60,376 44,377 (5,154) 99,599 Research and engineering.......... 1,754 309 2,063 Marketing......................... 2,316 1,628 3,944 General and administrative........ 3,224 2,880 6,104 Goodwill amortization............. 117 172 289 ------ ------- ------- ------- -------- Total operating expenses................ 67,787 49,366 (5,154) 111,999 ------ ------- ------- ------- -------- Operating income.................... 314 7,102 7,416 Interest income..................... 348 137 (348) 137 Interest expense.................... (757) (1,898) 348 (2,307) Income from equity investees........ 4,744 3,284 (8,028) Other income (expense) -- net....... 620 216 836 ------ ------- ------- ------- -------- Income before income taxes.......... 4,744 3,809 5,557 (8,028) 6,082 Income tax expense (benefit)........ (935) 2,273 1,338 ------ ------- ------- ------- -------- Net income.......................... $ 4,744 $ 4,744 $ 3,284 $ (8,028) $ 4,744 ====== ======= ======= ======= ========
F-37 89 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) DECEMBER 31, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents........ $ $ 3,799 $ $ $ 3,799 Receivables -- net............... 93,965 79,668 173,633 Inventories -- net............... 41,410 31,430 72,840 Deferred income taxes............ 11,135 11,135 Other current assets............. 4,437 7,154 11,591 -------- -------- -------- --------- ---------- Total current assets..... 154,746 118,252 272,998 Investment in subsidiaries....... 181,088 115,749 (296,837) Intercompany advances -- net..... 297,975 (297,975) Property -- net.................. 255,697 159,196 (101) 414,792 Deferred income taxes............ 90,546 16,254 106,800 Goodwill and other assets........ 206,028 1,480 207,508 -------- -------- -------- --------- ---------- Total assets............. $479,063 $822,766 $295,182 $ (594,913) $ 1,002,098 ======== ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 62,206 $ 28,328 $ $ 90,534 Short-term borrowings and current portion of long-term debt..... 46,385 1,296 47,681 Accrued employee compensation and benefits...................... 12,486 8,683 21,169 Income and other taxes........... 7 5,005 8,469 13,481 Other accrued liabilities........ 785 29,673 17,387 (7,416) 40,429 -------- -------- -------- --------- ---------- Total current liabilities............ 792 155,755 64,163 (7,416) 213,294 Long-term debt..................... 214,768 37,413 252,181 Deferred income taxes.............. 2,248 9,629 11,877 Accrued post retirement benefits and other........................ 45,765 710 46,475 Intercompany advances -- net....... 223,142 67,518 (290,660) Stockholders' equity............... 478,271 181,088 115,749 (296,837) 478,271 -------- -------- -------- --------- ---------- Total liabilities and stockholders' equity... $479,063 $822,766 $295,182 ($ 594,913) $ 1,002,098 ======== ======== ======== ========= ==========
F-38 90 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents........ $ $ 1,842 $ $ $ 1,842 Receivables -- net............... 87,118 81,653 168,771 Inventories -- net............... 38,463 28,388 66,851 Deferred income taxes............ 9,370 9,370 Other current assets............. 3,163 6,938 10,101 -------- -------- -------- --------- -------- Total current assets..... 139,956 116,979 256,935 Investment in subsidiaries......... 171,612 107,653 (279,265) Intercompany advances -- net....... 296,156 (296,156) Property -- net.................... 261,713 155,097 416,810 Deferred income taxes.............. 92,447 15,442 107,889 Goodwill and other assets.......... 205,403 2,646 208,049 -------- -------- -------- --------- -------- Total assets............. $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 60,677 $ 24,998 $ $ 85,675 Short-term borrowings and current portion of long-term debt..... 37,600 37,600 Accrued employee compensation and benefits...................... 16,277 8,608 24,885 Income and other taxes........... 7 4,097 7,271 11,375 Other accrued liabilities........ 966 29,959 16,648 (2,837) 44,736 -------- -------- -------- --------- -------- Total current liabilities............ 973 148,610 57,525 (2,837) 204,271 Long-term debt..................... 222,566 37,000 259,566 Deferred income taxes.............. 2,248 9,248 11,496 Accrued post retirement benefits and other........................ 46,902 653 47,555 Intercompany advances -- net....... 215,234 78,085 (293,319) Stockholders' equity............... 466,795 171,612 107,653 (279,265) 466,795 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity... $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ========
F-39 91 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 9,145 $ 9,145 $ 7,769 $(16,914) $ 9,145 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization..... 8,801 5,570 14,371 Net loss on disposal of assets.... 16 16 Recognition of unearned compensation................... 330 330 Deferred income taxes............. 136 435 571 Income of equity investees........ (9,145) (7,769) 16,914 Changes in: Receivables....................... (6,847) 4,929 (1,918) Accounts payable.................. 1,529 2,473 4,002 Inventories....................... (2,947) (1,011) (3,958) Other current assets and liabilities.................... (181) (6,208) 1,108 (4,579) (9,860) Other, net........................ (1,481) 9,229 (11,929) 4,579 398 ------- ------- -------- -------- -------- Net cash provided by (used for) operating activities.............. (1,662) 5,399 9,360 13,097 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................ (4,429) (5,979) (10,408) Proceeds from disposal of assets......................... 319 319 Acquisition of business, net of cash acquired.................. (3,700) (3,700) ------- ------- -------- -------- -------- Net cash used for investing activities.... (4,429) (9,360) (13,789) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock... 1,662 1,662 Proceeds from (reduction of) borrowings -- net.............. 987 987 ------- ------- -------- -------- -------- Net cash provided by financing activities.... 1,662 987 2,649 Increase in cash and cash equivalents....................... 1,957 1,957 Cash and cash equivalents at beginning of period............... 1,842 1,842 ------- ------- -------- -------- -------- Cash and cash equivalents at end of period............................ $ 3,799 $ 3,799 ======= ======= ======== ======== ========
F-40 92 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 4,744 $ 4,744 $ 3,284 $ (8,028) $ 4,744 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization..... 2,494 4,181 6,675 Net gain on disposal of assets.... (687) (687) Recognition of unearned compensation................... 330 330 Deferred income taxes (benefit)... (1,057) (1,057) Income of equity investees........ (4,744) (3,284) 8,028 Changes in: Receivables....................... (3,178) 4,022 844 Accounts payable.................. (1,707) (7,174) (8,881) Inventories....................... 17 (183) (166) Other current assets and liabilities.................... 4,365 2,186 (807) 5,744 Other, net........................ (749) 3,714 (1,849) 807 1,923 ------- ------- ------- ------- ------- Net cash provided by (used for) operating activities.............. (749) 6,438 3,780 9,469 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................ (2,140) (3,953) (6,093) Proceeds from disposal of assets......................... 1,373 1,955 3,328 ------- ------- ------- ------- ------- Net cash used for investing activities.... (767) (1,998) (2,765) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock... 749 749 Proceeds from (reduction of) borrowings -- net.............. (1,955) (1,782) (3,737) ------- ------- ------- ------- ------- Net cash provided by (used for) financing activities.............. 749 (1,955) (1,782) (2,988) Increase in cash and cash equivalents....................... 3,716 3,716 Cash and cash equivalents at beginning of period............... 3,218 3,218 ------- ------- ------- ------- ------- Cash and cash equivalents at end of period............................ $ 6,934 $ 6,934 ======= ======= ======= ======= =======
F-41 93 =============================================================================== NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE GUARANTORS, THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY OR THE GUARANTORS SINCE THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ---- Available Information.................. 4 Incorporation of Certain Documents by Reference............................ 4 Summary................................ 6 The Exchange Offer..................... 13 Use of Proceeds........................ 20 Recent Developments.................... 20 Capitalization......................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 22 Business............................... 27 Management............................. 34 Description of the Notes............... 36 Plan of Distribution................... 48 Legal Matters.......................... 48 Experts................................ 49 Index to Consolidated Financial Statements........................... F-1
=============================================================================== =============================================================================== $125,000,000 EXCHANGE OFFER [BJ SERVICES COMPANY LOGO] BJ SERVICES COMPANY 7% SERIES B SENIOR NOTES DUE 2006 ------------------------ PROSPECTUS ------------------------ , 1996 =============================================================================== 94 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS BJ Services Company (the "Company") is governed by Section 145 of the DGCL which permits a corporation to indemnify certain persons, including officers and directors, who are (or are threatened to be made) parties to any threatened, pending or completed action or suit (other than an action by or in the right of the corporation) by reason of their being directors, officers or other agents of the corporation. The Company's Certificate of Incorporation provides that no director of the Company shall be held personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Certificate of Incorporation also provides that if the DGCL is amended to authorize further limitation or elimination of the personal liability of directors, then the liability of the Company's directors shall be limited or eliminated to the full extent permitted by the DGCL. Section 16 of Article III of the Company's Bylaws provides as follows: (a) the Company shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Company or any of its direct or indirect wholly-owned subsidiaries or, while a director, officer, employee or agent of the Company or any of its direct or indirect wholly-owned subsidiaries, is or was serving at the request of the Company or any of its direct or indirect wholly-owned subsidiaries, as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including counsel fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the full extent permitted by applicable laws provided that the Company shall not be obligated to indemnify any such person against any such action, suit or proceeding which is brought by such person against the Company or any of its direct or indirect wholly owned subsidiaries or the directors of the Company or any of its direct or indirect wholly owned subsidiaries, other than an action brought by such person to enforce his rights to indemnification hereunder, unless a majority of the Board of Directors of the Company shall have previously approved the bringing of such action, suit or proceeding. The Company shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was licensed to practice law and an employee (including an employee who is or was an officer) of the Company or any of its direct or indirect wholly-owned subsidiaries and, while acting in the course of such employment committed or is alleged to have committed any negligent acts, errors or omissions in rendering professional legal services at the request of the Company or pursuant to his employment (including, without limitation, rendering written or oral legal opinions to third parties) against expenses (including counsel fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the full extent permitted by applicable law; provided that the Company shall not be obligated to indemnify any such person against any action, suit or proceeding arising out of any adjudicated criminal, dishonest or fraudulent acts, errors or omissions of such person or any adjudicated willful, intentional or malicious acts, errors or omissions of such person. (b) Expenses incurred by an officer or director of the Company or any of its direct or indirect wholly-owned subsidiaries in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized in this Section 16. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. II-1 95 (c) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 16 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any provision of law, the Company's Certificate of Incorporation, the Certificate of Incorporation or Bylaws or other governing documents of any direct or indirect wholly-owned subsidiary of the Company, or any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding any of the positions or having any of the relationships referred to in this Section 16. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following is a complete list of Exhibits filed as part of this Registration Statement:
Exhibit ------- *4.1 Indenture among BJ Services Company, BJ Services Company, U.S.A., BJ Services Company Middle East, BJ Service International, Inc. and Bank of Montreal Trust Company, Trustee, dated as of February 1, 1996, which includes the form of 7% Series A Notes due 2006 as Exhibit thereto. *4.2 Registration Rights Agreement, dated as of February 20, 1996, among BJ Services Company, as issuer, BJ Services Company, U.S.A., BJ Services Company Middle East, and BJ Service International, Inc., as subsidiary guarantors, and Merrill Lynch & Co., CS First Boston Corporation, BA Securities, Inc., and Chase Securities, Inc. *5.1 Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being registered. *10.1 Third Amendment to Note Agreement dated as of August 1, 1991, by and among the Company, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East for the issuance of the 9.2% Senior Notes due August 1, 1998. *10.2 Second Amendment dated as of February 12, 1996 to Credit Agreement dated as of April 13, 1995, among the 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 party thereto. *12.1 Computation of ratio of earnings to fixed charges. *23.1 Consent of Deloitte & Touche LLP. *23.2 Consent of Price Waterhouse LLP. *23.3 Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1). *24.1 Powers of Attorney (included in Part II of the Registration Statement). *25.1 Statement of Eligibility and Qualification on Form T-1 of Bank of Montreal Trust Company. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery.
- ------------ * Filed herewith. II-2 96 ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes that: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement: Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is on Form S- 3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling II-3 97 precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally promptly means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 98 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 5TH DAY OF APRIL, 1996. BJ SERVICES COMPANY By: /s/ J. W. STEWART ------------------------------------- J. W. Stewart President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below appoints J. W. Stewart, Michael McShane and Margaret Barrett Shannon, and each of them acting alone, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any registration statement for the same offering filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, and grants unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or would do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the securities act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J. W. STEWART Chairman of the Board, President April 5, 1996 - -------------------------------------- and Chief Executive Officer; Director J. W. Stewart (Principal Executive Officer) /s/ MICHAEL MCSHANE Vice President-Finance April 5, 1996 - -------------------------------------- and Chief Financial Officer; Director Michael McShane (Principal Financial Officer) /s/ MATTHEW D. FITZGERALD Controller April 5, 1996 - -------------------------------------- Matthew D. Fitzgerald (Principal Accounting Officer) /s/ L. WILLIAM HEILIGBRODT Director April 5, 1996 - -------------------------------------- L. William Heiligbrodt /s/ JOHN R. HUFF Director April 5, 1996 - -------------------------------------- John R. Huff /s/ WILLIAM J. JOHNSON Director April 5, 1996 - -------------------------------------- William J. Johnson Director - -------------------------------------- Don D. Jordan /s/ R. A. LEBLANC Director April 5, 1996 - -------------------------------------- R. A. LeBlanc /s/ JAMES E. McCORMICK Director April 5, 1996 - -------------------------------------- James E. McCormick /s/ MICHAEL E. PATRICK Director April 5, 1996 - -------------------------------------- Michael E. Patrick
II-5 99 EXHIBIT INDEX
Exhibit ------- *4.1 Indenture among BJ Services Company, BJ Services Company, U.S.A., BJ Services Company Middle East, BJ Service International, Inc. and Bank of Montreal Trust Company, Trustee, dated as of February 1, 1996, which includes the form of 7% Series A Notes due 2006 as Exhibit thereto. *4.2 Registration Rights Agreement, dated as of February 20, 1996, among BJ Services Company, as issuer, BJ Services Company, U.S.A., BJ Services Company Middle East, and BJ Service International, Inc., as subsidiary guarantors, and Merrill Lynch & Co., CS First Boston Corporation, BA Securities, Inc., and Chase Securities, Inc. *5.1 Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being registered. *10.1 Third Amendment to Note Agreement dated as of August 1, 1991, by and among the Company, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East for the issuance of the 9.2% Senior Notes due August 1, 1998. *10.2 Second Amendment dated as of February 12, 1996 to Credit Agreement dated as of April 13, 1995, among the 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 party thereto. *12.1 Computation of ratio of earnings to fixed charges. *23.1 Consent of Deloitte & Touche LLP. *23.2 Consent of Price Waterhouse LLP. *25.1 Statement of Eligibility and Qualification on Form T-1 of Bank of Montreal Trust Company. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery.
- ------------ * Filed herewith. II-2 EX-4.1 2 INDENTURE DATED AS OF 02/01/96 WITH SERIES A NOTES 1 ================================================================================ BJ SERVICES COMPANY, AS ISSUER, THE GUARANTORS NAMED HEREIN, AS GUARANTORS, and BANK OF MONTREAL TRUST COMPANY, TRUSTEE -------------------------------- INDENTURE Dated as of February 1, 1996 -------------------------------- $125,000,000 SERIES A AND SERIES B 7% NOTES DUE 2006 ================================================================================ 2 CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION ----------- ----------------- 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10; 7.01(b) (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03 313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06 314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.03 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.05 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(c) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.05 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.04 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.04 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.08 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.09 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01 318 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
- ----------------- N.A. means not applicable * This Cross-Reference Table is not part of this Indenture 3 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02 Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 1.03 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 1.04 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 2 THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.01 Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.02 Execution and Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.03 Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.04 Paying Agent to Hold Money in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.05 Holder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.06 Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.07 Replacement Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.08 Outstanding Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.09 Treasury Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.10 Temporary Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.11 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.12 Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.13 Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 3 COVENANTS . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 3.01 Payment of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 3.02 Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 3.03 SEC Reports; Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 3.04 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.05 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.06 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.07 Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 3.08 Waiver of Stay, Extension or Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 3.09 Limitation on Sale/Leaseback Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 3.10 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 3.11 Registration Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-i- 4 ARTICLE 4 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 4.01 Limitations on Mergers and Consolidations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 4.02 Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 5 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 5.01 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 5.02 Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 5.03 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 5.04 Waiver of Existing Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 5.05 Control by Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 5.06 Limitations on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 5.07 Rights of Holders to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5.08 Collection Suit by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5.09 Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5.10 Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 5.11 Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 6 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.01 Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.02 Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 6.03 Individual Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.04 Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.05 Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.06 Reports by Trustee to Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 6.07 Compensation and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.08 Replacement of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 6.09 Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.10 Eligibility; Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.11 Preferential Collection of Claims Against Company. . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE 7 DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.01 Termination of Company's Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.02 Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.03 Repayment to Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.04 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 8.01 Without Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 8.02 With Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-ii- 5 SECTION 8.03 Compliance with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 8.04 Revocation and Effect of Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 8.05 Notation on or Exchange of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 8.06 Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 9 GUARANTEES OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.01 Unconditional Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 9.02 Limitation of Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 9.03 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 9.04 Execution and Delivery of Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 9.05 Addition of Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 9.06 Release of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 9.07 Consent to Jurisdiction and Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 9.08 Waiver of Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 9.09 Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 10.01 Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 10.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 10.03 Communication by Holders with Other Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 10.04 Certificate and Opinion as to Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 10.05 Statements Required in Certificate or Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 10.06 Rules by Trustee and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 10.07 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 10.08 No Recourse Against Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 10.09 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 10.10 No Adverse Interpretation of Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 10.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 10.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 10.13 Counterpart Originals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 10.14 Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-iii- 6 INDENTURE dated as of February 1, 1996 between BJ Services Company, a Delaware corporation (the "Company"), the Guarantors named herein and Bank of Montreal Trust Company, a New York banking corporation (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 7% Series A Notes due 2006 (the "Series A Securities") and the Company's 7% Series B Notes due 2006 (the "Series B Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. "Adjusted Net Assets" of a Guarantor at any date means the lesser of (x) the amount by which the fair value of the property of such Guarantor at such date exceeds the total amount of liabilities, including, without limitation, the probable amount of contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date) of such Guarantor at such date, but excluding liabilities under the Guarantee of such Guarantor, and (y) the amount by which the present fair saleable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of any obligation of such Subsidiary under the Guarantee of such Guarantor), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. "Affiliate" of any specified Person means any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, "control" of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. The Trustee may request and may conclusively rely upon an Officers' Certificate to determine whether any Person is an Affiliate of any specified Person. "Agent" means any Registrar or Paying Agent. "Attributable Indebtedness," when used with respect to any Sale/Leaseback Transaction, means, as at the time of determination, the present value (discounted at the rate set forth or implicit in the terms of the lease included in such transaction) of the total obligations of the lessee for rental payments (other than amounts required to be paid on account of property taxes, maintenance, repairs, insurance, assessments, utilities, operating and labor costs and other items which do not constitute payments for property rights) during the remaining term of the -1- 7 lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized, with respect to any particular matter, to act by or on behalf of the Board of Directors of the Company. "Business Day" means any day that is not a Legal Holiday. "Capital Stock" of any Person means and includes any and all shares, interests, rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) the equity (which includes, but is not limited to, common stock, preferred stock and partnership and joint venture interests) of such Person (excluding any debt securities that are convertible into, or exchangeable for, such equity). "Capitalized Lease Obligation" of any Person means any obligation of such Person to pay rent or other amounts under a lease of property, real or personal, that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Common Equity" of any Person means and includes all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person, or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation; provided, however, that for purposes of any provision contained herein which is required by the TIA, "Company" shall also mean each Guarantor, if any. "Consolidated Net Worth" of the Company means the consolidated stockholders' equity of the Company and its Subsidiaries, as determined in accordance with GAAP. "Corporate Trust Office of the Trustee" means the office of the Trustee in the Borough of Manhattan, The City of New York at which the corporate trust business of the Trustee shall be principally administered, which office shall initially be located at the address of the Trustee specified in Section 3.02 hereof and may be located at such other address as the Trustee may give notice to the Company. -2- 8 "Default" means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default. "Definitive Securities" means Securities that are in the form of Exhibit A attached hereto (but without including the text referred to in footnote 1 thereto). "Depositary" means, with respect to the Securities issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Securities, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor statute. "Exchange Offer" means the offer by the Company to the Holders of all outstanding Transfer Restricted Securities to exchange all such outstanding Transfer Restricted Securities held by such Holders for Series B Securities, in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders. "Exchange Offer Registration Statement" means the registration statement under the Securities Act relating to the Exchange Offer, including the related prospectus. "Funded Indebtedness" means all Indebtedness (including Indebtedness incurred under any revolving credit, letter of credit or working capital facility) that matures by its terms, or that is renewable at the option of any obligor thereon to a date, more than one year after the date on which such Indebtedness is originally incurred. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect from time to time. "Global Security" means a Security that is issued in global form in the name of Cede & Co. or such other name as may be requested by an authorized representative of the Depositary, and that contains the paragraph referred to in footnote 1 and the additional schedule referred to in the form of Security attached hereto as Exhibit A. "Guarantor" means (i) each Subsidiary of the Company executing this Indenture, (ii) each Subsidiary of the Company that becomes a guarantor of the Securities pursuant to Section 9.05 hereof, (iii) each Subsidiary of the Company that executes a supplemental indenture -3- 9 in which such Subsidiary agrees to be bound by Article 9 hereof and (iv) any Subsidiary of the Company that is a successor corporation of any Subsidiary of the Company referred to in clauses (i) through (iii). The term "Guarantor" shall not include any Subsidiary of the Company referred to in clauses (i) through (iv) that shall have been released from its obligations under Article 9 pursuant to Section 9.06 hereof. "Hedging Obligations" of any Person means the net obligations (not the notional amount) of such Person pursuant to any interest rate swap agreement, foreign currency exchange agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement relating to interest rates or foreign exchange rates. "Holder" means a Person in whose name a Security is registered. "Indebtedness" of any Person at any date means, without duplication, (i) all indebtedness or obligations of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), other than standby letters of credit and performance bonds issued by such Person in the ordinary course of business, to the extent not drawn or, to the extent drawn, if such drawing is reimbursed not later than the third Business Day following demand for reimbursement, (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred in the ordinary course of business, (v) all Capitalized Lease Obligations of such Person, (vi) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, (vii) all Indebtedness of others guaranteed by such Person to the extent of such guarantee and (viii) all Hedging Obligations of such Person. "Indenture" means this Indenture as amended or supplemented from time to time. "Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS First Boston Corporation, BA Securities, Inc. and Chase Securities, Inc., as initial purchasers in the Offering. "Interest Payment Date" shall have the meaning assigned to such term in the Securities. "Issue Date" means the date on which the Securities are originally issued under this Indenture. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in any of The City of New York, Houston, Texas or a place of payment are authorized or obligated by law, regulation or executive order to remain closed. -4- 10 "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, but excluding agreements to refrain from granting Liens. For the purposes of this Indenture, the Company or any Subsidiary of the Company shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement relating to such asset. "Net Proceeds" means, with respect to any Sale/Leaseback Transaction entered into by the Company or any Subsidiary of the Company, the aggregate net proceeds received by the Company or such Subsidiary from such Sale/Leaseback Transaction after payment of expenses, taxes, commissions and similar amounts incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt, as determined by the Board of Directors). "Non-Recourse Indebtedness" means, at any date, the aggregate amount at such date of Indebtedness of the Company or a Subsidiary of the Company in respect of which the recourse of the holder of such Indebtedness, whether direct or indirect and whether contingent or otherwise, is effectively limited to specified assets, and with respect to which neither the Company nor any of its Subsidiaries provides any credit support. "Offering" means the Offering of the Series A Securities pursuant to the Offering Memorandum. "Offering Memorandum" means the Offering Memorandum of the Company, dated February 14, 1996, relating to the Offering. "Officer" means the Chairman of the Board, the President, any Vice Chairman of the Board, any Vice President, the chief financial officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary of a Person. "Officers' Certificate" means a certificate signed by two Officers of a Person, one of whom must be the Person's chief executive officer, chief financial officer or chief accounting officer. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. Such counsel may be an employee of or counsel to the Company, a Guarantor or the Trustee. "Pari Passu Indebtedness" means any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall be subordinated in right of payment to the Securities. -5- 11 "Person" means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof or other entity of any kind. "Registrable Securities" shall have the meaning assigned to such term in the Registration Rights Agreement. "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of February 20, 1996, among the Company, the Guarantors party thereto and the Initial Purchasers. "Sale/Leaseback Transaction" means any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company, for a period of more than three years, of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing. "SEC" means the Securities and Exchange Commission. "Securities" means the Series A Securities and the Series B Securities treated as a single class of Securities. For purposes of this Indenture, the term "Securities" shall, except where the context otherwise requires, include the Guarantees. "Securities Act" means the Securities Act of 1933, as amended, and any successor statute. "Security Custodian" means the Trustee, as custodian with respect to the Securities in global form, or any successor entity thereto. "Series A Securities" means the Company's 7% Series A Notes due 2006 to be issued pursuant to this Indenture. "Series B Securities" means the Company's 7% Series B Notes due 2006 to be issued pursuant to this Indenture in the Exchange Offer. "Subsidiary" of any Person means (i) any corporation of which at least a majority of the aggregate voting power of all classes of the Common Equity is owned by such Person directly or through one or more other Subsidiaries of such Person, and (ii) any entity other than a corporation at least a majority of the Common Equity of which is owned by such Person directly or through one or more other Subsidiaries of such Person. -6- 12 "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb), as in effect on the Issue Date. "Transfer Restricted Securities" means the Registrable Securities under the Registration Rights Agreement. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "U.S. Government Obligations" means direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged. SECTION 1.02 Other Definitions.
Defined in Term Section ---- ------- "Authorized Agent" . . . . . . . . . . . . . . . . . . . . . . 9.07 "Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . 5.01 "DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . 5.01 "Funding Guarantor" . . . . . . . . . . . . . . . . . . . . . . 9.03 "Guarantees" . . . . . . . . . . . . . . . . . . . . . . . . . 9.01(a) "Judgment Currency" . . . . . . . . . . . . . . . . . . . . . . 9.09 "Non-U.S. Guarantor" . . . . . . . . . . . . . . . . . . . . . 9.07 "Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Significant Subsidiary" . . . . . . . . . . . . . . . . . . . 5.01 "Successor" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.01
SECTION 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. -7- 13 "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and each Guarantor. All terms used in this Indenture that are defined by the TIA, defined by a TIA reference to another statute or defined by an SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE 2 THE SECURITIES SECTION 2.01 Form and Dating. The Securities, the notations thereon relating to the Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A to this Indenture, which is hereby incorporated into this Indenture. The Securities may have notations, legends or endorsements required by law, securities exchange rule, the Company's certificate of incorporation or bylaws, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The Securities shall be in registered form without coupons and only in denominations of $1,000 and any integral multiples thereof. -8- 14 The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The Securities will initially be issued in global form, substantially in the form of Exhibit A attached hereto (including footnote 1 thereto) and in definitive form, substantially in the form of Exhibit A hereto (not including footnote 1 thereto). A Global Security shall represent such of the outstanding Securities as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of Global Securities to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. SECTION 2.02 Execution and Authentication. Two Officers of the Company shall sign the Securities on behalf of the Company, and two Officers of each Guarantor shall sign the notation on the Securities relating to the Guarantees on behalf of such Guarantor, in each case by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer of the Company or any Guarantor whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall be valid nevertheless. A Security shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of an authorized signatory of the Trustee, which signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue up to the aggregate principal amount of $125,000,000, upon a written order of the Company signed by two Officers of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent -9- 15 has the same rights as an Agent to deal with the Company, the Guarantors or an Affiliate of any of them. SECTION 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or exchange ("Registrar") and an office or agency where Securities may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. The Company may change any Paying Agent or Registrar without notice to any Holder. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints the Trustee as Registrar and Paying Agent. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Security. SECTION 2.4 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities, whether such money shall have been paid to it by the Company or any Guarantor, and will notify the Trustee of any default by the Company or any Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon payment over to the Trustee and upon accounting for any funds disbursed, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. -10- 16 SECTION 2.05 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar with the request: (x) to register the transfer of the Definitive Securities, or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirement for such transactions are met; provided, however, that the Definitive Securities presented or surrendered for registration of transfer or exchange: (i) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by the Holder thereof or by his attorney, duly authorized in writing; and (ii) in the case of Transfer Restricted Securities that are Definitive Securities, shall be accompanied by the following additional information and documents, as applicable, upon which the Registrar may conclusively rely: (A) if such Transfer Restricted Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in substantially the form of Exhibit B hereto); or (B) if such Transfer Restricted Securities are being transferred (1) to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or (2) pursuant to an exemption from registration in accordance with Rule 144 -11- 17 under the Securities Act (and based upon an opinion of counsel if the Company so requests) or (3) pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit B hereto); or (C) if such Transfer Restricted Securities are being transferred to an institutional "accredited investor," within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), a certification to that effect from such Holder (in substantially the form of Exhibit B hereto) and a certification from the applicable transferee (in substantially the form of Exhibit C hereto); (D) if such Transfer Restricted Securities are being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (and based upon an opinion of counsel if the Company so requests), certifications to that effect from such Holder (in substantially the form of Exhibits B and D hereto); or (E) if such Transfer Restricted Securities are being transferred in reliance on another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), a certification to that effect from such Holder (in substantially the form of Exhibit B hereto). (b) Restriction on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) if such Definitive Security is a Transfer Restricted Security, certification, substantially in the form of Exhibit B hereto, upon which the Trustee may conclusively rely, that such Definitive Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act; or -12- 18 (ii) if such Definitive Security is a Transfer Restricted Security and is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (and based upon an opinion of counsel if the Company so requests), certifications to that effect from such Holder (in substantially the form of Exhibits B and D hereto); and (iii) whether or not such Definitive Security is a Transfer Restricted Security, written instructions directing the Trustee to make, or direct the Security Custodian to make, an endorsement on the Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security; then the Trustee shall cancel such Definitive Security in accordance with Section 2.11 hereof and cause, or direct the Security Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Security Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased accordingly. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Security for a Definitive Security. (i) Any Person having a beneficial interest in a Global Security may upon request exchange such beneficial interest for a Definitive Security. Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having a beneficial interest in a Global Security, and in the case of a Transfer Restricted Security, the following additional information and documents (all of which may be submitted by facsimile), upon which the Trustee may conclusively rely: (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification from such Person to that effect (in substantially the form of Exhibit B hereto); or -13- 19 (B) if such beneficial interest is being transferred (1) to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or (2) pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act (and based upon an opinion of counsel if the Company so requests) or (3) pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit B hereto); or (C) if such beneficial interest is being transferred to an institutional "accredited investor," within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), a certification to that effect from such transferor (in substantially the form of Exhibit B hereto) and a certification from the applicable transferee (in substantially the form of Exhibit C hereto); or (D) if such beneficial interest is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (and based upon an opinion of counsel if the Company so requests), certifications to that effect from such transferor (in substantially the form of Exhibits B and D hereto); or (E) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), a certification to that effect from such transferor (in substantially the form of Exhibit B hereto); the Trustee or the Security Custodian, at the direction of the Trustee, shall, in accordance with the standing instructions and procedures existing between the Depositary and the Security Custodian, cause the aggregate principal amount of Global Securities to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and deliver to the transferee a Definitive Security in the appropriate principal amount. -14- 20 (ii) Definitive Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.06(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Securities to the Persons in whose names such Securities are so registered. (e) Restrictions on Transfer and Exchange of Global Securities. Notwithstanding any other provisions of this Indenture (other than the provisions set forth in subsection (f) of this Section 2.06), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (f) Authentication of Definitive Securities in Absence of Depositary. If at any time: (i) the Depositary for the Securities notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Securities and a successor Depositary for the Global Securities is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Securities under this Indenture, then the Company will execute, and the Trustee will authenticate and deliver Definitive Securities, in an aggregate principal amount equal to the principal amount of the Global Securities, in exchange for such Global Securities and registered in such names as the Depositary shall instruct the Trustee or the Company in writing. (g) Legends. (i) Except as permitted by the following paragraph (ii), each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS -15- 21 SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF -16- 22 TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. Each Security certificate evidencing the Global Securities also shall bear the paragraph referred to in footnote 1 in the form of Security attached hereto as Exhibit A. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security represented by a Global Security, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above if all other interests in such Global Security have been or are concurrently being sold or transferred pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, but such Transfer Restricted Security shall continue to be subject to the provisions of Section 2.06(c) hereof; provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Security for a Definitive Security that does not bear a legend set forth in (i) above, which request is made in reliance upon Rule 144 under the Securities Act, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 under the Securities Act (such certification to be substantially in the form of Exhibit B hereto). (iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate Series B Securities in exchange for Series A Securities accepted for exchange in the Exchange Offer, which -17- 23 Series B Securities shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Securities, in each case unless the Holder of such Series A Securities is either (A) a broker-dealer, (B) a Person participating in the distribution of the Series A Securities or (C) a Person who is an affiliate (as defined in Rule 144 under the Securities Act) of the Company. The Company shall identify to the Trustee such Holders of the Securities in a written certification signed by an Officer of the Company and, absent certification from the Company to such effect, the Trustee shall assume that there are no such Holders. (h) Cancellation and/or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned to or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an endorsement shall be made on such Global Security, by the Trustee or the Security Custodian, at the direction of the Trustee to reflect such reduction. (i) General Provisions with respect to Transfer and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Section 8.05 hereof). (iii) The Trustee shall authenticate Definitive Securities and Global Securities in accordance with the provisions of Section 2.02 hereof. (iv) Notwithstanding any other provisions of this Indenture to the contrary, the Company shall not be required to register the transfer or exchange of a Security between the record date and the next succeeding Interest Payment Date. -18- 24 (v) Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, Securities by the Depositary, or for maintaining, supervising or reviewing any records of the Depositary relating to such Securities. Neither the Company nor the Trustee shall be liable for any delay by the related Global Security Holder or the Depositary in identifying the beneficial owners of the related Securities and each such Person may conclusively rely on, and shall be protected in relying on, instructions from such Global Security Holder or the Depositary for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Securities to be issued). SECTION 2.07 Replacement Securities. If any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee, the Company or any Guarantor, such Holder must furnish an indemnity bond that is sufficient in the judgment of the Trustee, the Company and the Guarantors to protect the Company, the Guarantors, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Company, the Trustee and the Guarantors may charge for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company and the Guarantors. SECTION 2.08 Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Security effected by the Trustee hereunder and those described in this Section 2.08 as not outstanding. If a Security is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. A Security does not cease to be outstanding because the Company, a Guarantor or an Affiliate of any of them holds the Security. -19- 25 SECTION 2.09 Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company, a Guarantor or an Affiliate of any of them shall be disregarded, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. SECTION 2.10 Temporary Securities. Until Definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities, but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as Definitive Securities. SECTION 2.11 Cancellation. The Company or any Guarantor at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation. Unless the Company shall direct that canceled Securities be returned to it, after written notice to the Company all canceled Securities held by the Trustee shall be disposed of in accordance with the usual disposal procedures of the Trustee, and the Trustee shall maintain a record of their disposal. The Company may not issue new Securities to replace Securities that have been paid or that have been delivered to the Trustee for cancellation. SECTION 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest on the defaulted interest, in each case at the rate provided in the Securities and in Section 3.01 hereof. The Company may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. At least 15 days before any special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. -20- 26 SECTION 2.13 Persons Deemed Owners. The Company, the Trustee, any Agent and any authenticating agent may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payments of principal of or interest on such Security and for all other purposes. None of the Company, the Trustee, any Agent or any authenticating agent shall be affected by any notice to the contrary. ARTICLE 3 COVENANTS SECTION 3.01 Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if the Paying Agent, other than the Company or a Subsidiary of the Company, holds on that date money deposited by the Company designated for and sufficient to pay all principal and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at a rate equal to the then applicable interest rate on the Securities to the extent lawful; and it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 3.02 Maintenance of Office or Agency. The Company will maintain, in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee, the Registrar or the Paying Agent) where Securities may be presented for registration of transfer or exchange, where Securities may be presented for payment and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. Unless otherwise designated by the Company by written notice to the Trustee, such office or agency shall be the principal office of the Trustee, in The City of New York which, on the date hereof, is located at 77 Water Street, 4th Floor, New York, New York 10005. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation -21- 27 or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 3.03 SEC Reports; Financial Statements. (a) The Company shall file with the Trustee, within 15 days after it files the same with the SEC, copies of the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of such Section 13 or 15(d), the Company shall file with the Trustee, within 15 days after it would have been required to file the same with the SEC, financial statements, including any notes thereto (and with respect to annual reports, an auditors' report by a firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports if the Company had been subject to the requirements of such Section 13 or 15(d). The Company shall also comply with the provisions of TIA Section 314(a). (b) If the Company is required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause any annual report furnished to its stockholders generally and any quarterly or other financial reports furnished by it to its stockholders generally to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. If the Company is not required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause its financial statements referred to in Section 3.03(a) hereof, including any notes thereto (and with respect to annual reports, an auditors' report by a firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations" to be so mailed to the Holders within 90 days after the end of each of the Company's fiscal years and within 60 days after the end of each of the Company's first three fiscal quarters. (c) For so long as any Transfer Restricted Securities remain outstanding, the Company shall furnish to all Holders and prospective purchasers of the Securities designated by the Holders of Transfer Restricted Securities, promptly upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (d) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to Holders under this Section 3.03. -22- 28 SECTION 3.04 Compliance Certificate. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, a statement signed by two Officers of the Company, which need not constitute an Officers' Certificate, complying with TIA Section 314(a)(4) and stating that in the course of performance by the signing Officers of the Company of their duties as such Officers of the Company they would normally obtain knowledge of the keeping, observing, performing and fulfilling by the Company of its obligations under this Indenture, and further stating, as to each such Officer signing such statement, that to the best of his knowledge the Company and each Guarantor has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto). (b) The Company and the Guarantors shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer of the Company or any Guarantor becoming aware of any Default or Event of Default under this Indenture, an Officers' Certificate specifying such Default or Event of Default and what action the Company or such Guarantor is taking or proposes to take with respect thereto. SECTION 3.05 Corporate Existence. Subject to Article 4 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership and other existence of each of its Subsidiaries and all rights (charter and statutory) and franchises of the Company and its Subsidiaries, provided that the Company shall not be required to preserve the corporate existence of any Subsidiary of the Company or any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof would not have a material adverse effect on the business, prospects, assets or financial condition of the Company and its Subsidiaries taken as a whole and would not have any material adverse effect on the payment and performance of the obligations of the Company and the Guarantors under the Securities and this Indenture. SECTION 3.06 Maintenance of Properties. The Company shall cause all material properties owned by or leased to the Company or any Subsidiary of the Company or used or held for use in the conduct of its business or the business of any such Subsidiary to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be -23- 29 properly conducted at all times; provided that nothing in this Section 3.06 shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any such Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 3.07 Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (ii) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any of its Subsidiaries; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith, and, if necessary, by appropriate proceedings. SECTION 3.08 Waiver of Stay, Extension or Usury Laws. The Company and each Guarantor covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that they may lawfully do so) the Company and each Guarantor hereby expressly waive all benefit or advantage of any such law, and covenant that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 3.09 Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not permit any Subsidiary of the Company to, enter into any Sale/Leaseback Transaction with any Person (other than the Company or a Subsidiary of the Company) unless: (a) the Company or such Subsidiary would be entitled to incur Indebtedness, in a principal amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction, secured by a Lien on the property subject to such Sale/Leaseback Transaction pursuant to Section 3.10 hereof without equally and ratably securing the Securities pursuant to such Section; (b) after the Issue Date and within a period commencing six months prior to the consummation of such Sale/Leaseback Transaction and ending six months after the -24- 30 consummation thereof, the Company or such Subsidiary shall have expended for property used or to be used in the ordinary course of business of the Company and its Subsidiaries an amount equal to all or a portion of the Net Proceeds of such Sale/Leaseback Transaction and the Company shall have elected to designate such amount as a credit against such Sale/Leaseback Transaction (with any such amount not being so designated to be applied as set forth in clause (c) below); or (c) the Company, during the 12-month period after the effective date of such Sale/Leaseback Transaction, shall have applied to the voluntary defeasance or retirement of Securities or any Pari Passu Indebtedness an amount equal to the greater of the Net Proceeds of the sale or transfer of the property leased in such Sale/Leaseback Transaction and the fair value, as determined by the Board of Directors, of such property at the time of entering into such Sale/Leaseback Transaction (in either case adjusted to reflect the remaining term of the lease and any amount expended by the Company as set forth in clause (b) above), less an amount equal to the principal amount of Securities and Pari Passu Indebtedness voluntarily defeased or retired by the Company within such 12-month period and not designated as a credit against any other Sale/Leaseback Transaction entered into by the Company or any Subsidiary of the Company during such period. SECTION 3.10 Limitation on Liens. The Company shall not, and shall not permit any Subsidiary of the Company to, issue, assume or guarantee any Indebtedness for borrowed money secured by any Lien on any property or asset now owned or hereafter acquired by the Company or such Subsidiary without making effective provision whereby any and all Securities then or thereafter outstanding will be secured by a Lien equally and ratably with any and all other obligations thereby secured for so long as any such obligations shall be so secured. Notwithstanding the foregoing, the Company or any Subsidiary of the Company may, without so securing the Securities, issue, assume or guarantee Indebtedness for borrowed money secured by the following Liens: (a) Liens existing on the Issue Date or provided for under the terms of agreements existing on the Issue Date securing Indebtedness existing on the Issue Date (including, without limitation, the Lien provided for pursuant to Section 6.07 hereof); (b) Liens on property securing (i) all or any portion of the cost of acquiring, constructing, altering, improving or repairing any property or assets, real or personal, or improvements used or to be used in connection with such property or (ii) Indebtedness incurred by the Company or any Subsidiary of the Company prior to or within one year after the later of the acquisition, the completion of construction, alteration, improvement or repair or the commencement of commercial operation thereof, which Indebtedness is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; -25- 31 (c) Liens securing Indebtedness owed by a Subsidiary of the Company to the Company or to any other Subsidiary of the Company; (d) Liens on the property of any Person existing at the time such Person becomes a Subsidiary of the Company and not incurred as a result of (or in connection with or in anticipation of) such Person's becoming a Subsidiary of the Company, provided that such Liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries other than the property encumbered at the time such Person becomes a Subsidiary of the Company and do not secure Indebtedness with a principal amount in excess of the principal amount outstanding at such time; (e) Liens on any property securing (i) Indebtedness incurred in connection with the construction, installation or financing of pollution control or abatement facilities or other forms of industrial revenue bond financing or (ii) Indebtedness issued or guaranteed by the United States or any State thereof or any department, agency or instrumentality of either; (f) any Lien extending, renewing or replacing (or successive extensions, renewals or replacements of) any Lien of any type permitted under clause (a), (b), (d) or (e) above, provided that such Lien extends to or covers only the property that is subject to the Lien being extended, renewed or replaced and that the principal amount of the Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement; or (g) Liens (exclusive of any Lien of any type otherwise permitted under clauses (a) through (f) above) securing Indebtedness for borrowed money of the Company or any Subsidiary of the Company in an aggregate principal amount which, together with the aggregate amount of Attributable Indebtedness deemed to be outstanding in respect of all Sale/Leaseback Transactions entered into pursuant to clause (a) of Section 3.09 hereof (exclusive of any such Sale/Leaseback Transactions otherwise permitted under clauses (a) through (f) above), does not at the time such Indebtedness is incurred exceed 10% of the Consolidated Net Worth of the Company (as shown in the most recent audited consolidated balance sheet of the Company and its Subsidiaries). SECTION 3.11 Registration Rights Agreement. The Company shall perform its obligations under the Registration Rights Agreement and shall comply in all material respects with the terms and conditions contained therein including, without limitation, the payment of additional interest (as described in Section 2(e) of the Registration Rights Agreement). -26- 32 ARTICLE 4 SUCCESSORS SECTION 4.01 Limitations on Mergers and Consolidations. Neither the Company nor any Guarantor shall consolidate with or merge into any Person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of its assets to any Person, unless: (i) the Person formed by or surviving such consolidation or merger (if other than the Company or such Guarantor, as the case may be), or to which such sale, lease, conveyance, transfer or other disposition shall be made (collectively, the "Successor"), is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia (or, alternatively, in the case of a Guarantor organized under the laws of a jurisdiction outside the United States, a corporation organized and existing under the laws of such foreign jurisdiction), and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee all of the obligations of the Company or such Guarantor, as the case may be, under this Indenture and the Securities; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the transaction and such supplemental indenture comply with this Indenture. SECTION 4.02 Successor Corporation Substituted. Upon any consolidation or merger of the Company or any Guarantor, or any sale, lease, conveyance, transfer or other disposition of all or substantially all of the assets of the Company or any Guarantor in accordance with Section 4.01 hereof, the Successor formed by such consolidation or into or with which the Company or such Guarantor is merged or to which such sale, lease, conveyance, transfer or other disposition or assignment is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor, as the case may be, under this Indenture and the Securities with the same effect as if such Successor had been named as the Company or such Guarantor herein and the predecessor -27- 33 Company or Guarantor, in the case of a sale, conveyance, transfer or other disposition, shall be released from all obligations under this Indenture and the Securities. ARTICLE 5 DEFAULTS AND REMEDIES SECTION 5.01 Events of Default. An "Event of Default" occurs if: (1) the Company or any Guarantor defaults in the payment of interest on any Security when the same becomes due and payable and such default continues for a period of 30 days; (2) the Company or any Guarantor defaults in the payment of the principal of any Security when the same becomes due and payable at maturity, upon acceleration or otherwise; (3) the Company or any Guarantor fails to comply with any of its other agreements or covenants in, or provisions of, the Securities, the Guarantees or this Indenture and such failure continues for the period and after the notice specified in the last paragraph of this Section 5.01; (4) any default shall occur which results in the acceleration of the maturity of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or, taken together with all other such Indebtedness that has been so accelerated, in the aggregate; or any default shall occur in the payment of any principal or interest in respect of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or, taken together with all other such Indebtedness with respect to which any such payment has not been made, in the aggregate and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, effecting a cure of such default; (5) a judgment or order for the payment of money in excess of $20 million (net of applicable insurance coverage) shall be rendered against the Company, any Guarantor or any other "significant subsidiary" (as such term is defined in Regulation S-X under the Exchange Act; a "Significant Subsidiary") of the Company and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; -28- 34 (6) the Company, any Guarantor or any other Significant Subsidiary of the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or for a substantial part of its property, or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that remains unstayed and in effect for 60 days and that: (A) is for relief against the Company, any Guarantor or any other Significant Subsidiary of the Company as debtor in an involuntary case, (B) appoints a Custodian of the Company, any Guarantor or any other Significant Subsidiary of the Company or a Custodian for all or for a substantial part of the property of the Company, any Guarantor or any other Significant Subsidiary of the Company, or (C) orders the liquidation of the Company, any Guarantor or any other Significant Subsidiary of the Company. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Trustee shall not be deemed to know of a Default unless a Trust Officer at the Corporate Trust Office of the Trustee has actual knowledge of such Default or the Trustee receives written notice at the Corporate Trust Office of the Trustee of such Default with specific reference to such Default. When a Default is cured, it ceases. A Default under clause (3) of this Section is not an Event of Default until the Trustee notifies the Company and, in the case of a Default by a Guarantor, such Guarantor, or the Holders of at least 25% in principal amount of the then outstanding Securities notify the Company, such Guarantor (where applicable) and the Trustee, of the Default, and neither the Company nor such Guarantor cures the Default within 60 days after receipt of the notice. The -29- 35 notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." SECTION 5.02 Acceleration. If an Event of Default (other than an Event of Default specified in clause (6) or (7) of Section 5.01 hereof with respect to the Company or any Guarantor) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Securities by notice to the Company and the Trustee, may declare the principal of and accrued and unpaid interest on all then outstanding Securities to be due and payable immediately. Upon any such declaration the amounts due and payable on the Securities, as determined in accordance with the next succeeding paragraph, shall be due and payable immediately. If an Event of Default specified in clause (6) or (7) of Section 5.01 hereof with respect to the Company or any Guarantor occurs, such amounts shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder. The Holders of a majority in principal amount of the then outstanding Securities by written notice to the Trustee may rescind an acceleration and its consequences (other than nonpayment of principal of or interest on the Securities) if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived, except nonpayment of principal or interest that has become due solely because of the acceleration. In the event that the maturity of the Securities is accelerated pursuant to this Section 5.02, 100% of the principal amount thereof shall become due and payable plus accrued interest to the date of payment. SECTION 5.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities, this Indenture or the Registration Rights Agreement. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 5.04 Waiver of Existing Defaults. Subject to Sections 5.07 and 8.02 hereof, the Holders of a majority in principal amount of the then outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences (including waivers obtained in connection with a tender offer or exchange offer for Securities or a solicitation of consents in respect of Securities, -30- 36 provided that in each case such offer or solicitation is made to all Holders of then outstanding Securities on equal terms), except (1) a continuing Default or Event of Default in the payment of the principal of or interest on any Security or (2) a continued Default in respect of a provision that under Section 8.02 hereof cannot be amended without the consent of each Holder affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 5.05 Control by Majority. The Holders of a majority in principal amount of the then outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it hereunder. However, the Trustee may refuse to follow any direction that conflicts with applicable law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 5.06 Limitations on Suits. Subject to Section 5.07 hereof, a Holder may pursue a remedy with respect to this Indenture (including the Guarantees) or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. -31- 37 SECTION 5.07 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. SECTION 5.08 Collection Suit by Trustee. If an Event of Default specified in clause (1) or (2) of Section 5.01 hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company and any Guarantor for the amount of principal and interest remaining unpaid on the Securities, and interest on overdue principal and, to the extent lawful, interest on overdue interest, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 5.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents and to take such actions, including participating as a member, voting or otherwise, of any committee of creditors, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company and any Guarantor or their respective creditors or properties and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders of the Securities may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. -32- 38 SECTION 5.10 Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 6.07 hereof; Second: to Holders for amounts due and unpaid on the Securities for principal and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Article. SECTION 5.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.07 hereof, or a suit by a Holder or Holders of more than 10% in principal amount of the then outstanding Securities. ARTICLE 6 TRUSTEE SECTION 6.1 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in such exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and -33- 39 (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine such certificates and opinions to determine whether or not, on their face, they appear to conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. All money received by the Trustee shall, until applied as herein provided, be held in trust for the payment of the principal of and interest on the Securities. SECTION 6.02 Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of -34- 40 Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor. SECTION 6.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, the Guarantors or any of their Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 6.10 and 6.11 hereof. SECTION 6.04 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Securities other than its certificate of authentication. SECTION 6.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 45 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Holders. -35- 41 SECTION 6.06 Reports by Trustee to Holders. Within 60 days after each January 31, beginning with January 31, 1996, and in any event prior to March 31 in each year, the Trustee shall mail to Holders a brief report dated as of such -36- 42 such reporting date that complies with TIA Section 313(a); provided, however, that if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted. The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Sections 313(c) and 313(d). A copy of each report at the time of its mailing to Holders shall be filed with the SEC and each securities exchange, if any, on which the Securities are listed. The Company shall notify the Trustee if and when the Securities are listed on any stock exchange. SECTION 6.07 Compensation and Indemnity. The Company and the Guarantors jointly and severally agree to pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors jointly and severally agree to reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors jointly and severally agree to indemnify the Trustee against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraph. The Trustee shall notify the Company and the Guarantors promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Guarantors shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent. Neither the Company nor the Guarantors shall be obligated to reimburse any expense or indemnify against any loss or liability incurred by the Trustee through negligence or bad faith. To secure the payment obligations of the Company and the Guarantors in this Section 6.07, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on the Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(6) or (7) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. -37- 43 SECTION 6.08 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 6.08. The Trustee may resign and be discharged from the trust hereby created by so notifying the Company and the Guarantors. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 6.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company and the Guarantors shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10 hereof, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Guarantors. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 6.08 hereof, the obligations -38- 44 of the Company and the Guarantors under Section 6.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 6.09 Successor Trustee by Merger, etc. Subject to Section 6.10 hereof, if the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee; provided, however, that in the case of a transfer of all or substantially all of its corporate trust business to another corporation, the transferee corporation expressly assumes all of the Trustee's liabilities hereunder. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 6.10 Eligibility; Disqualification. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia and authorized under such laws to exercise corporate trust power, shall be subject to supervision or examination by Federal or State (or the District of Columbia) authority and shall have, or be a Subsidiary of a bank or bank holding company having, a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. The Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to and shall comply with the provisions of TIA Section 310(b) during the period of time required by this Indenture. Nothing in this Indenture shall prevent the Trustee from filing with the SEC the application referred to in the penultimate paragraph of TIA Section 310(b). SECTION 6.11 Preferential Collection of Claims Against Company. The Trustee is subject to and shall comply with the provisions of TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. -39- 45 ARTICLE 7 DISCHARGE OF INDENTURE SECTION 7.1 Termination of Company's Obligations. (a) This Indenture shall cease to be of further effect (except that the Company's and the Guarantors' obligations under Section 6.07 hereof and the Trustee's and Paying Agent's obligations under Section 7.03 hereof shall survive), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging the satisfaction and discharge of this Indenture, when: (1) either (A) all outstanding Securities theretofore authenticated and issued (other than destroyed, lost or stolen Securities that have been replaced or paid) have been delivered to the Trustee for cancellation; or (B) all outstanding Securities not theretofore delivered to the Trustee for cancellation: (i) have become due and payable, or (ii) will become due and payable at their stated maturity within one year, and the Company, in the case of clause (i) or (ii) above, has deposited or caused to be deposited with the Trustee as funds (immediately available to the Holders in the case of clause (i)) in trust for such purpose an amount which, together with earnings thereon, will be sufficient to pay and discharge the entire indebtedness on such Securities for principal and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the stated maturity, as the case may be; (2) the Company has paid all other sums payable by it hereunder; and (3) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture have been complied with, together with an Opinion of Counsel to the same effect. (b) The Company and the Guarantors may, subject as provided herein, terminate all of their obligations under this Indenture if: -40- 46 (1) the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for and dedicated solely to the benefit of the Holders, (i) cash in an amount, or (ii) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will insure the availability of cash in an amount or (iii) a combination t hereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay, without consideration of the reinvestment of any such amounts and after payment of all taxes or other charges or assessments in respect thereof payable by the Trustee, the principal and interest on all Securities on each date that such principal or interest is due and payable and to pay all other sums payable by it hereunder; provided that the Trustee shall have been irrevocably instructed to apply such money and/or the proceeds of such U.S. Government Obligations to the payment of said principal and interest with respect to the Securities as the same shall become due; (2) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture have been complied with, and an Opinion of Counsel to the same effect; (3) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as clauses (6) and (7) of Section 5.01 hereof are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (4) the Company shall have delivered to the Trustee an Opinion of Counsel from a nationally recognized counsel acceptable to the Trustee or a tax ruling to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its option under this Section 7.01(b) and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised; (5) such deposit and discharge will not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound; (6) such deposit and discharge shall not cause the Trustee to have a conflicting interest as defined in TIA Section 310(b); and (7) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the passage of 91 days following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. -41- 47 In such event, this Indenture shall cease to be of further effect (except as provided in the next succeeding paragraph), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging satisfaction and discharge under this Indenture. However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 3.01, 4.01, 6.07, 6.08 and 7.04 hereof, the Company's and the Guarantors' obligations in Sections 4.01, 6.07, 7.04 and 9.01 hereof and the Trustee's and Paying Agent's obligations in Section 7.03 hereof shall survive until the Securities are no longer outstanding. Thereafter, only the Company's and the Guarantors' obligations in Section 6.07 hereof and the Trustee's and Paying Agent's obligations in Section 7.03 hereof shall survive. After such irrevocable deposit made pursuant to this Section 7.01(b) and satisfaction of the other conditions set forth herein, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal of or interest on the Securities, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. SECTION 7.02 Application of Trust Money. The Trustee or a trustee satisfactory to the Trustee and the Company shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 7.01 hereof. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 7.03 Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time. Subject to the requirements of any applicable abandoned property laws, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have either caused notice of such payment to be mailed to each Holder entitled thereto no less than 30 days prior to such repayment or within such period shall have published such notice in a financial newspaper of widespread circulation published in The City of New York. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and the Paying Agent with respect to such money shall cease. -42- 48 SECTION 7.04 Reinstatement. If the Trustee or the Paying Agent is unable to apply any money or U. S. Government Obligations in accordance with Section 7.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company and the Guarantors under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 7.01 hereof until such time as the Trustee or the Paying Agent is permitted to apply all such money or U. S. Government Obligations in accordance with Section 7.01 hereof; provided, however, that if the Company or any Guarantor has made any payment of principal of or interest on any Securities because of the reinstatement of its obligations, the Company or such Guarantor shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or the Paying Agent. ARTICLE 8 AMENDMENTS SECTION 8.01 Without Consent of Holders. The Company, the Guarantors and the Trustee may amend or supplement this Indenture or the Securities or waive any provision hereof or thereof without the consent of any Holder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Section 4.01 hereof; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to reflect the release of any Guarantor from its Guarantee, or the addition of any Subsidiary of the Company as a Guarantor, in the manner provided by this Indenture; (5) to comply with any requirement in order to effect or maintain the qualification of this Indenture under the TIA; (6) to add guarantees of the Securities; (7) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; -43- 49 (8) to add to the covenants of the Company or any Guarantor for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or any Guarantor; or (9) to make any change that does not adversely affect the rights hereunder and under the Registration Rights Agreement of any Holder in any material respect. Upon the request of the Company and the Guarantors, accompanied by a resolution of the Board of Directors and of the board of directors, board of trustees or managing partners of each Guarantor authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and make any further appropriate agreements and stipulations that may be therein contained. After an amendment, supplement or waiver under this Section 8.01 becomes effective, the Company shall mail to the Holders of each Security affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 8.02 With Consent of Holders. Except as provided below in this Section 8.02, the Company, the Guarantors and the Trustee may amend or supplement this Indenture or the Securities with the written consent (including consents obtained in connection with a tender offer or exchange offer for Securities or a solicitation of consents in respect of Securities, provided that in each case such offer or solicitation is made to all Holders of then outstanding Securities on equal terms) of the Holders of at least a majority in principal amount of the then outstanding Securities. Upon the request of the Company and the Guarantors, accompanied by a resolution of the Board of Directors and of the board of directors, board of trustees or managing partners of each Guarantor authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Company and the Guarantors in the execution of such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 8.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. The Holders of a majority in principal amount of the then outstanding Securities may waive compliance in a particular instance by the Company or the Guarantors with any provision of this Indenture or the Securities (including waivers obtained in connection with a tender offer or exchange offer for Securities or a solicitation of consents in respect of Securities, -44- 50 provided that in each case such offer or solicitation is made to all Holders of then outstanding Securities on equal terms). However, without the consent of each Holder affected, an amendment, supplement or waiver under this Section may not: (1) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or change the time for payment of interest, including default interest, on any Security; (3) reduce the principal of or change the fixed maturity of any Security; (4) make any Security payable in money other than that stated in the Security; (5) impair the right to institute suit for the enforcement of any payment of principal of or interest on any Security pursuant to Sections 5.07 and 5.08 hereof, except as limited by Section 5.06 hereof; (6) make any change in the percentage of principal amount of Securities necessary to waive compliance with certain provisions of this Indenture pursuant to Section 5.04 or 5.07 hereof or this clause of this Section 8.02; or (7) waive a continuing Default or Event of Default in the payment of principal of or interest on the Securities. The right of any Holder to participate in any consent required or sought pursuant to any provision of this Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Securities with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of this Indenture. SECTION 8.03 Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply in form and substance with the TIA as then in effect. SECTION 8.04 Revocation and Effect of Consents. Until an amendment (which includes any supplement) or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's -45- 51 Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his or her Security or portion of a Security if the Trustee receives written notice of revocation before the date the amendment or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver or to take any other action under this Indenture. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from Holders of the principal amount of Securities required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it is of the type described in any of clauses (1) through (7) of Section 8.02 hereof. In such case, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder that evidences the same debt as the consenting Holder's Security. SECTION 8.05 Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 8.06 Trustee to Sign Amendments, etc. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and subject to Section 6.01 hereof, shall be fully protected in relying upon, an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company and the Guarantors in accordance with its terms. -46- 52 ARTICLE 9 GUARANTEES OF SECURITIES SECTION 9.01 Unconditional Guarantees. (a) For value received, the Guarantors, jointly and severally, hereby fully, unconditionally and absolutely guarantee (the "Guarantees") to the Holders and to the Trustee the due and punctual payment of the principal of and interest on the Securities and all other amounts due and payable under this Indenture and the Securities by the Company, when and as such principal and interest shall become due and payable, whether at the stated maturity or by declaration of acceleration or otherwise, according to the terms of the Securities and this Indenture. (b) Failing payment when due of any amount guaranteed pursuant to the Guarantees, for whatever reason, each Guarantor will be obligated to pay the same immediately. Each Guarantee hereunder is intended to be a general, unsecured, senior obligation of each Guarantor and will rank pari passu in right of payment with all Indebtedness of each such Guarantor that is not, by its terms, expressly subordinated in right of payment to the Guarantee of such Guarantor. Each of the Guarantors hereby agrees that its obligations hereunder shall be full, unconditional and absolute, irrespective of the validity, regularity or enforceability of the Securities, the Guarantees or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each of the Guarantors hereby agrees that in the event of a default in payment of the principal of or interest on the Securities, whether at the stated maturity or by declaration of acceleration or otherwise, legal proceedings may be instituted by the Trustee on behalf of the Holders or, subject to Section 5.06 hereof, by the Holders, on the terms and conditions set forth in this Indenture, directly against each of the Guarantors to enforce the Guarantees without first proceeding against the Company. (c) The obligations of each Guarantor under this Article 9 shall be as aforesaid full, unconditional and absolute and shall not be impaired, modified, released or limited by any occurrence or condition whatsoever, including, without limitation, (i) any compromise, settlement, release, waiver, renewal, extension, indulgence or modification of, or any change in, any of the obligations and liabilities of the Company or any Guarantor contained in the Securities or this Indenture, (ii) any impairment, modification, release or limitation of the liability of the Company, any Guarantor or any of their estates in bankruptcy, or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of any applicable Bankruptcy Law, as amended, or other statute or from the decision of any court, (iii) the assertion or exercise by the Company, any Guarantor or the Trustee of any rights or remedies under the Securities or this Indenture or their delay in or failure to assert or exercise any such rights or remedies, (iv) the assignment or the purported assignment of any property as security for the Securities, including all or any part of the rights of the Company or any Guarantor under this Indenture, (v) the extension of the time for payment by the Company or any Guarantor of any payments or other -47- 53 sums or any part thereof owing or payable under any of the terms and provisions of the Securities or this Indenture or of the time for performance by the Company or any Guarantor of any other obligations under or arising out of any such terms and provisions or the extension or the renewal of any thereof, (vi) the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Company or any Guarantor set forth in this Indenture, (vii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar proceeding affecting, the Company or any of the Guarantors or any of their respective assets, or the disaffirmance of the Securities, the Guarantees or this Indenture in any such proceeding, (viii) the release or discharge of the Company or any Guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of such instruments by operation of law, (ix) the unenforceability of the Securities, the Guarantees or this Indenture or (x) any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. (d) Each of the Guarantors hereby (i) waives diligence, presentment, demand of payment, filing of claims with a court in the event of the merger, insolvency or bankruptcy of the Company or a Guarantor, and all demands whatsoever, (ii) acknowledges that any agreement, instrument or document evidencing the Guarantees may be transferred and that the benefit of its obligations hereunder shall extend to each holder of any agreement, instrument or document evidencing the Guarantees without notice to them and (iii) covenants that its Guarantee will not be discharged except by complete performance of the Guarantees. Each Guarantor further agrees that if at any time all or any part of any payment theretofore applied by any Person to any Guarantee is, or must be, rescinded or returned for any reason whatsoever, including without limitation, the insolvency, bankruptcy or reorganization of any Guarantor, such Guarantee shall, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence notwithstanding such application, and the Guarantees shall continue to be effective or be reinstated, as the case may be, as though such application had not been made. (e) Each Guarantor shall be subrogated to all rights of the Holders and the Trustee against the Company in respect of any amounts paid by such Guarantor pursuant to the provisions of this Indenture; provided, however, that no Guarantor shall be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until all of the Securities and the Guarantees shall have been paid in full or discharged. (f) A director, officer, employee or stockholder, as such, of any Guarantor shall not have any liability for any obligations of such Guarantor under this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. SECTION 9.02 Limitation of Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee -48- 54 not constitute a fraudulent transfer or conveyance for purposes of any federal, state or foreign law. To effectuate the foregoing intention, the Holders and each Guarantor hereby irrevocably agree that the obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 9.03 hereof, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. SECTION 9.03 Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligations with respect to its Guarantee. SECTION 9.04 Execution and Delivery of Guarantees. To further evidence the Guarantees, each Guarantor hereby agrees that a notation relating to such Guarantees shall be endorsed on each Security authenticated and delivered by the Trustee and executed by either manual or facsimile signature of two Officers of each Guarantor. Each of the Guarantors hereby agrees that its Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation relating to such Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Security no longer holds that office at the time the Trustee authenticates such Security or at any time thereafter, such Guarantor's Guarantee of such Security shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of the Guarantor. SECTION 9.05 Addition of Guarantors. (a) If any Subsidiary of the Company guarantees (or becomes a co-obligor on) any Funded Indebtedness of the Company other than the Securities at any time subsequent to the Issue Date (including, without limitation, following any release of such Subsidiary pursuant to Section 9.06 hereof from any Guarantee previously provided by it under this Article 9), then the Company shall (i) cause the Securities to be equally and ratably guaranteed by such Subsidiary, -49- 55 but only to the extent that the Securities are not already guaranteed by such Subsidiary on reasonably comparable terms and (ii) cause such Subsidiary to execute and deliver a supplemental indenture evidencing its provision of a Guarantee in accordance with clause (b) below. (b) Any Person that was not a Guarantor on the Issue Date may become a Guarantor by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Guarantor and (ii) an Opinion of Counsel and Officers' Certificate to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion and provided that no opinion need be rendered concerning the enforceability of the Guarantee). SECTION 9.06 Release of Guarantee. Notwithstanding anything to the contrary in this Article 9, in the event that any Guarantor shall no longer be a guarantor of (or co-obligor on) any Funded Indebtedness of the Company other than the Securities and other than Funded Indebtedness of the Company (i) subject to a release provision substantially similar to this Section 9.06 and (ii) the related guarantee (or obligation) of which will be released substantially concurrently with the release of the Guarantee of such Guarantor pursuant to this Section 9.06, and so long as no Default or Event of Default shall have occurred or be continuing, such Guarantor, upon giving notice to the Trustee to the foregoing effect, shall be deemed to be released from all of its obligations under this Indenture and the Guarantee of such Guarantor shall be of no further force or effect. Following the receipt by the Trustee of any such notice, the Company shall cause this Indenture to be amended as provided in Section 8.01 hereof; provided, however, that the failure to so amend this Indenture shall not affect the validity of the termination of the Guarantee of such Guarantor. SECTION 9.07 Consent to Jurisdiction and Service of Process. Each Guarantor that is not organized under the laws of the United States (including the States and the District of Columbia) (each a "Non-U.S. Guarantor") hereby appoints the principal office of CT Corporation System in The City of New York which, on the date hereof, is located at 1633 Broadway, New York, New York 10019, as the authorized agent thereof (the "Authorized Agent") upon whom process may be served in any action, suit or proceeding arising out of or based on this Indenture or the Securities which may be instituted in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York, in either case in The Borough of Manhattan, The City of New York, by the Holder of any Security, and each Non-U.S. Guarantor hereby waives any objection which it may now or hereafter have to the laying of venue of any such proceeding and expressly and irrevocably accepts and submits, for the benefit of the Holders from time to time of the Securities, to the nonexclusive jurisdiction of any such court in respect of any such action, suit or proceeding, for itself and with respect to its properties, revenues and assets. Such appointment shall be -50- 56 irrevocable unless and until the appointment of a successor authorized agent for such purpose, and such successor's acceptance of such appointment, shall have occurred. Each Non-U.S. Guarantor agrees to take any and all actions, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent with respect to any such action shall be deemed, in every respect, effective service of process upon any such Non-U.S. Guarantor. Notwithstanding the foregoing, any action against any Non-U.S. Guarantor arising out of or based on any Security may also be instituted by the Holder of such Security in any court in the jurisdiction of organization of such Non-U.S. Guarantor, and such Non-U.S. Guarantor expressly accepts the jurisdiction of any such court in any such action. The Company shall require the Authorized Agent to agree in writing to accept the foregoing appointment as agent for service of process. SECTION 9.08 Waiver of Immunity. To the extent that any Non-U.S. Guarantor or any of its properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any thereof, from set-off or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture or the Securities, such Non-U.S. Guarantor, to the maximum extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement. SECTION 9.09 Judgment Currency. Each Non-U.S. Guarantor agrees to indemnify the Trustee and each Holder against any loss incurred by it as a result of any judgment or order being given or made and expressed and paid in a currency (the "Judgment Currency") other than United States dollars and as a result of any variation as between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which the Trustee or such Holder on the date of payment of such judgment or order is able to purchase United States dollars with the amount of the Judgment Currency actually received by the Trustee or such Holder. The foregoing indemnity shall constitute a separate and independent obligation of each Non-U.S. Guarantor and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, United States dollars. -51- 57 ARTICLE 10 MISCELLANEOUS SECTION 10.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of TIA Section 318(c), the imposed duties shall control. SECTION 10.02 Notices. Any notice or communication by the Company, the Guarantors or the Trustee to the others is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company or the Guarantors: BJ Services Company 5500 Northwest Central Drive Houston, Texas 77092 Attention: General Counsel If to the Trustee: Bank of Montreal Trust Company 77 Water Street, 4th Floor New York, New York 10005 Attention: Corporate Trust Department The Company, the Guarantors or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. -52- 58 Any notice or communication to a Holder shall be mailed by first-class mail, postage prepaid, to the Holder's address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications, including without limitation notices to the Trustee or the Company or any Guarantor by Holders, shall be in writing, except as set forth below. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. SECTION 10.03 Communication by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 10.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantor shall, if requested by the Trustee, furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. SECTION 10.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: -53- 59 (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 10.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or the Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.07 Legal Holidays. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 10.08 No Recourse Against Others. A director, officer, employee or stockholder of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release shall be part of the consideration for the issue of Securities. SECTION 10.09 Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUCTED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. -54- 60 SECTION 10.10 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company, any Guarantor or any other Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.11 Successors. All agreements of the Company and the Guarantors in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.12 Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.13 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 10.14 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. BJ SERVICES COMPANY By: /s/___________________________ Name: Title: -55- 61 BANK OF MONTREAL TRUST COMPANY By: /s/___________________________ Name: Title: BJ SERVICES COMPANY, U.S.A. By: /s/___________________________ Name: Title: Address: BJ SERVICE INTERNATIONAL, INC. By: /s/___________________________ Name: Title: Address: BJ SERVICES COMPANY MIDDLE EAST By: /s/____________________________ Name: Title: Address: -56- 62 EXHIBIT A [FACE OF SECURITY] BJ SERVICES COMPANY 7% SERIES [A/B] NOTE DUE 2006 CUSIP ___________ No. $ BJ Services Company, a Delaware corporation (the "Company"), for value received promises to pay to ___________________________ or registered assigns, the principal sum of _____________________________ Dollars on February 1, 2006. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. Dated: [SEAL] BJ SERVICES COMPANY By: ______________________________ By: ______________________________ Certificate of Authentication: BANK OF MONTREAL TRUST COMPANY, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By: _____________________________ Authorized Signature __________________________ 1 So long as the restrictive legend is included on a Definitive Security, a CUSIP number is not needed for a Definitive Security transferred to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933). A-1 63 [Unless and until it is exchanged in whole or in part for Securities in definitive form, this Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depository Trust Company shall act as the Depositary until a successor shall be appointed by the Company and the Registrar. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.](2) THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT ______________________ (2) This paragraph should be included only if the Security is issued in global form. A-2 64 THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. A-3 65 [REVERSE OF SECURITY] BJ SERVICES COMPANY 7% SERIES [A/B] NOTE DUE 2006 This Security is one of a duly authorized issue of 7% [Series A/Series B] Notes due 2006 (the "Securities") of BJ Services Company, a Delaware corporation (the "Company"). 1. Interest. The Company promises to pay interest on the principal amount of this Security at 7% per annum from February 20, 1996 until maturity. The Company will pay interest semiannually on February 1 and August 1 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest on the Securities will accrue from the most recent Interest Payment Date on which interest has been paid or, if no interest has been paid, from February 20, 1996; provided that if there is no existing Default in the payment of interest, and if this Security is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be August 1, 1996. The Company shall pay interest on overdue principal from time to time on demand at a rate equal to the interest rate then in effect; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder must surrender this Security to a Paying Agent to collect principal payments. The Company will pay the principal of and interest on the Securities in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay such amounts by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Ranking and Guarantees. The Securities are senior unsecured obligations of the Company. The Company's obligations to pay principal and interest with respect to the Securities are unconditionally guaranteed on a joint and several basis (the "Guarantees") by the guarantors (the "Guarantors"), parties to the Indenture. Each of the Guarantees is an unsecured obligation of the Guarantor providing such Guarantee. Certain limitations to the obligations of the Guarantors are set forth in further detail in the Indenture. References herein to the Indenture or the Securities shall be deemed also to refer to the Guarantees set forth in the Indenture except where the context otherwise requires. A-4 66 4. Paying Agent and Registrar. Initially, Bank of Montreal Trust Company (the "Trustee"), the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar, co-registrar or additional paying agent without notice to any Holder. The Company may act in any such capacity. 5. Indenture. The Company issued the Securities under an Indenture dated as of February 1, 1996 (the "Indenture") among the Company, the Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date of execution of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Securities are unsecured general obligations of the Company limited to $125,000,000 in aggregate principal amount. 6. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities during the period between a record date and the corresponding Interest Payment Date. 7. Persons Deemed Owners. The registered Holder of a Security shall be treated as its owner for all purposes. 8. Amendments and Waivers. Subject to certain exceptions and limitations, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities, and any existing Default under, or compliance with any provision of, the Indenture may be waived (other than any continuing Default or Event of Default in the payment of the principal of or interest on the Securities) by the Holders of at least a majority in principal amount of the Securities then outstanding in accordance with the terms of the Indenture. Without the consent of any Holder, the Company, the Guarantors and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency; to provide for uncertificated Securities in addition to or in place of certificated Securities; to provide for the assumption of the obligations of the Company and each Guarantor under the Indenture to Holders in the case of the merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or any Guarantor; to reflect the release of any Guarantor from its Guarantee to the extent permitted by the Indenture; to add guarantees to the Securities; to add to the covenants of the Company or the Guarantors or to surrender any right of the Company or any Guarantor; to make any change that does not materially adversely affect the rights of any Holder; or to comply with the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. A-5 67 The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Securities with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture. Without the consent of each Holder affected, the Company may not (i) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the rate of or change the time for payment of interest, including default interest, on any Security, (iii) reduce the principal of or change the fixed maturity of any Security, (iv) make any Security payable in money other than that stated in the Security, (v) impair the right to institute suit for the enforcement of any payment of principal of or interest on any Security, (vi) make any change in the percentage of principal amount of Securities necessary to waive compliance with certain provisions of the Indenture or (vii) waive a continuing Default or Event of Default in the payment of principal of or interest on the Securities. 9. Defaults and Remedies. Events of Default include: default in payment of interest on the Securities for 30 days; default in payment of principal of the Securities; failure by the Company or any Guarantor for 60 days after written notice by the Trustee or by the Holders of at least 25% of the aggregate principal amount of the Securities then outstanding to it to comply with any of its other covenants or agreements in the Indenture, the Guarantees or the Securities; the acceleration of the maturity of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) that has an outstanding principal amount of $20 million or more individually or in the aggregate; a default in the payment of principal or interest in respect of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or in the aggregate, and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, effecting a cure of such default; a judgment or order for the payment of money in excess of $20 million (net of applicable insurance coverage) having been rendered against the Company, any Guarantor or any other "significant subsidiary" (as such term is defined in Regulation S-X under the Securities Exchange Act of 1934, as amended; a "Significant Subsidiary") of the Company and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or certain events involving bankruptcy, insolvency or reorganization of the Company, any Guarantor or any other Significant Subsidiary of the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may declare the principal of and interest on all the Securities to be immediately due and payable, except that in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company or any Guarantor, all outstanding Securities become due and payable immediately without further action or notice. The amount due and payable upon the acceleration of any Security is equal to 100% of the principal amount thereof plus accrued interest to the date of payment. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may A-6 68 require indemnity reasonably satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 10. Discharge Prior to Maturity. The Indenture shall be discharged and canceled upon the payment of all of the Securities and shall be discharged except for certain obligations upon the irrevocable deposit with the Trustee of funds or U.S. Government Obligations sufficient for such payment. 11. Trustee Dealings with Company and Guarantors. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company, the Guarantors or their respective Affiliates, and may otherwise deal with the Company, the Guarantors or their respective Affiliates, as if it were not Trustee. 12. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or any Guarantor shall not have any liability for any obligations of the Company or such Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 13. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 14. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed thereon. 15. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. Additional Rights of Holders of Transfer Restricted Securities. In addition to the rights provided by Holders of Securities under the Indenture, Holders of Transfer Restricted Securities shall have all the rights set forth in the Registration Rights Agreement, dated as of the Issue Date (the "Registration Rights Agreement"), among the Company and the Initial Purchasers. A-7 69 THE COMPANY WILL FURNISH TO ANY HOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUEST MAY BE MADE TO: BJ SERVICES COMPANY 5500 NORTHWEST CENTRAL DRIVE HOUSTON, TEXAS 77092 ATTENTION: GENERAL COUNSEL A-8 70 FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES Each Guarantor (which term includes any successor Person under the Indenture), has fully, unconditionally and absolutely guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, the due and punctual payment of the principal of and interest on the Securities and all other amounts due and payable under the Indenture and the Securities by the Company. The obligations of the Guarantors to the Holders of Securities and to the Trustee pursuant to the Guarantees and the Indenture are expressly set forth in Article 9 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantees. BJ SERVICES COMPANY, U.S.A. By:_______________________________________ By:_______________________________________ BJ SERVICE INTERNATIONAL, INC. By:_______________________________________ By:_______________________________________ BJ SERVICES COMPANY MIDDLE EAST By:_______________________________________ By:_______________________________________ A-9 71 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to _________________________________________ ______________________________________________________________________________ (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ___________________________ Your Signature:______________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee ___________________________________________________________ (Participant in a Recognized Signature Guaranty Medallion Program) A-10 72 SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY* The following exchanges of a part of this Global Security for Definitive Securities have been made:
Amount of Amount of Principal Amount decrease in increase in of this Global Signature of Principal Amount Principal Amount Security following authorized officer of this Global of this Global such decrease of Trustee or Date of Exchange Security Security (or increase) Security Custodian ---------------- ---------------- --------------- ----------------- --------------------
______________________ * This should be included only if the Security is issued in global form. A-11 73 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 7% Series [A/B] Notes due 2006 of BJ Services Company This Certificate relates to $_____ principal amount of Securities held in *______ book-entry or *______ definitive form by _____________________ (the "Transferor"). The Transferor**: [ ] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Securities held by the Depositary a Security or Securities in definitive, registered form equal to its beneficial interest in such Global Securities (or the portion thereof indicated above); or [ ] has requested the Trustee by written order to exchange or register the transfer of a Security or Securities. In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with the Indenture relative to the above captioned Securities and that the transfer of this Security does not require registration under the Securities Act (as defined below) because:* [ ] Such Security is being acquired for the Transferor's own account without transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of the Indenture). [ ] Such Security is being transferred (i) to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")), in reliance on Rule 144A under the Securities Act or (ii) pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (and in the case of clause (ii), based on an opinion of counsel if the Company so requests and together with a certification in substantially the form of Exhibit D to the Indenture). [ ] Such Security is being transferred (i) in accordance with Rule 144 under the Securities Act (and based on an opinion of counsel if the Company so requests) or (ii) pursuant to an effective registration statement under the Securities Act. _____________________ **Check applicable box. B-1 74 [ ] Such Security is being transferred to aninstitutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company so requests) together with a certification in substantially the form of Exhibit C to the Indenture. [ ] Such Security is being transferred in reliance on and in compliance with another exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company so requests). ________________________________________ [INSERT NAME OF TRANSFEROR] By:_____________________________________ Name: Title: Address: Date:____________________ B-2 75 EXHIBIT C FORM OF TRANSFEREE LETTER OF REPRESENTATION TO BE DELIVERED BY INSTITUTIONAL ACCREDITED INVESTORS BJ Services Company, c/o Bank of Montreal Trust Company, as Trustee 77 Water Street, 4th Floor New York, New York 10005 Dear Sirs: In connection with the proposed transfer to us of $___________ aggregate principal amount of the 7% Notes due 2006 (the "Notes") of BJ SERVICES COMPANY, a Delaware corporation (the "Company"), we confirm that: 1. We understand that the Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or other applicable securities laws, and may not be offered, sold or otherwise transferred except as permitted in the following sentence. We agree on our behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is three years after the later of the date of original issue thereof and the last date on which the Company or any "affiliate" of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a "qualified institutional buyer" (a "QIB") as defined in Rule 144A under the Securities Act that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" (an "Institutional Accredited Investor") within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is acquiring the Notes for its own account or for the account of such an Institutional Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject to the Company's and the Trustee's right prior to any such offer, sale or transfer (i) pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to each of them and (ii) in each of the foregoing cases to require that a certificate of transfer in the form appearing on the Notes is completed and delivered by the transferor to the Trustee. C-1 76 2. We are an Institutional Accredited Investor purchasing for our own account or for the account of such an Institutional Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or any other applicable securities laws and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment for an indefinite period. 3. We are acquiring the Notes purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion. 4. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, Name of Transferee: ___________________ By: ___________________________________ Date: _________________________________ Upon transfer the Notes would be registered in the name of the new beneficial owner as follows: Name: __________________________ Address: _______________________ _______________________ Taxpayer ID No: _______________ C-2 77 EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S _____________, ____ Bank of Montreal Trust Company, as Registrar Attention: Corporate Trust Department Ladies and Gentlemen: In connection with our proposed sale of certain 7% Series [A/B] Notes due 2006 (the "Securities") of BJ Services Company, a Delaware corporation (the "Company"), we represent that: (i) the offer of the Securities was not made to a person in the United States; (ii) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (iii) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the U.S. Securities Act of 1933, as applicable; and (iv) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. You and the Company are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S under the U.S. Securities Act of 1933. D-1 78 Very truly yours, ___________________________ [Name] By: _______________________ Name: Title: Address: D-2 EX-4.2 3 REGISTRATION RIGHTS AGREEMENT DATED 02/20/96 1 REGISTRATION RIGHTS AGREEMENT Dated as of February 20, 1996 among BJ SERVICES COMPANY, Issuer, BJ SERVICES COMPANY, U.S.A., BJ SERVICES COMPANY MIDDLE EAST, BJ SERVICE INTERNATIONAL, INC., Subsidiary Guarantors, and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, CS FIRST BOSTON CORPORATION, BA SECURITIES, INC., CHASE SECURITIES, INC., Initial Purchasers 2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered as of February 20, 1996, among BJ SERVICES COMPANY, a Delaware corporation (the "Company"), and BJ SERVICES COMPANY, U.S.A., BJ SERVICES COMPANY MIDDLE EAST and BJ SERVICE INTERNATIONAL, INC., each a Delaware corporation and direct or indirect wholly owned subsidiary of the Company (the "Subsidiary Guarantors"), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, CS FIRST BOSTON CORPORATION, BA SECURITIES, INC. and CHASE SECURITIES, INC. (the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement dated February 14, 1996 among the Company, the Subsidiary Guarantors and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of an aggregate of $125,000,000 principal amount of the Company's 7% Series A Notes due 2006 (the "Debt Securities"). As provided in the Indenture (as hereinafter defined), the Debt Securities are unconditionally guaranteed pursuant to the guarantees of the Subsidiary Guarantors. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Subsidiary Guarantors have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree, and all other Holders (as defined below) of Registrable Securities (as defined below) from time to time, by their acceptance thereof, shall be conclusively deemed to have agreed, as follows: 1. DEFINITIONS. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Agreement" shall have the meaning set forth in the preamble. "Closing Date" shall mean the date on which the Closing Time (as defined in the Purchase Agreement) occurs. "Company" shall have the meaning set forth in the preamble and also includes the Company's successors. "Debt Securities" shall have the meaning set forth in the preamble. -1- 3 "Depositary" shall mean the Trustee, or any other exchange agent appointed by the Company. "Exchange Offer" shall mean the exchange offer by the Company and the Subsidiary Guarantors of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Securities" shall mean 7% Series B Notes due 2006 issued by the Company under the Indenture containing terms identical in all material respects to the Debt Securities (except that (i) interest thereon shall accrue from the last date on which interest was paid or duly provided for on the Debt Securities or, if no such interest has been paid, from February 20, 1996, (ii) the transfer restrictions thereon shall be eliminated and (iii) certain provisions relating to an increase in the stated rate of interest thereon shall be eliminated), to be offered to Holders of Debt Securities in exchange for Debt Securities pursuant to the Exchange Offer. "Holders" shall mean each of the Initial Purchasers, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who shall at the time be owners of Registrable Securities under the Indenture; provided, however, that the term Holder shall exclude any underwriter who purchased Registrable Securities for distribution in an underwritten public offering pursuant to an effective Registration Statement. "Indenture" shall mean the Indenture relating to the Debt Securities dated as of February 1, 1996 between the Company, the Subsidiary Guarantors and Bank of Montreal Trust Company, as trustee, as the same may be amended from time to time in accordance with the terms thereof. "Initial Purchasers" shall have the meaning set forth in the preamble. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities; provided, however, that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities directly or indirectly held by the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage or amount; and provided, further, that whenever the consent or approval of Holders of Registrable Securities is required hereunder with regard to matters related to an underwritten -2- 4 registration or similar offering or with regard to matters pertaining to a Registration Statement, Registrable Securities held by Holders not participating in such underwritten registration or similar offering, or Registrable Securities not registered pursuant to such Registration Statement (or, at any time prior to the filing of a Subject Registration Statement and after the determination to file such Subject Registration Statement is made, Registrable Securities whose Holders have not requested that such Registrable Securities be included in such Subject Registration Statement), as the case may be, shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage or amount. "Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the Initial Purchasers. "Person" shall mean an individual, partnership, corporation, trust, unincorporated organization, limited liability company, joint stock company, joint venture, charitable foundation or other entity, or a government or any agency or political subdivision thereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Subject Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated or deemed to be incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. "Purchaser Shelf Registration Statement" shall mean a "shelf" registration statement of the Company and the Subsidiary Guarantors pursuant to the provisions of Section 2(b)(iii) of this Agreement with respect to offers and sales of Registrable Securities held by any or all of the Initial Purchasers (except Registrable Securities which the Initial Purchasers have elected not to include in such Purchaser Shelf Registration Statement or the Initial Purchasers of which have not complied with their obligations under the penultimate paragraph of Section 3 hereof or under the penultimate sentence of Section 2(b) hereof) after completion of the Exchange Offer on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated or deemed to be incorporated by reference therein. "Registrable Securities" shall mean the Debt Securities; provided, however, that any Debt Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Debt Securities shall have been declared effective under the 1933 Act and such Debt Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Debt Securities shall have been sold to the public pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Debt Securities shall have -3- 5 become eligible for resale pursuant to Rule 144(k) under the 1933 Act, (iv) such Debt Securities shall have ceased to be outstanding or (v) such Debt Securities have been exchanged for Exchange Securities upon consummation of the Exchange Offer. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company and the Subsidiary Guarantors with this Agreement, including without limitation: (i) all SEC or National Association of Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of one firm of legal counsel for any underwriters and Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities), (iii) all expenses of printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, (iv) all rating agency fees, (v) the fees and disbursements of counsel(s) for the Company and the Subsidiary Guarantors and of the independent public accountants of the Company and the Subsidiary Guarantors, including the expenses of "cold comfort" letters required by this Agreement, (vi) the fees and expenses of the Trustee, and any escrow agent or custodian, (vii) all fees and expenses incurred in connection with listing the Debt Securities or the Exchange Securities, as the case may be, on any securities exchange or on any securities quotation system and (viii) the reasonable fees and expenses of any special experts retained by the Company or the Subsidiary Guarantors in connection with any Registration Statement, but excluding fees of counsel to the underwriters or the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company and the Subsidiary Guarantors which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated or deemed to be incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "Shelf Registration" shall mean a registration effected pursuant to Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company and the Subsidiary Guarantors pursuant to the provisions of Section 2(b)(i) or (ii) of this Agreement which covers all of the Registrable Securities (except Registrable Securities which the Holders have elected not to include in such Shelf Registration Statement or the Holders of which have not complied with their obligations under the penultimate paragraph of Section 3 hereof or under the penultimate sentence of Section 2(b) hereof) on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, -4- 6 in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated or deemed to be incorporated by reference therein. "Subject Registration Statement" shall mean a Shelf Registration Statement or a Purchaser Shelf Registration Statement or both (as the context requires). "Subsidiary Guarantors" shall have the meaning set forth in the preamble and also includes any subsidiary of the Company that becomes a guarantor of the Debt Securities pursuant to the terms and provisions of the Indenture. "Trustee" shall mean the trustee with respect to the Debt Securities under the Indenture. All references herein to information which is "included" or "contained" in a Registration Statement or Prospectus, and all references of like import, shall include the information (including financial statements) incorporated or deemed to be incorporated by reference therein, and all references herein to amendments or supplements to a Registration Statement or Prospectus shall include any documents filed by the Company or any Subsidiary Guarantor under the 1934 Act which are deemed to be incorporated by reference therein. 2. REGISTRATION UNDER THE 1933 ACT. (a) Exchange Offer Registration. To the extent not prohibited by law (including, without limitation, any applicable interpretation of the staff of the SEC), the Company and the Subsidiary Guarantors shall use their reasonable best efforts (A) to file within 60 days after the Closing Date an Exchange Offer Registration Statement covering the offer by the Company and the Subsidiary Guarantors to the Holders to exchange all of the Registrable Securities (except Registrable Securities held by an Initial Purchaser and acquired directly from the Company if such Initial Purchaser is not permitted, in the reasonable opinion of counsel to the Initial Purchasers, pursuant to applicable law or SEC interpretation, to participate in the Exchange Offer) for Exchange Securities, (B) to cause such Exchange Offer Registration Statement to be declared effective by the SEC within 120 days after the Closing Date, (C) to cause such Exchange Offer Registration Statement to remain effective until the closing of the Exchange Offer and (D) to consummate the Exchange Offer within 180 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder (other than Participating Broker-Dealers (as defined in Section 3(f) hereof) and broker-dealers who purchased Debt Securities directly from the Company to resell pursuant to Rule 144A or any other available exemption under the 1933 Act) eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements or understandings with any person to participate in the distribution (within the meaning of the 1933 Act) of Exchange Securities) to trade such Exchange Securities from and after their receipt without any limitations or restrictions -5- 7 under the 1933 Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. In connection with the Exchange Offer, the Company and the Subsidiary Guarantors shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Exchange Offer open for not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) use the services of the Depositary for the Exchange Offer; (iv) permit Holders to withdraw tendered Registrable Securities at any time prior to the close of business, New York City time, on the last business day on which the Exchange Offer shall remain open, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing his election to have such Debt Securities exchanged; and (v) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. As soon as practicable after the close of the Exchange Offer, the Company and the Subsidiary Guarantors shall: (i) accept for exchange Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which is an exhibit thereto; (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities so accepted for exchange by the Company; and (iii) cause the Trustee promptly to authenticate and deliver Exchange Securities to each Holder of Registrable Securities equal in amount to the Registrable Securities of such Holder so accepted for exchange. Interest on each Exchange Security will accrue from the last date on which interest was paid or duly provided for on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from February 20, 1996. The Exchange Offer shall not be subject to any conditions, other than (i) that the Exchange Offer, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of -6- 8 the staff of the SEC, (ii) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency or body with respect to the Exchange Offer, (iii) that there shall not have been adopted or enacted any law, statute, rule or regulation, (iv) that there shall not have been declared by United States federal or Texas or New York state authorities a banking moratorium, (v) that trading on the New York Stock Exchange or generally in the United States over-the-counter market shall not have been suspended by order of the SEC or any other governmental authority and (vi) such other conditions as may be reasonably acceptable to Merrill Lynch, in each of clauses (ii) through (v), which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer. In addition, each Holder of Registrable Securities (other than Participating Broker-Dealers) who wishes to exchange such Registrable Securities for Exchange Securities in the Exchange Offer will be required to represent that (i) it is not an affiliate of the Company or any Subsidiary Guarantor, (ii) any Exchange Securities to be received by it were acquired in the ordinary course of business and (iii) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, the distribution (within the meaning of the 1933 Act) of the Exchange Securities. Each Participating Broker-Dealer shall be required to make such representations as, in the reasonable judgment of the Company, may be necessary under applicable SEC rules, regulations or interpretations or customary in connection with similar exchange offers. Each Holder (including Participating Broker-Dealers) shall be required to make such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or another appropriate form under the 1933 Act available and will be required to agree to comply with their agreements and covenants set forth in this Agreement. The Exchange Offer shall be subject to the further condition that no stop order shall have been issued by the SEC or any state securities authority suspending the effectiveness of the Exchange Offer Registration Statement and no proceedings shall have been initiated or, to the knowledge of the Company, threatened for that purpose. To the extent permitted by law, the Company shall, upon request of Merrill Lynch, inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to, and, if requested by the Company, shall, contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors shall, if requested by the staff of the SEC, provide a supplemental letter to the SEC (i) stating that the Company and the Subsidiary Guarantors are registering the Exchange Offer in reliance on the position of the SEC enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc. (available June 5, 1991) and (ii) including a representation that the Company and the Subsidiary Guarantors have not entered into any arrangement or understanding with any Person to distribute the Exchange Securities and that, to the best of the Company's and the Subsidiary Guarantors' information and belief, each Holder participating in the Exchange Offer is acquiring the Exchange Securities in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Exchange Securities received in the Exchange Offer. -7- 9 If in the reasonable opinion of counsel to the Company and the Subsidiary Guarantors there is a question as to whether the Exchange Offer is permitted by applicable law, the Company and the Subsidiary Guarantors hereby agree to seek a no-action letter or other favorable decision from the SEC allowing the Company and the Subsidiary Guarantors to consummate the Exchange Offer. The Company and the Subsidiary Guarantors hereby agree to pursue the issuance of such a decision to the SEC staff level, but shall not be required to take commercially unreasonable action to effect a change of SEC policy. The Company and the Subsidiary Guarantors hereby agree, however, to (i) participate in telephonic conferences with the SEC and the staff of the SEC, (ii) deliver to the staff of the SEC an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that the Exchange Offer should be permitted and (iii) diligently pursue a resolution (which need not be favorable) by the staff of the SEC of such submission. (b) Shelf Registration. (i) If, because of any change in law or applicable interpretations thereof by the staff of the SEC, the Company and the Subsidiary Guarantors are not permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof, or (ii) if for any other reason the Exchange Offer Registration Statement is not declared effective within 120 days after the Closing Date or the Exchange Offer is not consummated within 180 days after the Closing Date, or (iii) upon the request of Merrill Lynch (but only with respect to any Registrable Securities which the Initial Purchasers acquired directly from the Company) following the consummation of the Exchange Offer if any of the Initial Purchasers shall hold Registrable Securities which such Initial Purchaser acquired directly from the Company and if such Initial Purchaser is not permitted, in the reasonable opinion of counsel to the Initial Purchasers, pursuant to applicable law or applicable interpretation of the staff of the SEC to participate in the Exchange Offer, the Company and the Subsidiary Guarantors shall, at their cost: (A) in the event clause (i) or (ii) is applicable, as promptly as practicable (but in no event (x) more than 30 days from the date on which the Company and the Subsidiary Guarantors determined that they are not permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof in the case of clause (i) or (y) on the 150th day after the Closing Date in the case of clause (ii)), file with the SEC a Shelf Registration Statement relating to the offer and sale of the Registrable Securities (other than Registrable Securities owned by Holders who have elected not to include such Registrable Securities in such Shelf Registration Statement or who have not complied with their obligations under the penultimate paragraph of Section 3 hereof or under the penultimate sentence of this Section 2(b)) by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders of such Registrable Securities and set forth in such Shelf Registration Statement, and use their reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the SEC by the 180th day after the Closing Date. In the event that the Company is required to file a Purchaser Shelf Registration Statement upon the request of Merrill Lynch pursuant to clause (iii) above, the Company and the Subsidiary Guarantors shall use their reasonable best efforts (unless clause (i) or (ii) above is applicable) to file and have declared effective by the SEC an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to -8- 10 all Registrable Securities (other than Registrable Securities acquired directly from the Company and held by the Initial Purchasers) and use their reasonable best efforts to file, promptly after any such request from Merrill Lynch, and have declared effective, a Purchaser Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement or, if clause (i) or (ii) above is applicable, a combined Registration Statement with the Shelf Registration Statement); (B) use their reasonable best efforts to keep the relevant Subject Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of three years from the date a Shelf Registration Statement is declared effective by the SEC (or one year from the date a Purchaser Shelf Registration Statement is declared effective) or in each case such shorter period which will terminate when all of the Registrable Securities covered by the relevant Subject Registration Statement have been sold pursuant to such Subject Registration Statement or otherwise are no longer Registrable Securities; and (C) notwithstanding any other provisions hereof, use their reasonable best efforts to ensure that (i) any Subject Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Subject Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Subject Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. To the extent permitted by law, the Company and the Subsidiary Guarantors further agree, if necessary, to supplement or amend the Shelf Registration Statement (if reasonably requested by one firm of legal counsel selected by the Majority Holders) or the Purchaser Shelf Registration Statement (if reasonably requested by Merrill Lynch), as the case may be, with respect to information relating to the Holders or the Initial Purchasers, respectively, and otherwise as required by Section 3(b) below, to use their reasonable best efforts to cause any such amendment to become effective and such Subject Registration Statement to become usable as soon as thereafter practicable and to furnish to the Holders of Registrable Securities registered thereby or the relevant Initial Purchasers, as the case may be, copies of any such supplement or amendment promptly after its being used or filed with the SEC. The Company may require, as a condition to including the Registrable Securities of any Holder in any Subject Registration Statement, that such Holder shall have furnished to the Company a written agreement to the effect that such Holder agrees to comply with and be bound by the provisions of this Agreement. For further clarity, the Company and the Subsidiary Guarantors shall have no obligation to keep the Shelf Registration Statement effective after consummation of the Exchange Offer, and the -9- 11 Company's and the Subsidiary Guarantors' obligations to use their reasonable best efforts to file a Shelf Registration Statement and to keep such Shelf Registration Statement effective shall immediately be suspended upon effectiveness of the Exchange Offer Registration Statement (regardless of when such effectiveness shall occur). (c) Expenses. The Company and the Subsidiary Guarantors (i) shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or 2(b) and (ii) in connection with the Exchange Offer Registration Statement and the Shelf Registration Statement, shall reimburse the Holders of Registrable Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable (or to the extent such fees and disbursements are paid to such counsel by the Initial Purchasers, the Initial Purchasers), for the reasonable fees and disbursements of not more than one counsel, to be chosen by the Holders of a majority in principal amount of the Registrable Securities for whose benefit such Registration Statement is being prepared. Each Holder (including each Initial Purchaser) shall pay all expenses of its counsel other than as set forth in the preceding sentence, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to any Subject Registration Statement or the exchange of its Registrable Securities pursuant to any Exchange Offer Registration Statement. Notwithstanding anything in this Agreement to the contrary, the Company and the Subsidiary Guarantors shall not be required to pay the fees and disbursements of legal counsel for any Holders (including Initial Purchasers) except (A) as provided in clause (ii) of the first sentence of this paragraph, (B) to the extent such fees and disbursements constitute Registration Expenses which the Company is required to pay pursuant to the other provisions of this Agreement and (C) to the extent required by Section 5 hereof. (d) Effective Registration Statement. (i) The Company and the Subsidiary Guarantors will be deemed not to have used their reasonable best efforts to cause the Exchange Offer Registration Statement or any Subject Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if the Company or any Subsidiary Guarantor voluntarily takes any action that would result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period unless such action is, in the reasonable judgment of the Company, required by applicable law (including, without limitation, any interpretation of the SEC). (ii) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Subject Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to such Subject Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Subject Registration Statement will be deemed not to have been effective -10- 12 during the period of such interference, until the offering of Registrable Securities pursuant to such Subject Registration Statement may legally resume. (e) Increase in Interest Rate. In the event that (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 60th calendar day after the Closing Date, (ii) the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to the 120th calendar day after the Closing Date or (iii) the Exchange Offer is not consummated or a Shelf Registration Statement is not declared effective by the SEC on or prior to the 180th calendar day after the Closing Date, the interest rate borne by the Debt Securities shall be increased by 0.50% per annum, as liquidated damages, following such 60th day in the case of clause (i) above, such 120th day in the case of clause (ii) above, or such 180th day in the case of clause (iii) above; provided, however, that the aggregate amount of any such increase in such interest rate will in no event exceed 0.50% per annum; and provided, further that if the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to the 120th day following the Closing Date, then Debt Securities owned by Persons who do not comply in all material respects with their obligations under the penultimate paragraph of Section 3 will not be entitled to any such increase in the interest rate for any day after the 180th day following the Closing Date. Upon (x) the filing of the Exchange Offer Registration Statement after the 60th day described in clause (i) above, (y) the effectiveness of the Exchange Offer Registration Statement after the 120th day described in clause (ii) above or (z) the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as the case may be, after the 180th day described in clause (iii) above, the interest rate borne by the Debt Securities from the date of such filing, effectiveness or consummation (effective immediately preceding such consummation), as the case may be, will be reduced to the original interest rate; provided, however, that the interest rate borne by the Debt Securities will be reduced to the original interest rate only if all of the events set forth in the immediately preceding sentence causing the interest rate borne by the Debt Securities to increase have been cured. (f) Specific Enforcement. Without limiting the remedies available to the Initial Purchasers and the Holders, the Company and the Subsidiary Guarantors acknowledge that any failure by the Company or any Subsidiary Guarantor to comply with its obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may, to the extent permitted by law, obtain such relief as may be required to specifically enforce the Company's and the Subsidiary Guarantors' obligations under Section 2(a) and Section 2(b) hereof. 3. REGISTRATION PROCEDURES. In connection with the obligations of the Company and the Subsidiary Guarantors with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, but only so long as the Company and the Subsidiary Guarantors shall have an obligation under this Agreement to keep a Registration Statement effective, the Company and the Subsidiary Guarantors shall: -11- 13 (a) use their reasonable best efforts to prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith, and use their reasonable best efforts to cause such Registration Statement to become effective and use their reasonable best efforts to cause such Registration Statement to remain effective in accordance with Section 2 hereof; (b) to the extent permitted by law, use their reasonable best efforts to (i) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period, (ii) cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed (if required) pursuant to Rule 424 under the 1933 Act, and (iii) comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof; (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least ten business days prior to filing, that the Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method elected by the Majority Holders; and (ii) furnish to each Holder of Registrable Securities registered under the Shelf Registration Statement, to a single firm of legal counsel for the Holders (including the Initial Purchasers) and to the managing underwriters of an underwritten offering of Registrable Securities, if any, and their counsel, without charge, as many copies of each Prospectus, including each preliminary prospectus, and any amendment or supplement thereto and documents incorporated by reference therein as such Holder, counsel or underwriters may reasonably request and, if the Holder so requests, all exhibits thereto (including those incorporated by reference) in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) subject to Section 3(k) hereof and the last paragraph of this Section 3, hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto but only during the period of time that the Company and the Subsidiary Guarantors are required to keep the Shelf Registration Statement effective pursuant to this Agreement; (d) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions in the United States as the Majority Holders of Registrable Securities covered by a Registration Statement and the managing underwriter of an underwritten offering of Registrable Securities shall reasonably request prior to the time the applicable Registration Statement is declared effective by the SEC, to cooperate with the Holders in connection with any filings required to be made with the NASD, -12- 14 and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder pursuant to such Registration Statement; provided, however, that the Company and each Subsidiary Guarantor shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d) or (ii) take any action that would subject it to general service of process or taxation in any such jurisdiction if it is not then so subject; (e) in the case of a Subject Registration Statement, notify a single firm of legal counsel for the Holders of Registrable Securities registered thereby (including any Initial Purchasers) and Merrill Lynch promptly and, if requested by such counsel or Merrill Lynch, confirm such advice in writing promptly (by notice to such counsel or to Merrill Lynch) (i) when such Registration Statement has become effective and when any post-effective amendments thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to such Registration Statement and the related Prospectus or for additional information after such Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (iv) if, between the effective date of such Registration Statement and the closing of any sale of Registrable Securities covered thereby pursuant to an underwriting agreement to which the Company and/or any Subsidiary Guarantor is a party, the representations and warranties of the Company and/or such Subsidiary Guarantor contained in such underwriting agreement cease to be true and correct in all material respects, (v) of the receipt by the Company or any Subsidiary Guarantor of any notification with respect to the suspension of the qualification of the Registrable Securities covered by such Registration Statement for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vi) upon the Company or any Subsidiary Guarantor becoming aware thereof, of the happening of any event or the discovery of any facts during the period such Registration Statement is effective which (A) makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or (B) causes such Registration Statement or the related Prospectus to omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (f) (A) in the case of the Exchange Offer, (i) include in the Exchange Offer Registration Statement a "Plan of Distribution" section covering the use of the Prospectus included in the Exchange Offer Registration Statement by Participating Broker-Dealers (as defined below) who have exchanged their Registrable Securities for Exchange Securities for the resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who notifies the Company in writing that it desires to participate in the Exchange Offer, without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such broker-dealer may reasonably request, (iii) include in the Exchange Offer Registration Statement a statement that any broker-dealer who holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer"), and who -13- 15 receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer, may be a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (iv) subject to Section 3(k) hereof and the last paragraph of this Section 3, hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto by any Participating Broker-Dealer in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto for a period ending 180 days following consummation of the Exchange Offer or, if earlier, when all Exchange Securities received by such Participating Broker-Dealer in exchange for Registrable Securities acquired for their own account as a result of market-making or other trading activities have been disposed of by such Participating Broker-Dealer, and (v) include in the letter of transmittal or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer a provision substantially in the following form (or such similar provision as is reasonably acceptable to counsel for the Initial Purchasers and as, in the reasonable opinion of the Company, may at the time be required by applicable law or SEC interpretation): "If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities, it represents that the Registrable Securities to be exchanged for Exchange Securities were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities pursuant to the Exchange Offer; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the 1933 Act"; and (B) to the extent any Participating Broker-Dealer participates in the Exchange Offer, the Company and the Subsidiary Guarantors shall use their reasonable best efforts to cause to be delivered at the request of an entity representing the Participating Broker-Dealers (which entity shall be Merrill Lynch, Pierce, Fenner & Smith Incorporated or another Initial Purchaser) (i) a "cold comfort" letter addressed to the Participating Broker-Dealers from the Company's and the Subsidiary Guarantors' independent certified public accountants with respect to the Prospectus in the Exchange Offer Registration Statement in the form existing on the last date for which exchanges are accepted pursuant to the Exchange Offer and (ii) an opinion of counsel to the Company and the Subsidiary Guarantors addressed to the Participating Broker-Dealers in customary form relating to the Exchange Securities; and (C) to the extent any Participating Broker-Dealer participates in the Exchange Offer and notifies the Company or causes the Company to be notified in writing that it -14- 16 is a Participating Broker-Dealer, the Company and the Subsidiary Guarantors shall use their reasonable best efforts to maintain the effectiveness of the Exchange Offer Registration Statement for a period of 180 days following the last date on which exchanges are accepted pursuant to the Exchange Offer, or, if earlier, when all Exchange Securities received by Participating Broker-Dealers in exchange for Registrable Securities acquired for their own account as a result of market-making or other trading activities have been disposed of by such Participating Broker-Dealers; and (D) the Company and the Subsidiary Guarantors shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement as would otherwise be contemplated by Section 3(b) hereof, or take any other action as a result of this Section 3(f), for a period exceeding 180 days after the last date for which exchanges are accepted pursuant to the Exchange Offer (or such earlier date referred to in Paragraph (C) above) and Participating Broker-Dealers shall not be authorized by the Company to, and shall not, deliver such Prospectus after such period in connection with resales contemplated by this Section 3 or otherwise; it being understood that, notwithstanding anything in this Agreement to the contrary, the Company shall not be required to comply with any provision of this Section 3(f) or any other provision of this Agreement relating to the distribution of Exchange Securities by Participating Broker-Dealers, to the extent that the Company reasonably concludes (with the consent of Merrill Lynch, not to be unreasonably withheld) that compliance with such provision is no longer required by applicable law or interpretation of the staff of the SEC; (g) (A) in the case of an Exchange Offer, furnish one firm of legal counsel for the Initial Purchasers and (B) in the case of a Shelf Registration, furnish one firm of legal counsel for the Holders of Registrable Securities covered thereby copies of any request received by or on behalf of the Company or any Subsidiary Guarantor, from the SEC or any state securities authority for amendments or supplements to the relevant Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement as soon as practicable and provide prompt notice to one firm of legal counsel for the Holders of the withdrawal of any such order; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities registered thereby, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legend (except any customary legend borne by securities held through The Depository Trust Company or any similar -15- 17 depository); and cause such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least two business days prior to the closing of any sale of Registrable Securities; (k) in the case of a Shelf Registration, upon the Company or any Subsidiary Guarantor becoming aware of the occurrence of any event or the discovery of any facts, each as contemplated by Section 3(e)(vi) hereof, use their reasonable best efforts to prepare a supplement or post-effective amendment to the relevant Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company and the Subsidiary Guarantors agree to notify each Holder of Registrable Securities registered under the relevant Subject Registration Statement to suspend use of the Prospectus as promptly as practicable after the Company or any Subsidiary Guarantor becomes aware of the occurrence of such an event, and each Holder of Registrable Securities registered under the relevant Subject Registration Statement hereby agrees to suspend use of the Prospectus after receipt of such notice until the Company and the Subsidiary Guarantors have amended or supplemented the Prospectus to correct such misstatement or omission or have advised such Holders that use of such Prospectus may be resumed. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, or the Company otherwise determines that use of such Prospectus may be resumed, the Company and the Subsidiary Guarantors agree promptly to notify each Holder of Registrable Securities registered under the relevant Subject Registration Statement of such determination and (if applicable) to furnish each such Holder such numbers of copies of the Prospectus, as amended or supplemented, as such Holder may reasonably request; (l) obtain a CUSIP number for all Exchange Securities, or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company; provided, however, that the Company shall not be required to provide for any Exchange Securities or Registrable Securities to be so-called "book-entry only" securities; (m) unless the Indenture, as it relates to the Exchange Securities or the Registrable Securities, as the case may be, has already been so qualified, use their reasonable best efforts to (i) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use their reasonable best efforts to cause the Trustee to execute, -16- 18 all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (n) in the case of a Shelf Registration, take all customary and appropriate actions (including those reasonably requested by the Majority Holders) in order to expedite or facilitate the disposition of the Registrable Securities registered thereby. The Company and the Subsidiary Guarantors agree that they will in good faith negotiate the terms of any such Underwriting Agreement, which shall be in form and scope as is customary for similar offerings of debt securities with similar credit ratings (including, without limitation, representations and warranties to the underwriters) and shall otherwise be reasonably satisfactory to the Company and the managing underwriters; and: (i) if requested by the managing underwriters, obtain opinions of counsel to the Company and the Subsidiary Guarantors (which counsel shall be reasonably satisfactory to the managing underwriters) addressed to such underwriters, covering the matters customarily covered in opinions requested in underwritten sales of securities in substantially the forms specified in the Underwriting Agreement; (ii) if requested by the managing underwriters, obtain a "cold comfort" letter and an update thereto not later than two weeks after the date of the original letter (or if not available under applicable accounting pronouncements or standards, a single "procedures" letter and a single update thereto) from the Company's and the Subsidiary Guarantors' independent certified public accountants addressed to the underwriters named in the Underwriting Agreement and use their reasonable best efforts to have such letter addressed to the selling Holders of Registrable Securities (provided, however, that such letter need not be addressed to any Holders to whom, in the reasonable opinion of the Company's and the Subsidiary Guarantors' independent certified public accountants, addressing such letter is not permissible under applicable accounting standards), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" (or "procedures") letters to underwriters in connection with similar underwritten offerings; and (iii) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar underwritten offerings. Notwithstanding anything herein to the contrary, the Company and the Subsidiary Guarantors shall have no obligation to enter into any underwriting agreement or permit an underwritten offering of Registrable Securities unless a request therefor shall have been received from at least 33 1/3% of the Holders of all Registrable Securities then outstanding. In the case of such a request for an underwritten offering, the Company shall provide written notice to the Holders of all Registrable Securities of such underwritten offering at least 30 days prior to the filing of a Shelf Registration Statement or a prospectus supplement providing for such underwritten offering. Such notice shall (x) offer each such Holder the right to participate in such underwritten offering (but may indicate that whether or not all Registrable Securities are included will be at the discretion -17- 19 of the underwriters), (y) specify a date, which shall be no earlier than ten business days following the date of such notice, by which such Holder must inform the Company of its intent to participate in such underwritten offering and (z) include the instructions such Holder must follow in order to participate in such underwritten offering; (o) in the case of a Shelf Registration, and to the extent customary in connection with a "due diligence" investigation for an offering of debt securities with a similar credit rating to that of the Registrable Securities, make available for inspection by representatives appointed by the Majority Holders and any underwriters participating in any disposition pursuant to a Shelf Registration Statement and one firm of legal counsel retained for all Holders participating in such Shelf Registration, and one firm of legal counsel to the underwriters, if any, all financial and other records, pertinent corporate documents and properties of the Company and the Subsidiary Guarantors reasonably requested by any such persons, and cause the respective officers, employees and any other agents of the Company and the Subsidiary Guarantors to supply all information reasonably requested by any such representative, underwriters or counsel in connection with the Shelf Registration Statement; provided, however, that, if any such records, documents or other information relates to pending or proposed acquisitions or dispositions, or otherwise relates to matters reasonably considered by the Company and the Subsidiary Guarantors to constitute sensitive or proprietary information, the Company and the Subsidiary Guarantors need not provide such records, documents or information unless the foregoing parties enter into a confidentiality agreement in customary form and reasonably acceptable to such parties and the Company; (p) (i) a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers, and make such changes in any such document prior to the filing thereof as Merrill Lynch or one firm of legal counsel to the Initial Purchasers may reasonably request; (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to Merrill Lynch, one firm of legal counsel appointed by the Majority Holders to represent the Holders participating in such Shelf Registration, the managing underwriters of an underwritten offering of Registrable Securities, if any, and their counsel, and make such changes in any such document prior to the filing thereof as Merrill Lynch, such one firm of legal counsel for the Holders, such managing underwriters or their counsel may reasonably request; and (iii) cause the representatives of the Company and the Subsidiary Guarantors to be available for discussion of such document as shall be reasonably requested by Merrill Lynch, one firm of legal counsel to the Holders, the managing underwriters and their counsel and shall not at any time make any filing of any such document of which Merrill Lynch, one firm of legal counsel to the Holders, the managing underwriters and their counsel shall not have previously been advised and furnished a copy or to which Merrill Lynch, one firm of legal counsel to the Holders, the managing underwriters and their counsel shall reasonably object; provided, however, that the provisions of this paragraph (p) shall not apply to any document filed by the Company or any -18- 20 Subsidiary Guarantor pursuant to the 1934 Act which is incorporated or deemed to be incorporated by reference in any Registration Statement or Prospectus; (q) in the case of a Shelf Registration and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Securities subject to the Shelf Registration Statement, (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information or revisions to information therein relating to such Underwriters or selling Holders as the managing underwriters, if any, or such Holders or their counsel reasonably request to be included or made therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company and the Subsidiary Guarantors have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Shelf Registration Statement; (r) upon delivery of the Registrable Securities by Holders to the Company and the Subsidiary Guarantors (or to such other Person as directed by the Company and the Subsidiary Guarantors) in exchange for the Exchange Securities, the Company and the Subsidiary Guarantors shall mark, or cause to be marked, on such Registrable Securities that such Registrable Securities are being canceled in exchange for the Exchange Securities; in no event shall such Registrable Securities be marked as paid or otherwise satisfied; (s) use their reasonable best efforts to cause the Exchange Securities, if applicable, and, in the event of a Shelf Registration, the Debt Securities to be rated with not more than two rating agencies selected by the Company, if so requested by the Majority Holders or by the managing underwriters of an underwritten offering of Registrable Securities, if any, unless the Exchange Securities or the Registrable Securities, as the case may be, are already so rated or unless the Company has obtained such ratings for its long-term debt securities generally; (t) otherwise use their reasonable best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; and (u) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any managing underwriters and their counsel. In the case of a Subject Registration Statement, the Company and the Subsidiary Guarantors may (as a condition to such Holder's participation in the Shelf Registration) (i) require each Holder of Registrable Securities to furnish to the Company such information regarding such Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing and such other information as, in the reasonable opinion of the Company, is required for inclusion in the Subject Registration Statement, and (ii) further require each Holder of Registrable Securities, through one firm of legal -19- 21 counsel on behalf of all such Holders, to furnish to the Company comments on the Subject Registration Statement and the Prospectus included therein or any amendment or supplement to any of the foregoing not later than such times as the Company reasonably may request. In the case of a Subject Registration Statement, each Holder agrees and, in the case of the Exchange Offer Registration Statement, each Participating Broker-Dealer agrees that, upon receipt of any notice from the Company or any Subsidiary Guarantor of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(ii)-(vi) or Section 3(k) hereof (it being understood and agreed that, for purposes of this paragraph, all references in Sections 3(e)(ii)-(vi) and Section 3(k) to a "Subject Registration Statement", a "Shelf Registration Statement" or a "Registration Statement" shall be deemed to mean and include the Shelf Registration Statement, the Purchaser Shelf Registration Statement or the Exchange Offer Registration Statement or all or any combination thereof (as the context requires), mutatis mutandis), such Holder or Participating Broker-Dealer, as the case may be, will forthwith discontinue disposition of Registrable Securities pursuant to such Registration Statement and discontinue use of the Prospectus included therein until such Holder's or Participating Broker-Dealer's receipt, as the case may be, of (A) copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof or (B) notice from the Company that the sale of the Registrable Securities may be resumed, and, if so directed by the Company, such Holder or Participating Broker-Dealer, as the case may be, will deliver to the Company (at its expense) all copies in its possession, other than permanent file copies then in its possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company or any Subsidiary Guarantor shall give any such notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement as a result of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e) (ii)-(vi) or 3(k) hereof, the Company and the Subsidiary Guarantor shall be deemed to have used their reasonable best efforts to keep such Registration Statement effective during such period of suspension, provided that the Company and the Subsidiary Guarantors shall use their reasonable best efforts to file and have declared effective (if an amendment) as soon as practicable an amendment or supplement to such Registration Statement or the related Prospectus and shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions or the date on which the Company has given notice that the sale of Registrable Securities may be resumed, as the case may be. Each Holder of Registrable Securities hereby agrees that it will at all times use the then most current Prospectus (as the case may be), as then amended or supplemented, which has been provided to it by the Company in connection with the resale or transfer of any Registrable Securities pursuant to a Registration Statement or Prospectus. 4. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Securities covered by the Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected -20- 22 by the Majority Holders of such Registrable Securities included in such offering and shall be reasonably acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and each of the Subsidiary Guarantors shall jointly and severally indemnify and hold harmless each Initial Purchaser, each Holder and each Person, if any, who controls any of such Person within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all losses, liabilities, claims, damages and expenses whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all losses, liabilities, claims, damages and expenses whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including (subject to Section 5(c) below) the reasonable fees and disbursements of counsel chosen by Merrill Lynch, Pierce, Fenner & Smith Incorporated or, in the event that Merrill Lynch, Pierce, Fenner & Smith Incorporated is not an indemnified party, by a majority of the indemnified parties), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 5(a); -21- 23 provided, however, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser, any Holder or any underwriter expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto); and provided, however, that this indemnity agreement with respect to any Prospectus shall not inure to the benefit of any Initial Purchaser or Holder from whom the person asserting any such losses, claims, damages or liabilities purchased Registrable Securities or Exchange Securities (or any person who controls such Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) if a copy of the Prospectus (as then amended or supplemented and furnished by the Company to such Initial Purchaser or Holder, as the case may be) was not sent or given by or on behalf of such Initial Purchaser or Holder, as the case may be, to such person, if such is required by law, at or prior to the sale of such Registrable Securities or Exchange Securities and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) In the case of a Shelf Registration, each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Subsidiary Guarantors, each Initial Purchaser, each underwriter who participates in an offering of Registrable Securities and the other Holders and each of their respective directors and officers (including each officer of the Company who signed the Registration Statement in question) and each Person, if any, who controls the Company, the Subsidiary Guarantors, any Initial Purchaser, any underwriter or any other Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all losses, liabilities, claims, damages and expenses described in the indemnity contained in Section 5(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have other than on account of this indemnity agreement or the contribution agreement set forth in Section 5(d) below. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such -22- 24 action; provided, however, that if such indemnified parties reasonably object to such assumption on the ground (based on the advice of counsel) that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party, such indemnified parties shall be entitled to choose separate counsel with respect to such defenses and to retain or assume control of such defenses at the expense of the indemnifying party. If an indemnifying party assumes the defense of such action (other than with respect to defenses addressed in the immediately preceding sentence), the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action (other than with respect to defenses addressed in the immediately preceding sentence). In no event shall the indemnifying parties be liable for the fees and expenses of more than one legal counsel (in addition to any local counsel) (which counsels shall be selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or, in the event that Merrill Lynch, Pierce, Fenner & Smith Incorporated is not an indemnified party, by a majority of the indemnified parties) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 5 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in circumstances in which any of the indemnity provisions set forth in this Section 5 are for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, the Subsidiary Guarantors, the Initial Purchasers and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, the Subsidiary Guarantors, the Initial Purchasers and the Holders, as incurred; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company, the Subsidiary Guarantors, the Initial Purchasers and the Holders, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company and the Subsidiary Guarantors on the one hand, the Initial Purchasers on another hand, and the Holders on another hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company and the Subsidiary Guarantors on the one hand, the Initial Purchasers on another hand, and the Holders on another hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged -23- 25 omission to state a material fact relates to information supplied by the Company and the Subsidiary Guarantors or by the Initial Purchasers or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue or alleged untrue statement or omission. The Company, the Subsidiary Guarantors, the Initial Purchasers and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 5(d), each Person, if any, who controls an Initial Purchaser or a Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or such Holder, and each director of the Company or any Subsidiary Guarantor, each officer of the Company or any Subsidiary Guarantor who signed the Registration Statement in question, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company and the Subsidiary Guarantors. 6. MISCELLANEOUS. (a) Rule 144 and Rule 144A. For so long as the Company or the Subsidiary Guarantors are subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company and the Subsidiary Guarantors covenant that they will file the reports required to be filed by them under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder, that if any such entity ceases to be so required to file such reports, it will upon the request of any Holder of Registrable Securities (i) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and (iii) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (y) Rule 144A under the 1933 Act, as such Rule may be amended from time to time or (z) any similar rules or regulations hereafter adopted by the SEC (provided that the obligations of the Company and the Subsidiary Guarantors under any such similar rules or regulations shall not be more burdensome in any substantial respect than those referred to in clauses (x) or (y)). Upon the request of any Holder of Registrable Securities, the Company and the Subsidiary Guarantors will deliver to such Holder a written statement as to whether they have complied with such requirements. (b) No Inconsistent Agreements. The Company and each Subsidiary Guarantor has not entered into nor will the Company and each Subsidiary Guarantor on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. -24- 26 (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company and the Subsidiary Guarantors have obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure; provided, however, that to the extent any provision of this Agreement relates to the Purchaser Shelf Registration Statement or otherwise to the Initial Purchasers, such provision may be amended, modified or supplemented, and waivers or consents to departures from such provisions thereof may be given, by Merrill Lynch; and provided, further, that no amendment, modification, supplement or waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. Notwithstanding anything in this Agreement to the contrary, this Agreement may be amended, modified or supplemented, and waivers and consents to departures from the provisions hereof may be given, by written agreement signed by the Company, the Subsidiary Guarantors and Merrill Lynch to the extent that any such amendment, modification, supplement, waiver or consent is, in their reasonable judgment, necessary or appropriate to comply with applicable law (including any interpretation of the staff of the SEC) or any change therein. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier or any courier providing overnight delivery (i) if to a Holder, at its address appearing in the register of the Debt Securities and/or Exchange Securities kept by the Registrar (as defined in the Indenture) or at such other address as shall have been given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(d), which address initially is, with respect to the Initial Purchasers, the address care of Merrill Lynch, Pierce, Fenner & Smith Incorporated set forth in the Purchase Agreement, and (ii) if to the Company or any Subsidiary Guarantor initially at or in care of the Company's address set forth in the Purchase Agreement, or in each case to such other address notice of which is given in accordance with the provisions of this Section 6(d). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier providing overnight delivery. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms hereof or of the Purchase Agreement, the Indenture or the Offering Memorandum dated February 14, 1996; and provided, further, that Holders of Registrable Securities may not assign their rights under this Agreement -25- 27 except in connection with the permitted transfer of Registrable Securities and then only insofar as relates to such Registrable Securities. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (f) Third-Party Beneficiary. The Holders from time to time shall each be a third-party beneficiary to the agreements made hereunder between the Company and the Subsidiary Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and Merrill Lynch, Pierce, Fenner & Smith Incorporated shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. -26- 28 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BJ SERVICES COMPANY By: /s/_________________________________ Name: Title: BJ SERVICES COMPANY, U.S.A. By: /s/_________________________________ Name: Title: BJ SERVICES COMPANY MIDDLE EAST By: /s/_________________________________ Name: Title: BJ SERVICE INTERNATIONAL, INC. By: /s/_________________________________ Name: Title: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: /s/_________________________________ Name: Title: -27- 29 CS FIRST BOSTON CORPORATION By: /s/_________________________________ Name: Title: BA SECURITIES, INC. By: /s/_________________________________ Name: Title: CHASE SECURITIES, INC. By: /s/_________________________________ Name: Title: -28- EX-5.1 4 OPINION OF ANDREWS & KURTH L.L.P. 1 EXHIBIT 5.1 April 4, 1996 Board of Directors BJ Services Company 5500 Northwest Central Drive Houston, Texas 77092 Ladies and Gentlemen: We have acted as counsel to BJ Services Company, a Delaware corporation (the "Company"), and to BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East, each a Delaware corporation (collectively, the "Subsidiary Guarantors"), in connection with the Company's Registration Statement on Form S-4 (the "Registration Statement") relating to the registration under the Securities Act of 1933, as amended (the "Securities Act"), of the offering by the Company of up to an aggregate principal amount of $125 million of 7% Series B Notes due 2006 (the "Exchange Notes") in exchange for up to an aggregate principal amount of $125 million of 7% Series A Notes due 2006 (the "Existing Notes," and together with the Exchange Notes, the "Notes"). The Existing Notes were issued, and the Exchange Notes will be issued, pursuant to the Indenture dated as of February 1, 1996 among the Company, the Subsidiary Guarantors and the Bank of Montreal Trust Company, as trustee (the "Indenture"), which provides for guarantees of the Notes (the "Guarantees") by the Subsidiary Guarantors. As the basis for the opinions hereinafter expressed, we have examined such statutes, regulations, corporate records and documents and such other instruments as we have deemed necessary for the purposes of the opinions contained herein. As to all matters of fact material to such opinions, we have relied upon the representations of officers of the Company and certificates of public officials. We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the original documents of all documents submitted to us as copies. Based upon the foregoing and having due regard for such legal considerations as we deem relevant, we are of the opinion that the Exchange Notes (including the Guarantees thereof), (a) when exchanged in the manner described in the Registration Statement, (b) when duly executed, authenticated, issued and delivered in accordance with the terms of the Indenture, (c) when the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended, and (d) when applicable provisions of "blue sky" laws have been complied with, will be legally issued and constitute binding obligations of the Company and the Subsidiary Guarantors, enforceable against the Company and the Subsidiary Guarantors in accordance with the terms of the Indenture and the Exchange Notes (including the Guarantees thereof), subject to (x) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws relating to creditors' rights and remedies generally and (y) general principles of equity (whether enforcement is sought in a proceeding at law or in equity). This opinion is limited in all respects to the General Corporation Law of the State of Delaware and the laws of the United States of America insofar as such laws are applicable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm name under the caption "Legal Matters" therein. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, Andrews & Kurth L.L.P. 4200 Texas Commerce Tower Houston, Texas 77002 EX-10.1 5 3RD AMEND. TO NOTE AGREEMENT DATED 08/01/91 1 BJ SERVICES COMPANY BJ SERVICES COMPANY, USA BJ SERVICE INTERNATIONAL, INC. BJ SERVICES COMPANY MIDDLE EAST THIRD AMENDMENT TO NOTE AGREEMENT Re: Note Agreement Dated as of August 1, 1991 and $30,000,000 9.20% Senior Notes Due August 1, 1998 Dated as of September 19, 1995 Principal Mutual Life Insurance Company 711 High Street Des Moines, Iowa 50392-0800 Connecticut Mutual Life Insurance Company 140 Garden Street Hartford, Connecticut 06154 Ladies and Gentlemen: Reference is made to the separate Note Agreements each dated as of August 1, 1991, as amended to the date hereof (collectively, the "Note Agreement"), between and among BJ Services Company, BJ Services Company, USA, BJ Service International, Inc., BJ Services Company Middle East, each a Delaware corporation (collectively, the "Constituent Companies"), and you, under and pursuant to which $30,000,000 aggregate principal amount of Senior Notes Due August 1, 1998 (the "Notes") were originally issued. The Constituent Companies desire to amend certain provisions of the Note Agreement to clarify the parties' intent in respect of certain provisions incorporated therein pursuant to that certain Second Amendment to Note Agreement dated as of September 19, 1995 (the "Second Amendment") in the manner herein provided. All capitalized terms used herein without definition shall have the same meanings respectively assigned to such terms in the Note Agreement. 2 SECTION 1. INCORPORATION OF CERTAIN COVENANTS. Section 2 of the Second Amendment is hereby deleted in its entirety and the following shall be substituted therefor: The following provisions of the Bank Credit Agreement in the form attached hereto as the same may be subsequently modified or amended provided that any such amendments or modifications are consented to in writing by the holders of at least seventy percent (70%) of the aggregate outstanding principal amount of the Notes are hereby incorporated by reference into the Note Agreement with the same force and effect as though therein set forth in full, in each case together with all related definitions set forth in the Bank Credit Agreement as the same may be subsequently modified or amended provided that any such amendments or modifications are consented to in writing by the holders of at least seventy percent (70%) of the aggregate outstanding principal amount of the Notes: Sections 8.01 through 8.05, both inclusive, Sections 8.08, 8.09, 8.10(a)(i) and (ii) (but only as such provisions pertain to the Western Indenture and the Western Subordinated Debentures), and Sections 8.12 through 8.16, both inclusive; provided, however, that the terms "Default" and "Event of Default" referred to in Section 8.03 and Section 8.15 incorporated herein by reference shall refer to such terms as defined in the Note Agreement. All provisions incorporated by reference shall remain effective for purposes of the Note Agreement unless and until the Notes shall no longer remain outstanding. SECTION 2. DEFINITION OF BANK CREDIT AGREEMENT. The definition of "Bank Credit Agreement" in Section 8.1 of the Note Agreement is hereby deleted in its entirety and the following shall be substituted therefor: "Bank Credit Agreement" shall mean that certain Credit Agreement dated as of April 13, 1995 among the Constituent Companies, Bank of America National Trust and Savings Association, as Agent, and the other parties named therein in the form attached hereto as the same may be subsequently modified or amended provided that any such amendments or modifications are consented to in writing by the holders of at least seventy percent (70%) of the aggregate outstanding principal amount of the Notes." -2- 3 SECTION 3. MISCELLANEOUS. Section 2.1. Effective Date; Ratification. The amendments contemplated by this Third Amendment to Note Agreement shall be effective as of September 19, 1995 (although this Third Amendment to Note Agreement has been accepted on a later date or dates). Except as amended herein, the terms and provisions of the Note Agreement are hereby ratified, confirmed and approved in all respects. Section 2.2. Ratification of Original Note Agreements; Condition Precedent. Except as amended and restated herein, the terms and provisions of the Note Agreement and the Notes are hereby ratified, confirmed and approved in all respects. Section 2.3. Successors and Assigns. This Third Amendment to Note Agreement shall be binding upon the Constituent Companies and their successors and assigns and shall inure to the benefit of the holders of the Notes and to the benefit of their successors and assigns, including each successive holder or holders of any Notes. Section 2.4. Counterparts. This Third Amendment to Note Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. Section 2.5. No Legend Required. Any and all notices, requests, certificates and other instruments including, without limitation, the Notes, may refer to the Note Agreement without making specific reference to this Third Amendment to Note Agreement, but nevertheless all such references shall from and after the date hereof be deemed to include this Third Amendment to Note Agreement unless the context shall otherwise require. Section 2.6. No Defaults or Events of Default; Representations and Warranties are True and Correct. Each of the Constituent Companies jointly and severally represents and warrants that no Default or Event of Default has occurred and is continuing. The representations and warranties made by the Constituent Companies in Exhibit B of the Note Agreement are true and correct in all material respects as of the date hereof except such representations and warranties, if any, which expressly refer to an earlier date, which representations and warranties are true and correct in all material respects as of such earlier date. Section 2.7 Governing Law. This Third Amendment to Note Agreement shall be construed in accordance with and governed by the laws of the State of Connecticut. -3- 4 IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Note Agreement to be effective as of September 19, 1995. BJ SERVICES COMPANY By /s/ ------------------------------------ Its Treasurer BJ SERVICES COMPANY, USA By /s/ ------------------------------------ Its Treasurer BJ SERVICE INTERNATIONAL, INC. By /s/ ------------------------------------ Its Treasurer BJ SERVICES COMPANY MIDDLE EAST By /s/ ------------------------------------ Its Treasurer -4- 5 Accepted on the 13th day of February, 1996 to be effective as of September 19, 1995. PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By /s/ ------------------------------------ Its -------------------------------- By /s/ ------------------------------------ Its -------------------------------- Holder of $12,000,000 principal amount of Notes outstanding -5- 6 Accepted on the 13th day of February, 1996 to be effective as of September 19, 1995. CONNECTICUT MUTUAL LIFE INSURANCE COMPANY By /s/ ------------------------------------- Its --------------------------------- Holder of $6,000,000 principal amount of Notes outstanding -6- EX-10.2 6 2ND AMEND TO CREDIT AGREEMENT DATED 02/12/96 1 SECOND AMENDMENT TO CREDIT AGREEMENT This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of February 12, 1996, is made and entered into among BJ SERVICES COMPANY, a Delaware corporation (the "Company"), BJ SERVICES COMPANY, U.S.A., a Delaware corporation, BJ SERVICE INTERNATIONAL, INC., a Delaware corporation, BJ SERVICES COMPANY MIDDLE EAST, a Delaware corporation (collectively and including the Company, the "Borrowers"); 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 banks listed on the signature pages hereof. W I T N E S S E T H: WHEREAS, the parties hereto have heretofore entered into a Credit Agreement dated as of April 13, 1995 (the "Credit Agreement"), as amended by First Amendment dated as of April 25, 1995; and WHEREAS, Company has proposed to issue notes pursuant to a private placement and to use all or a portion of the net proceeds of such issuance to prepay the Term Loans, and the Company has proposed to amend the amortization schedule for the Term Loans set forth in the Credit Agreement as herein provided; and WHEREAS, subject to the terms and conditions herein set forth, the Banks are willing to agree to such amended amortization schedule; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereto hereby agree to amend the Credit Agreement as follows: 1. CREDIT AGREEMENT AMENDMENTS. a. Amendment of Section 2.08(e). The first sentence of Section 2.08(e) is hereby deleted in its entirety and the following shall be substituted therefor: "Any prepayments pursuant to this Section 2.08 shall reduce pro rata the principal installments of the Term Loans due during the period commencing after the date of such prepayment and ending on the Term Loan Maturity Date." 2 b. Amendment of Section 2.10(a). Section 2.10(a) of the Credit Agreement is hereby redesignated as Section 2.10(a)(i), and a new Section 2.10(a)(ii) is hereby added to read as follows: "(ii) in the event (A) the Term Loan Borrower issues in a private placement unsecured notes due 2006 and the Term Loan Borrower elects to use all or any portion of the net proceeds of such issuance to prepay the Term Loans, and (B) such prepayment is made on or before March 31, 1996, and (C) no Event of Default shall have occurred and be continuing at the time of the prepayment, then at all times after such prepayment is made the Term Loan Borrower's obligation to repay the principal of the Term Loans shall be governed by this Subsection 2.10(a)(ii) rather than Subsection 2.10(a)(i) above. If such prepayment is made with proceeds of such issuance, the Term Loan Borrower thereafter shall be obligated to 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 amount of the prepayment will be $125,000,000. In the event such prepayment is more than $125,000,000, the amount of each payment set forth in the schedule below shall be adjusted pro rata among all such payments. In the event, such prepayment is less than $125,000,000, the amount of the first 16 payments set forth in the schedule below shall be adjusted pro rata among such 16 payments, and the amount of the last 2 payments shall remain the same.
Principal Payment Date Amount of Payment ---------------------- ----------------- December 31, 1996 $1,400,000 March 31, 1997 1,400,000 June 30, 1997 1,400,000 September 30, 1997 1,400,000 December 31, 1997 4,700,000 March 31, 1998 4,700,000 June 30, 1998 4,700,000 September 30, 1998 4,700,000 December 31, 1998 5,950,000 March 31, 1999 5,950,000 June 30, 1999 5,950,000 September 30, 1999 5,950,000 December 31, 1999 5,950,000
-2- 3
Principal Payment Date Amount of Payment ---------------------- ----------------- March 31, 2000 5,950,000 June 30, 2000 5,950,000 September 30, 2000 5,950,000 December 30, 2000 12,000,000 March 31, 2001 12,000,000 TOTAL $96,000,000
(iii) This Section 2.10(a) shall not be deemed to authorize the issuance of notes which would not be permitted pursuant to Article VIII of this Credit Agreement." c. Amendment of Section 8.01(h). Section 8.01(h) of the Credit Agreement is hereby deleted in its entirety and the following shall be substituted therefor: "(h) Liens on assets of the Company or any Subsidiary other than stock of Subsidiaries; provided, however, that the aggregate consolidated book value of all such assets encumbered at any one time shall not exceed $10,000,000." 2. NO DEFAULT OR EVENTS OF DEFAULT; REPRESENTATIONS AND WARRANTIES ARE TRUE. Each of the Borrowers hereby represents and warrants to the Banks that no Event of Default or Default has occurred and is continuing. The representations and warranties made by the Borrowers in Article VI of the Credit Agreement are true and correct in all material respects as of the date hereof (except such representations and warranties which expressly refer to an earlier date, which representations and warranties are true and correct in all material respects as of such earlier date). 3. RATIFICATION. The Credit Agreement, each Guaranty and the other Loan Documents shall continue in full force and effect as amended hereby. Except as expressly provided herein, the Credit Agreement is not amended or modified. The Credit Agreement and this Amendment shall be read, taken and construed as one and the same instrument. 4. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties on separate counterparts, each of which shall be construed as an original, but all of which together shall constitute one and the same instrument. 5. GOVERNING LAW. THIS AMENDMENT 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 -3- 4 NEW YORK); PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. 6. CERTAIN DEFINED TERMS. Capitalized terms used herein (including in the recitals hereof) without definition shall have the meaning assigned to them in the Credit Agreement. 7. ENTIRE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] -4- 5 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered as of the date first above written. BJ SERVICES COMPANY By: ----------------------------------- Name: Title: BJ SERVICES COMPANY, U.S.A. By: ----------------------------------- Name: Title: BJ SERVICES COMPANY MIDDLE EAST By: ----------------------------------- Name: Title: BJ SERVICE INTERNATIONAL, INC. By: ----------------------------------- Name: Title: -5- 6 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ----------------------------------- Name: Title: BANK OF AMERICA ILLINOIS, as a Bank and as Issuing Bank By: ----------------------------------- Name: Title: THE CHASE MANHATTAN BANK, N.A., as Co-Agent and as a Bank By: ----------------------------------- Name: Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH, as Co-Agent and as a Bank By: ----------------------------------- Name: Title: -6- 7 FIRST INTERSTATE BANK OF TEXAS, N.A., as Co-Agent and as a Bank By: ----------------------------------- Name: Title: BANK OF MONTREAL By: ----------------------------------- Name: Title: THE BANK OF NEW YORK By: ----------------------------------- Name: Title: CHRISTIANIA BANK OG KREDITKASSE By: ----------------------------------- Name: Title: -7- 8 CORESTATES BANK, N.A. By: ----------------------------------- Name: Title: DEN NORSKE BANK AS By: ----------------------------------- Name: Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: THE FUJI BANK, LIMITED By: ----------------------------------- Name: Title: -8- 9 THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: ----------------------------------- Name: Title: THE MITSUBISHI BANK, LTD. HOUSTON AGENCY By: ----------------------------------- Name: Title: THE YASUDA TRUST AND BANKING COMPANY LIMITED By: ----------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LTD. By: ----------------------------------- Name: Title: -9- 10 FIRST NATIONAL BANK OF COMMERCE By: ----------------------------------- Name: Title: THE BANK OF TOKYO, LTD., DALLAS AGENCY By: ----------------------------------- Name: Title: -10- EX-12.1 7 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 BJ SERVICES COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS)
Three Months Ended December 31, Year Ended September 30, 1995 1994 1995 1994 1993 1992 1991 ----------------- --------------------------------------------------- EARNINGS: Pretax earnings from continuing operations $12,897 $6,186 $ 8,758 $12,908 $16,838 $(4,192) $31,133 Minority interest (199) (104) 29 (132) (684) (569) (1,541) Minority interest income in subsidiaries with fixed charges 95 227 595 1,373 858 1,122 1,486 Minority interest - losses (223) (253) (1,344) (1,921) (644) (711) (148) ----------------- --------------------------------------------------- Earnings (loss) 12,570 6,056 8,038 12,228 16,368 (4,350) 30,930 Add: Interest on indebtedness 5,538 2,307 15,164 7,383 5,414 2,977 3,135 Portion of rents representative of the interest factor 1,560 1,383 5,530 5,141 3,637 2,488 2,697 ----------------- --------------------------------------------------- Earnings as adjusted $19,668 $9,746 $28,732 $24,752 $25,419 $ 1,115 $36,762 ================= =================================================== FIXED CHARGES: Interest on indebtedness $ 5,538 $2,307 $15,164 $ 7,383 $ 5,414 $ 2,977 $ 3,135 Capitalized interest 50 50 216 541 167 800 750 Portion of rents representative of the interest factor 1,560 1,383 5,530 5,141 3,637 2,488 2,697 ----------------- --------------------------------------------------- Fixed charges $ 7,148 $3,740 $20,910 $13,065 $ 9,218 $ 6,265 $ 6,582 ================= =================================================== ----------------- --------------------------------------------------- RATIO OF EARNINGS TO FIXED CHARGES (1) 2.75 2.61 1.37 1.89 2.76 --(2) 5.58 ================= ===================================================
(1) For purposes of calculating this ratio, earnings consist of earnings before income taxes and fixed charges. Fixed charges consist of interest expense, capitalized interest, and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of the lease rentals). (2) For the year ended September 30, 1992, earnings were inadequate to cover fixed charges by $4,350 because of the unusual charges recorded in that fiscal year. EX-23.1 8 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of BJ Services Company on Form S-4 of our report dated November 21, 1995 (March 28, 1996 as to Note 15) appearing in the Prospectus, which is part of this Registration Statement, and to the incorporation by reference in this Registration Statement of our report dated November 21, 1995, appearing in the Annual Report on Form 10-K of BJ Services Company for the year ended September 30, 1995. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Houston, Texas April 4, 1996 EX-23.2 9 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-4 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 the Current Report on Form 8-K/A of BJ Services Company dated April 13, 1995. We also consent to the reference to us under the heading "Experts" in such Form S-4. PRICE WATERHOUSE LLP Houston, Texas April 2, 1996 EX-25.1 10 STATEMENT OF ELIGIBILITY & QUALIFICATION-FORM T-1 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a trustee Pursuant to Section 305(b) ____ BANK OF MONTREAL TRUST COMPANY (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) New York 13-4941093 (JURISDICTION OF INCORPORATION OR ORGANIZATION (I.R.S. EMPLOYER IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.) 77 Water Street New York, New York 10005 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Mark F. McLaughlin Bank of Montreal Trust Company 77 Water Street, New York, NY 10005 (212) 701-7602 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ---------------------------- BJ SERVICES COMPANY (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) Texas 63-0084140 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 5500 Northwest Central Drive Houston, Texas 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ---------------------------- 7% SERIES B NOTES DUE 2006 (TITLE OF THE INDENTURE SECURITIES) ================================================================================ 2 -2- ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York 33 Liberty Street, New York N.Y. 10045 State of New York Banking Department 2 Rector Street, New York, N.Y. 10006 (b) Whether it is authorized to exercise corporate trust powers. The Trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee. ITEM 16. LIST OF EXHIBITS. List below all exhibits filed as part of this statement of eligibility. 1. Copy of Organization Certificate of Bank of Montreal Trust Company to transact business and exercise corporate trust powers; incorporated herein by reference as Exhibit "A" filed with Form T-1 Statement, Registration No. 33-46118. 2. Copy of the existing By-Laws of Bank of Montreal Trust Company; incorporated herein by reference as Exhibit "B" filed with Form T-1 Statement, Registration No. 33-80928. 3. The consent of the Trustee required by Section 321(b) of the Act; incorporated herein by reference as Exhibit "C" with Form T-1 Statement, Registration No. 33-46118. 4. A copy of the latest report of condition of Bank of Montreal Trust Company published pursuant to law or the requirements of its supervising or examining authority, attached hereto as Exhibit "D". SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, Bank of Montreal Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 29th day of March, 1996. BANK OF MONTREAL TRUST COMPANY By /s/ AMY S. ROBERTS -------------------------------- Amy S. Roberts Assistant Vice President 3 EXHIBIT "D" STATEMENT OF CONDITION BANK OF MONTREAL TRUST COMPANY NEW YORK ASSETS Due From Banks $ 1,570,159 ----------- Investment Securities: State & Municipal 17,025,354 Other 100 ----------- TOTAL SECURITIES 17,025,454 ----------- Loans and Advances Federal Funds Sold 12,000,000 Overdrafts (336,057) ----------- TOTAL LOANS AND ADVANCES 11,663,943 ----------- Investment in Harris Trust, NY 6,656,129 Premises and Equipment 509,422 Other Assets 2,494,863 ----------- TOTAL ASSETS $39,919,970 =========== LIABILITIES Trust Deposits $ 9,859,384 Other Liabilities 9,239,409 ----------- TOTAL LIABILITIES 19,098,793 ----------- CAPITAL ACCOUNTS Capital Stock, Authorized, Issued and Fully Paid - 10,000 Shares of $100 Each 1,000,000 Surplus 4,222,188 Retained Earnings 15,510,844 Equity - Municipal Gain/Loss 88,145 ----------- TOTAL CAPITAL ACCOUNTS 20,821,177 ----------- TOTAL LIABILITIES AND CAPITAL ACCOUNTS $39,919,970 ===========
I, Mark F. McLaughlin, Vice President, of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief. Mark F. McLaughlin December 31, 1995 We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declared that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. Sanjiv Tandon Kevin O. Healey Steven R. Rothbloom EX-99.1 11 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 7% SERIES B NOTES DUE 2006 BJ SERVICES COMPANY PURSUANT TO THE PROSPECTUS DATED APRIL ________, 1996 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________________, 1996, UNLESS THE OFFER IS EXTENDED. TO: BANK OF MONTREAL TRUST COMPANY (THE "EXCHANGE AGENT") FOR INFORMATION CALL: [ ] By Mail: By Hand: Bank of Montreal Trust Company Bank of Montreal Trust Company Transfer and Exchange Agent Transfer and Exchange Agent 77 Water Street, 4th Floor 77 Water Street, 4th Floor New York, New York 10005 New York, New York 10005 By Facsimile Transmission: By Overnight Courier: Bank of Montreal Trust Company Bank of Montreal Trust Company [ ] Transfer and Exchange Agent Confirm by Telephone: 77 Water Street, 4th Floor [ ] New York, New York 10005 Delivery of this instrument to an address or transmission to a facsimile number other than as set forth above does not constitute a valid delivery. The method of delivery of all documents, including certificates, is at the risk of the Holder. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. The undersigned acknowledges that he or she has received the Prospectus dated April ______, 1996 (the "Prospectus") of BJ Services Company (the "Company") and this Letter of Transmittal and the instructions hereto (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 7% Series B Notes due 2006 (the "Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 7% Series A Notes due 2006 (the "Existing Notes"), upon the terms and subject to the conditions set forth in the Prospectus. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on ____________________, 1996, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended by the Company. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. This Letter of Transmittal is to be used either if (i) certificates representing Existing Notes are to be physically delivered to the Exchange Agent herewith by Holders, (ii) tender of Existing Notes is to be made by book- entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Existing Notes or (iii) tender of Existing Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Procedures for Tendering." Delivery of this Letter of Transmittal and any other required documents must be made to the Exchange Agent. Delivery of documents to DTC does not constitute delivery to the Exchange Agent. 2 The term "Holder" with respect to the Exchange Offer means any person in whose name Existing Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Existing Notes must complete this Letter of Transmittal in its entirety. THE INSTRUCTIONS INCLUDED IN THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE INSTRUCTION 12 HEREIN. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR EXISTING NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH ALL ITS TERMS. List below the Existing Notes to which this Letter of Transmittal relates. If the space provided below is inadequate the Certificate Numbers and Principal Amounts should be listed on a separate signed schedule, attached hereto. The minimum permitted tender is $1,000 in principal amount of 7% Series A Notes due 2006. All other tenders must be in integral multiples of $1,000. DESCRIPTION OF 7% SERIES A NOTES DUE 2006
Aggregate Principal Name(s) and Address(es) of Registered Holder(s) Amount Tendered (Please fill in, if blank) Certificate Number(s)* (if less than all)** _________________________ ________________________ _________________________ ________________________ _________________________ ________________________
TOTAL PRINCIPAL AMOUNT OF EXISTING NOTES TENDERED _____________________________ * Need not be completed by book-entry holders. ** Need not be completed by Holders who wish to tender with respect to all Existing Notes listed. SPECIAL REGISTRATION INSTRUCTIONS Address_________________________ (SEE INSTRUCTIONS 4, 5 AND 6) _____________________________ (Include Zip Code) To be completed ONLY if certificates for Existing Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Existing Notes accepted for exchange, are to be issued in the name of someone other than the undersigned. ___________________________________________ (Tax Identification or Social Security No.) Issue certificate(s) to: Name _____________________________________ (Please Print) -2- 3 SPECIAL DELIVERY INSTRUCTIONS Address ________________________________________________ (SEE INSTRUCTIONS 4, 5 AND 6) _____________________________________________________ (Include Zip Code) To be completed ONLY if certificates for Existing Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Existing Notes accepted for exchange, are to be delivered to someone other than the undersigned. _____________________________________________________ (Tax Identification or Social Security No.) Issue certificate(s) to: Name ___________________________________ (Please Print)
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR EXISTING NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH EXISTING NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. [ ] CHECK HERE IF EXISTING NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution ____________________________ [ ] The Depository Trust Company Account Number ________________________________________________________ Transaction Code Number _______________________________________________ Holders whose Existing Notes are not immediately available or who cannot deliver their Existing Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date may tender their Existing Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering." See Instruction 2. [ ] CHECK HERE IF EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of tendering Holder(s)_________________________________________ Date of Execution of Notice of Guaranteed Delivery ____________________ Name of Institution which Guaranteed Delivery _________________________ Transaction Code Number _______________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undesigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Existing Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: _________________________________________________________________ Address: ______________________________________________________________ -3- 4 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to BJ Services Company (the "Company") the principal amount of Existing Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Existing Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Existing Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company and as Trustee and Registrar under the Indenture for the Existing Notes and the Exchange Notes) with respect to the tendered Existing Notes with full power of substitution (such power of attorney being deemed an irrevocable power coupled with an interest) to (i) deliver certificates for such Existing Notes to the Company or transfer ownership of such Existing Notes on the account books maintained by DTC, together, in either such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (ii) present such Existing Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Existing Notes, all in accordance with the terms of the Exchange Offer. The undersigned acknowledges that the Offer is being made in reliance upon interpretative advice given by the staff of the Securities and Exchange Commission (the "SEC") to third parties in connection with transactions similar to the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Existing Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company or any Guarantor within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. The undersigned represents that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving Exchange Notes (which shall be the undersigned unless otherwise indicated in the box entitled "Special Delivery Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the Recipient (if different) has any arrangement with any person to participate in the distribution of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if different) is an "affiliate" of the Company or any Guarantor as defined in Rule 405 under the Securities Act. If the undersigned is not a broker-dealer, the undersigned further represents that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes. If the undersigned is a broker-dealer, the undersigned further (x) represents that it acquired Existing Notes for the undersigned's own account as a result of marketing activities or other trading activities, (y) represents that it has not entered into any arrangement or understanding with the Company or any Guarantor or any "affiliate" of the Company or any Guarantor (within the meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes to be received in the Exchange Offer and (z) acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act (for which purposes delivery of the Prospectus, as the same may be hereafter supplemented or amended, shall be sufficient) in connection with any resale of Exchange Notes received in the Exchange Offer. Such a broker- dealer will not be deemed, solely by reason of such acknowledgment and prospectus delivery, to be admitting that it is an "underwriter" within the meaning of the Securities Act. The undersigned understand and agrees that the Company reserves the right not to accept tendered Existing Notes from any tendering holder if the Company determines, in its sole and absolute discretion, that such acceptance could result in a violation of applicable securities laws. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Existing Notes tendered hereby and to acquire Exchange Notes issuable upon the -4- 5 exchange of such tendered Existing Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of tendered Existing Notes or transfer of ownership of such Existing Notes on the account books maintained by a book-entry transfer facility. By acceptance of the Exchange Offer, each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees, that upon the receipt of notice by the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented prospectus to such broker-dealer. The undersigned understands and acknowledges that the Company reserves the right in its sole discretion to purchase or make offers for any Existing Notes that remain outstanding subsequent to the Expiration Date or, as set forth in the Prospectus under the caption "The Exchange Offer--Termination," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Existing Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Existing Notes when, as and if the Company has given oral (which shall be confirmed in writing) or written notice thereof to the Exchange Agent. If any tendered Existing Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Existing Notes will be returned (except as noted below with respect to tenders through DTC), at the Company's cost and expense, to the undersigned at the address shown below or at a different address as may be indicated herein under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. This tender may be withdrawn only in accordance with the procedures set forth in this Letter of Transmittal. The undersigned understands that the first interest payment following the Expiration Date will include unpaid interest on the Existing Notes accrued through the Expiration Date, which is the date of issuance of the Exchange Notes. The undersigned understands that tenders of Existing Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Registration Instructions," please issue the certificates representing the Exchange Notes issued in exchange for the Existing Notes accepted for exchange and return any certificates for Existing Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in either such event in the case of Existing Notes tendered by DTC, by credit to the account at DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the Exchange Notes issued in exchange for the Existing Notes accepted for exchange and any certificates for Existing Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Registration Instructions" and "Special -5- 6 Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Existing Notes accepted for exchange in the name(s) of, and return any certificates for Existing Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned understands that the Company has no obligations pursuant to the "Special Registration Instructions" or "Special Delivery Instructions" to transfer any Existing Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Existing Notes so tendered. Holders who wish to tender the Existing Notes and (i) whose Existing Notes are not immediately available or (ii) who cannot deliver their Existing Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their Existing Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1 regarding the completion of the Letter of Transmittal. -6- 7 PLEASE SIGN HERE WHETHER OR NOT EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY AND WHETHER OR NOT TENDER IS TO BE MADE PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES This Letter of Transmittal must be signed by the registered holder(s) as their name(s) appear on the Existing Notes or, if tendered by a participant in DTC, exactly as such participant's name appears on a security listing as the owner of Existing Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Existing Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 4 herein. X___________________________________________________________________ _________________________ Date X___________________________________________________________________ _________________________ Date
Signature(s) of Holder(s) or Authorized Signatory Name(s): __________________________________________ Address: ____________________________________________________ __________________________________________ _____________________________________________________ (Please Print) (including Zip Code)
Capacity: _________________________________ Area Code and Telephone Number: _____________________________ Social Security No.: ______________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN SIGNATURE GUARANTEE (SEE INSTRUCTION 1 HEREIN) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION ________________________________________________________________________________ (Name of Eligible Institution Guaranteeing Signatures) ________________________________________________________________________________ (Address (including zip code) and Telephone Number (including area code) of Firm) ________________________________________________________________________________ (Authorized Signature) ________________________________________________________________________________ Printed Name) ________________________________________________________________________________ (Title) Date: ___________________ -7- 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Guarantee of Signatures. Signatures on this Letter of Transmittal need not be guaranteed if (a) this Letter of Transmittal is signed by the registered holder(s) of the Existing Notes tendered herewith and such holder(s) have not completed the box set forth herein entitled "Special Registration Instructions" or the box entitled "Special Delivery Instructions" or (b) such Existing Notes are tendered for the account of an Eligible Institution. See Instruction 6. Otherwise, all signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17 Ad-15 under the Securities Exchange Act of 1934 (an "Eligible Institution"). All signatures on bond powers and endorsements on certificates must also be guaranteed by an Eligible Institution. 2. Delivery of this Letter of Transmittal and Existing Notes. Certificates for all physically delivered Existing Notes or confirmation of any book-entry transfer to the Exchange Agent at DTC of Existing Notes tendered by book-entry transfer, as well as, in each case (including cases where tender is affected by book-entry transfer), a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of the tendered Existing Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder and the delivery will be deemed made only when actually received by the Exchange Agent. If Existing Notes are sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Existing Notes should be sent to the Company. Holders who wish to tender their Existing Notes and (i) whose Existing Notes are not immediately available, or (ii) who cannot deliver their Existing Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Existing Notes according to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, overnight courier, mail or hand delivery) setting forth the name and address of the Holder of the Existing Notes, the certificate number or numbers of such Existing Notes and the principal amount of Existing Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or facsimile hereof) together with the certificate(s) representing the Existing Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal (or facsimile hereof), as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all tendered Existing Notes in proper form for transfer (or a confirmation of book-entry transfer of such Existing Notes into the Exchange Agent's account at DTC), must be received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date, all as provided in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." Any Holder who wishes to tender his Existing Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Existing Notes according to the guaranteed delivery procedures set forth above. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Existing Notes, and withdrawal of tendered Existing Notes will be determined by the Company in its sole discretion, which -8- 9 determination will be final and binding. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Existing Notes for exchange. The Company reserves the absolute right to reject any and all Existing Notes not properly tendered or any Existing Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Existing Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Existing Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Existing Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Existing Notes will not be deemed to have been made until such defects or irregularities have been cured to the Company's satisfaction or waived. Any Existing Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders pursuant to the Company's determination, unless otherwise provided in this Letter of Transmittal as soon as practicable following the Expiration Date. The Exchange Agent has no fiduciary duties to the Holders with respect to the Exchange Offer and is acting solely on the basis of directions of the Company. 3. Inadequate Space. If the space provided is inadequate, the certificate numbers and/or the number of Existing Notes should be listed on a separate signed schedule attached hereto. 4. Tender by Holder. Only a Holder of Existing Notes may tender such Existing Notes in the Exchange Offer. Any beneficial owner of Existing Notes who is not the registered bolder and who wishes to tender should arrange with such holder to execute and deliver this Letter of Transmittal on such owner's behalf or must, prior to completing and executing this Letter of Transmittal and delivering his Existing Notes, either make appropriate arrangements to register ownership of the Existing Notes in such owner's name or obtain a properly completed bond power from the registered holder or properly endorsed certificates representing such Existing Notes. 5. Partial Tenders; Withdrawals. Tenders of Existing Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Existing Notes is tendered, the tendering Holder should fill in the principal amount tendered in the third column of the box entitled "Description of 7% Series A Notes due 2006" above. The entire principal amount of any Existing Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Existing Notes is not tendered, then Existing Notes for the principal amount of Existing Notes not tendered and a certificate or certificates representing Exchange Notes issued in exchange for any Existing Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the "Special Delivery Instructions" box above on this Letter of Transmittal or unless tender is made through DTC, promptly after the Existing Notes are accepted for exchange. Except as otherwise provided herein, tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Existing Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Existing Notes to be withdrawn (the "Depositor"), (ii) identify the Existing Notes to be withdrawn (including the certificate number or numbers and principal amount of such Existing Notes, or, in the case of Existing Notes transferred by book-entry transfer the name and number of the account at DTC to be credited), (iii) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Existing Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Registrar with respect to the Existing Notes register the transfer of such Existing Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Existing Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Existing Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Existing Notes so withdrawn are -9- 10 validly retendered. Any Existing Notes which have been tendered but which are not accepted for exchange by the Company will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Existing Notes may be retendered by following one of the procedures described above under "Procedures for Tendering" at any time prior to the Expiration Date. 6. Signatures on the Letter of Transmittal; Bond Powers and Endorsements. If this Letter of Transmittal (or facsimile hereof) is signed by the registered holder(s) of the Existing Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the Existing Note without alteration, enlargement or any change whatsoever. If any of the Existing Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Existing Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many copies of this Letter of Transmittal as there are different registrations of Existing Notes. If this Letter of Transmittal (or facsimile hereof) is signed by the registered Holders or Holders (which term, for the Purposes described herein, shall include a book-entry transfer facility whose name appears on a security listing as the owner of the Existing Notes) of Existing Notes tendered and the certificate or certificates for Exchange Notes issued in exchange therefor is to be issued (or any untendered principal amount of Existing Notes to be reissued) to the registered holder, then such holder need not and should not endorse any tendered Existing Notes, nor provide a separate bond power. In any other case, such holder must either properly endorse the Existing Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal with the signatures on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal (or facsimile hereof) is signed by a person other than the registered Holder or Holders of any Existing Notes listed, such Existing Notes must be endorsed or accompanied by appropriate bond powers in each case signed as the name of the registered holder or holders appears on the Existing Notes. If this Letter of Transmittal (or facsimile hereof) or any Existing Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, or officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. Endorsements on Existing Notes or signatures on bond powers required by this Instruction 6 must be guaranteed by an Eligible Institution. 7. Special Registration and Delivery Instructions. Tendering Holders should indicate, in the applicable box or boxes, the name and address to which Exchange Notes or substitute Existing Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 8. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering -10- 11 holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty-day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with its TIN within sixty days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty-day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with its TIN within such sixty-day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the TIN is the Social Security number of such individual. If the Exchange Agent or the Company are not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Existing Notes am registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Existing Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 9. Transfer Taxes. The Company will pay all transfer taxes, if any, imposed by Article 12 of the New York State Tax Law applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Existing Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered in the name of, any person other than the registered holder of the Existing Notes tendered hereby, or if tendered Existing Notes are registered in the name of a person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Existing Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed an the registered holder or on any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. Except as provided in this Instruction 9, it will not be necessary for transfer tax stamps to be affixed to the Existing Notes listed in this Letter of Transmittal. 10. Waiver of Conditions. The Company reserves the right, in their sole discretion, to amend, waive or modify specified conditions in the Exchange Offer in the case of any Existing Notes tendered. 11. Mutilated, Lost, Stolen or Destroyed Existing Notes. Any tendering Holder whose Existing Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 12. Requests for Assistance or Additional Copies. Requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address specified in the Prospectus. Holder may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. -11- 12 (DO NOT WRITE IN SPACE BELOW)
CERTIFICATE SURRENDERED EXISTING NOTES TENDERED EXISTING NOTES ACCEPTED _________________________ _________________________ _________________________ _________________________ _________________________ _________________________
Date Received ____________________ Accepted by _____________ Checked by ______________ Delivery Prepared by _____________ Checked by ______________ Date ____________________
IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder whose tendered Existing Notes are accepted for payment is required to provide the Exchange Agent (as payer) with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Exchange Agent is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments made with respect to Existing Notes purchased pursuant to the Exchange Offer may be subject to backup withholding. Certain Holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the Exchange Agent is required to withhold 20% of any payments made to the Holder or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to the Exchange Offer, the Holder is required to provide the Exchange Agent with either: (i) the Holder's correct TIN by completing the form below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) the Holder has been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (B) the Internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding, or (ii) an adequate basis for exemption. WHAT NUMBER TO GIVE THE EXCHANGE AGENT The Holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered Holder of the Existing Notes. If the Existing Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. -12- 13 CERTIFICATION OF PAYEE AWAITING TAXPAYER INDEMNIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payer, 31% of all payments made to me on account of the Exchange Notes shall be retained until I provide a Taxpayer Identification Number to the payer and that, if I do not provide my Taxpayer Identification Number within sixty days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE __________________________________ DATE__________________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -13- 14 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYERS' NAME: BJ SERVICES COMPANY SUBSTITUTE Part I - Taxpayer Identification Number Form W-9 Enter your taxpayer identification Department of the Treasury number in the appropriate box. For Internal Revenue Service most individuals, this is your social ______________________________________ security number. If you do not have Social Security Number a number, see how to obtain a "TIN" in the enclosed Guidelines. OR NOTE: If the account is in more than one name, see the chart on page 2 of Payer's Request for Taxpayer the enclosed Guidelines to determine ______________________________________ Identification Number (TIN) what number to give. Employee Identification Number and Certification
Part II-For Payees Exempt from Backup Withholding CERTIFICATION-UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am writing for a number to be issued to me), and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE_______________________ DATE ___________________ Certification Guidelines - You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). -14- EX-99.2 12 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR 7% SERIES A NOTES DUE 2006 OF BJ SERVICES COMPANY A form substantially equivalent to that set forth below must be used to accept the Exchange Offer (as defined below) if the certificates for the outstanding 7% Series A Notes due 2006 (the "Existing Notes") of BJ SERVICES COMPANY (the "Company"), and all other documents required by the Letter of Transmittal cannot be delivered to the Exchange Agent by the expiration of the Exchange Offer or compliance with book-entry transfer procedures cannot be effected on a timely basis. Such form may be delivered by hand or transmitted by facsimile transmission, telex or mail to the Exchange Agent, and must include a signature guarantee by an Eligible Institution as set forth below. TO: Bank of Montreal Trust Company For Information Call: [_______________________]
By Mail: By Hand: Bank of Montreal Trust Company Bank of Montreal Trust Company Transfer and Exchange Agent Transfer and Exchange Agent 77 Water Street, 4th Floor 77 Water Street, 4th Floor New York, New York 10005 New York, New York 10005 By Facsimile Transmission: By Overnight Courier: Bank of Montreal Trust Company Bank of Montreal Trust Company [______________________________] Transfer and Exchange Agent 77 Water Street, 4th Floor Confirm by Telephone: New York, New York 10005 [______________________________]
Delivery of this instrument to an address other than as set forth above does not constitute a valid delivery. The method of delivery of all documents, including certificates, is at the risk of the Holder. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. This Notice of Guaranteed Delivery is not used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instruction thereto, such signatures must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signature(s). Ladies and Gentlemen: The undersigned acknowledges receipt of the Prospectus and the related Letter of Transmittal which describes the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of a new series of 7% Series B Notes due 2006 for each $1,000 in principal amount of the Existing Notes. The undersigned hereby tenders to the Company the aggregate principal amount of Existing Notes set forth below on the terms and conditions set forth in the Prospectus and the related Letter of Transmittal pursuant to the guaranteed delivery procedure set forth in the "The Exchange Offer--Guaranteed Delivery Procedures" section set forth in the Prospectus. -15- 2 PLEASE SIGN AND COMPLETE Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s) Signatory: ________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ Principal Amount of Exchange Notes Tendered: ______ Address:___________________________________________ ___________________________________________________ ___________________________________________________ Certificate No(s). of Existing Notes (if Area Code and Telephone No.: available): _______________________________________ If Existing Notes will be delivered by book-entry ___________________________________________________ transfer at The Depository Trust Company, insert ___________________________________________________ Depository Account No.: ___________________________ Date: _____________________________________________
This Notice of Guaranteed Delivery must be signed by the registered Holder(s) of Existing Notes exactly as its (their) name(s) appear on certificates for Existing Notes or on a security position listing as the owner of Existing Notes, or by person(s) authorized to become registered Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): _______________________________________________________________ _______________________________________________________________ Capacity: _______________________________________________________________ Address(es): _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ Do not send Existing Notes with this form. Debentures should be sent to the Exchange Agent together with a properly completed and duly executed Letter of Transmittal. GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or a correspondent in the United States , hereby (a) represents that each holder of Existing Notes on whose behalf this tender is being made "own(s)" the Existing Notes covered hereby within the meaning of Rule l4e-4 under the Securities Exchange Act of 1934, as amended, (b) represents that such tender of Existing Notes complies with such Rule 14e-4, and (c) guarantees that, within five New York Stock Exchange trading days from the expiration date of the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with certificates representing the Existing Notes covered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Existing Notes into the Exchange Agent's account at The Depository Trust Company, pursuant to the procedure for book-entry transfer set forth in the Prospectus) and required documents will be deposited by the undersigned with the Exchange Agent. The undersigned acknowledges that it must deliver the Letter of Transmittal and Existing Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in financial loss to the undersigned. Name of Firm: _____________________________________ ___________________________________________________ Authorized Signature Address: __________________________________________ Name: _____________________________________________ ___________________________________________________ Title: ____________________________________________ Area Code and Telephone No.: ______________________ Date: _____________________________________________
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