EXHIBIT 10.34
-------------
BUSINESS VENTURE AGREEMENT
BY
AND
AMONG
M-I L.L.C.,
▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORPORATION,
AND
MOUNTAIN COMPRESSED AIR, INC.
-----------------------------
DATED JUNE 27, 2003
TABLE OF CONTENTS
SEC. SECTION NAME PAGE
---- ------------ ----
1.0 PURPOSE 3
2.0 FORMATION, ORGANIZATION AND MANAGEMENT 4
3.0 SCOPE OF AGREEMENT 21
4.0 ADDITIONAL SUPPORT BY THE PARTIES 21
5.0 ACCOUNTING AND BUSINESS PRACTICES 23
6.0 AUDITS 24
7.0 TERM AND TERMINATION 24
8.0 ASSIGNMENT, INDEMNITIES AND INSURANCE 31
9.0 FORCE MAJEURE 36
10.0 GOVERNING LAW 37
11.0 NON-BINDING ARBITRATION 37
12.0 CONFIDENTIALITY 39
13.0 OTHER AGREEMENTS 39
14.0 SEVERABILITY 39
15.0 NOTICES 40
16.0 GENERAL PROVISIONS 41
17.0 NON-COMPETITION OF PARTIES 41
18.0 DEFINITIONS 42
19.0 EMPLOYEES 46
20.0 INCOME TAX RETURNS, TAX ACCOUNTING, TAX ELECTIONS 48
2
BUSINESS VENTURE AGREEMENT
--------------------------
THIS BUSINESS VENTURE AGREEMENT (the "Agreement") is made and entered
into this the 27th day of June, 2003, by and among M-I L.L.C. ("M-I"), a
Delaware limited liability company, having an address of ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation ("AC"), a Delaware
corporation, having an address of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
and Mountain Compressed Air, Inc. ("MCA"), a Texas corporation, having the same
address as AC.
WITNESSETH:
WHEREAS, M-I is engaged in the provision of compressed air services
business for drilling and workover in the energy industry throughout the world
("M-I Business"); and
WHEREAS, AC is engaged through MCA, which is a wholly owned subsidiary
of OilQuip Rentals, Inc., a Delaware corporation, which is a wholly owned
subsidiary of AC, in the provision of compressed air services business in the
energy and other industries in the United States of America ("MCA Business");
and
WHEREAS, AC, MCA and M-I desire to work together to develop business
for air compression in the drilling and workover and other markets throughout
the world.
NOW THEREFORE, in consideration of the representations, covenants and
agreements contained herein, the Parties agree as follows:
For purposes of this Agreement, capitalized terms not otherwise defined
herein shall have the meanings specified or referred to in Section 18 hereof.
1.0 PURPOSE OF THE BUSINESS VENTURE.
-------------------------------------
AC, MCA and M-I hereby enter into a business venture for the purpose of
developing and expanding the business for air compression in the drilling and
workover markets worldwide. MCA and M-I will provide related products, services
and technology for sale and distribution to the energy and other industries (the
"Business" as further defined in Section 18 hereof), upon the terms and
conditions contained herein. MCA, AC and M-I each hereby warrants and agrees
3
that it will act in good faith in all respects and will use its best commercial
efforts to further the purposes of the Business. Further, MCA, AC and M-I agree
that any liability incurred by the respective Parties before the Closing Date or
which relates to the period before the Closing Date shall remain the obligation
of the Party incurring the liability unless stated otherwise in this Agreement.
2.0 FORMATION, ORGANIZATION AND MANAGEMENT.
---------------------------------------------
2.1 LEGAL ENTITY. AC, MCA and M-I shall carry out the purposes of this
Agreement and conduct the Business through AirComp L.L.C. (hereinafter "the
Company"), a limited liability company organized and formed under the laws of
the State of Delaware on May 31, 2003. The Company is owned fifty-five percent
(55%) by MCA and forty-five percent (45%) by M-I (individually called a
"Percentage Interest" and collectively called "Percentage Interests"), and
subject to the terms and provisions of this Agreement, MCA and M-I shall share
in the profits or losses of the Company in such Percentage Interests. MCA and
M-I will be the only members in the Company on the Closing Date.
Either MCA or M-I shall be free hereafter to transfer its Percentage
Interest in the Company to an Affiliate, as hereinafter defined, or the Owners
may sell their Percentage Interests in accordance with Section 7 of the
Agreement.
2.1.1 MANAGEMENT COMMITTEE. The Company shall be governed by a
Management Committee in accordance with this Agreement and any constitutive
documents evidencing its formation. Notwithstanding the foregoing, the Company
shall always be governed by a Management Committee comprised of six members (the
"Managers" or individually, a "Manager"), three of which shall be selected by
MCA and three of which shall be selected by M-I. The Chairman of the Management
Committee shall be selected by M-I and the terms of office of the Managers shall
be for a period of one (1) year unless otherwise replaced by M-I or MCA,
respectively. Each Manager may be re-appointed for successive one-year terms at
the discretion of and by the Party, as hereinafter defined, which originally
appointed such Manager, and any successors or substitutes to the Manager shall
be appointed by the Party which originally appointed such Manager.
4
2.1.2 MANAGEMENT COMMITTEE MEETINGS. Management Committee meetings may
be called at any time by any Manager or the President of the Company on not less
than three (3) days nor more than ninety (90) days notice before the date of the
meeting to each Manager, either personally, or by mail, telephone, fax or
delivery service at such time and place as designated in the notice to the
Managers, but in no event less than once every three (3) months within thirty
(30) days of the end of each fiscal quarter. In the event of a tie on any vote
taken by the Management Committee Managers, MCA will cast the tie-breaking vote
on all matters to come before and be decided by the Management Committee. The
President of the Company may be an ex officio member of the Management Committee
but will not have a vote on any matters to come before the Management Committee
and is not considered a Manager as defined above. At all Management Committee
meetings, the presence of at least one Manager appointed by each Party and
written proxies for all absent Managers are required to constitute a quorum. At
any meeting of the Managers, every Manager entitled to vote at such meeting
shall be entitled to vote in person or by proxy, executed in writing by such
Manager or by his duly authorized attorney-in-fact. Proxies shall be filed with
the Chairman immediately after the meeting has been called to order. Management
Committee meetings may be held by means of a telephone conference, video
conference or other electronic means. and, notwithstanding any other provision
herein, all actions of the Management Committee provided for herein may be taken
by unanimous written consent without a meeting. Any such action taken without a
meeting shall be effective only if the written consent or consents are in
writing, set forth the action so taken, and are signed by ALL the Managers.
2.1.3 AUTHORITY AND LIABILITY OF THE MANAGERS TO THIRD PARTIES. No
Manager has the authority or power to act for or on behalf of the Company, to do
any act that would be binding on the Company or to incur any expenditures on
behalf of the Company without the approval of the Management Committee. No
Manager is liable for the debts, obligations or liabilities of the Company,
including under a judgment, decree or order of a court.
2.1.4 COMPENSATION OF MANAGERS. Managers, as such, shall not receive
any salary from the Company for their services. This does not preclude any
Manager from serving the Company in some other capacity and receiving
compensation for such service.
2.1.5 INDEMNIFICATION OF THE MANAGERS. The Managers shall be
indemnified and held harmless by the Company, including advancement of expenses,
but only to the extent that the Company's assets are sufficient therefor, from
and against all claims, liabilities, and expenses arising out of any management
of Company affairs, but excluding those caused by the gross negligence or
5
willful misconduct of the Manager, subject to all limitations and requirements
imposed by the Delaware Limited Liability Company Act. These indemnification
rights are in addition to any rights that the Managers may have against third
parties. THE FOREGOING INDEMNIFICATION SPECIFICALLY INCLUDES THOSE CLAIMS THAT
ARISE OUT OF THE INDEMNIFIED PARTY'S SOLE, JOINT OR CONTRIBUTORY NEGLIGENCE, BUT
SPECIFICALLY EXCLUDES THOSE CLAIMS THAT ARISE OUT OF THE INDEMNIFIED PARTY'S
WILLFUL MISCONDUCT, FRAUD OR GROSS NEGLIGENCE. THE INDEMNIFIED PARTY WOULD NOT
HAVE ENTERED INTO THIS AGREEMENT IF NOT FOR THIS INDEMNIFICATION.
2.1.6 FOREIGN QUALIFICATION. The Managers shall cause the Company to
comply, to the extent legally possible, with all requirements necessary to
qualify the Company as a foreign limited liability company in each jurisdiction
in which the Company conducts business. To the extent required by law or as the
Managers determine is otherwise advisable, the Managers shall execute,
acknowledge, swear to and deliver all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue and terminate the Company as a foreign limited liability company in all
jurisdictions in which the Company conducts business.
2.2 CONTRIBUTION OF ASSETS.
2.2.1. INITIAL CONTRIBUTIONS. At Closing, M-I shall contribute the
assets shown on Schedule 2.2.1.1, including the equipment in an "as is, where
is" condition without any representation as to the condition thereof, and the
debts shown on Schedule 2.2.1.2 (hereinafter collectively called the "M-I
Contributed Assets") to the Company. M-I hereby represents and warrants to the
Company and MCA, that (i) said M-I Contributed Assets shall be free of any and
all obligations, liens, encumbrances, claims or demands from any Person, except
those shown on Schedule 2.2.1.2, and (ii) to the best of its knowledge,
information and belief, that there are no claims or potential claims with
respect to the M-I Intellectual Property (hereinafter defined) arising out of
any use, reproduction or sale of the M-I Products (hereinafter defined) prior to
the Closing. At Closing, MCA shall contribute the assets shown on Schedule
2.2.1.3, including the equipment in an "as is, where is" condition without any
6
representation as to the condition thereof, and the debts shown on Schedule
2.2.1.4, (hereinafter collectively called the "MCA Contributed Assets"). MCA
hereby represents and warrants to the Company and M-I, that (i) said MCA
Contributed Assets shall be free of any and all obligations, liens,
encumbrances, claims or demands from any Person, except those shown on Schedule
2.2.1.4, and (ii) to the best of its knowledge, information and belief, that
there are no claims or potential claims with respect to the MCA Intellectual
Property (hereinafter defined) arising out of any use, reproduction or sale of
the MCA Products (hereinafter defined) prior to the Closing. It is the express
intent of M-I and MCA that MCA shall be the majority owner of the Company
throughout the term of this Agreement, unless this Agreement is earlier
terminated pursuant to Section 7.
2.2.2. ADJUSTMENTS. Unless otherwise agreed by the Management Committee
or as otherwise compelled by operation of applicable law, no adjustment to the
Percentage Interest of either MCA or M-I shall be made except as a result of a
transfer of its Percentage Interest or a portion thereof pursuant to the terms
of this Agreement.
2.3 CLOSING.
2.3.1 PLACE. The Closing shall take place at the offices of M-I,
located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇, at such time and date
as may be mutually agreed upon by M-I AC, and MCA. The date of the Closing shall
be referred to in this Agreement as the "Closing Date."
2.3.2. EFFECTIVE DATE. The Effective Date of the formation of the
business venture and the Company contemplated by this Agreement shall be on the
later of June 30, 2003, or the date that MCA has secured the financing described
in the Funding Agreement, attached hereto and incorporated by reference as
Exhibit A, and that each Party has complied with all other terms and provisions
of this Agreement at or prior to Closing.
2.3.3 PROCEEDINGS AT CLOSING. All proceedings to be taken, all
payments to be made and all documents to be executed and delivered by Parties at
the Closing shall be deemed to have been taken, paid, executed and delivered
simultaneously, and no proceedings shall be deemed taken, no payments shall be
deemed made nor any documents executed or delivered until all have been taken,
paid, executed and delivered.
7
2.3.4 DOCUMENTS TO BE DELIVERED TO MCA AT CLOSING. At the Closing, M-I
shall execute (where necessary) and deliver, or shall cause to be executed
(where necessary) and delivered, to AC and/or MCA the following:
(a) ▇▇▇▇ of sale or other appropriate document of conveyance,
transfer or assignment with respect to M-I's ownership interest in the M-I
Contributed Assets, the form and substance of which shall be acceptable to MCA;
(b) certificates of title or other appropriate documents
transferring good title to all vehicles and other equipment comprising any part
of the M-I Contributed Assets to the Company as identified in Schedule 2.3.4 (b)
(with respect to vehicles, transfer of title does not have to be consummated for
sixty (60) days after Closing since it may require time to have certificates of
title transferred);
(c) assignments conveying all right, title and interest of M-I
in the M-I Assumed Contracts to the Company as identified in the attached
Schedule 2.3.4 (c), including any consents to assignment by the third parties
with whom M-I is contracted;
(d) assignments conveying all right, title and interest of M-I
in the M-I Real Estate Leases to the Company, as identified in the attached
Schedule 2.3.4 (d), including any consents to assignment by the third parties
with whom M-I is contracted;
(e) assignments (excluding foreign patents or applications
requiring legalization) in recordable form, where appropriate, conveying good
title to all M-I Intellectual Property relating to the M-I Business to the
Company, as identified in the attached Schedule 2.3.4 (e);
(f) releases of all liens, loans or encumbrances relating to
the M-I Contributed Assets;
(g) a document certifying that the signatory of this Agreement
has the authority to sign this Agreement on behalf of M-I; and
(h) such other documents and instruments as are customary
under such circumstances or as may be reasonably necessary to effectuate the
transactions contemplated hereby;
(i) an affidavit duly signed by an officer of M-I that the M-I
Contributed Assets represent everything reasonably necessary to conduct the
Business following Closing in a manner consistent with the business conducted
prior to Closing.
8
The assignments referenced in this Section 2.3.4 shall include all
rights to claims for Damages for past infringement of any M-I Intellectual
Property, or for any misappropriation of proprietary information relating to the
M-I Business, with the right to ▇▇▇ for and collect Damages for the benefit of
the Company and said assignments shall, with respect to any United States
patents or patent applications and trademarks or trademark applications, be in a
form and state of completed execution, suitable for recording transfer of title
to the Company. The assignments referenced in this Section 2.3.4 shall also
include the obligation by Company to defend any counter-suit for invalidity of
the M-I Intellectual Property or for misappropriation of proprietary information
relating to the M-I Business. Individual assignments in a form and state of
completed execution, excluding legalization if otherwise necessary, suitable for
acceptance by individual jurisdictions other than the United States for
recording transfer of title to the Company shall be provided as soon after the
Closing as is reasonably possible. M-I shall cause to be delivered to the
Company all files and other related materials (including but not limited to lab
notebooks, conceptive documents and test data) pertaining to such patents,
trademarks, and copyrights, and applications therefore, domestic and foreign,
and shall notify the Company of M-I's assumption of future responsibility for
the patents, trademarks, copyrights and pending applications thereon related to
the M-I Intellectual Property, it being the intention of the Parties that M-I
shall assume this responsibility on behalf of the Company for all such current
and future matters. In connection with M-I's handling of patents, trademarks and
pending applications thereon, M-I shall keep the Company promptly advised of any
and all M-I Office Actions, proposed responses, or proposed dispositive actions
and any proposed decision by M-I to abandon or allow to lapse any patent,
trademark registration or application therefore. However, M-I shall have sole
authority and discretion to act as it sees fit with respect to M-I's handling of
the patents, trademarks and pending applications. Provided that in the event M-I
decides to abandon any patent, trademark or pending applications therefore, the
Company shall be given the opportunity to maintain and/or prosecute any such
patent, trademark or pending applications therefore, and M-I, MCA and AC shall
thereafter have no ownership in or any license under such patent, trademark or
pending application therefore. Further M-I agrees that it will provide all
reasonable assistance to the Company in connection with the Company's handling
of the patents, trademarks and pending applications with respect to M-I
Intellectual Property.
9
2.3.5. DOCUMENTS TO BE DELIVERED TO M-I AT CLOSING. At the Closing, MCA
and/or AC shall execute (where necessary or as the case may be) and deliver, or
shall cause to be executed (where necessary) and delivered, to M-I the
following;
(a) ▇▇▇▇ of sale or other appropriate document of conveyance,
transfer or assignment with respect to MCA's ownership interest in the MCA
Contributed Assets, the form and substance of which shall be acceptable to M-I;
(b) certificates of title or other appropriate documents
transferring good title to all vehicles and other equipment comprising any part
of the MCA Contributed Assets to the Company as identified in Schedule 2.3.5 (b)
(with respect to vehicles, transfer of title does not have to be consummated for
sixty (60) days after Closing since it may require time to have the certificates
of title transferred);
(c) assignments conveying all right, title and interest of MCA
in the MCA Assumed Contracts to the Company as identified in the attached
Schedule 2.3.5 (c), including any consents to assignment by the third parties
with whom MCA is contracted;
(d) assignments conveying all right, title and interest of MCA
in the MCA Real Estate Leases to the Company, as identified in the attached
Schedule 2.3.5 (d), including any consents to assignment by the third parties
with whom MCA is contracted;
(e) assignments (excluding foreign patents or applications
requiring legalization) in recordable form, where appropriate, conveying good
title to all MCA Intellectual Property relating to the MCA Business to the
Company, as identified in the attached Schedule 2.3.5 (e);
(f) releases of all liens, loans or encumbrances relating to
the MCA Contributed Assets or bank documents showing the extent and terms of any
liens, loans or encumbrances thereon;
(g) a certified copy of the resolutions of the Board of
Directors of AC and MCA properly authorizing and approving this Agreement and
the transactions contemplated hereby; and
(h) such other documents and instruments as are customary
under such circumstances or as may be reasonably necessary to effectuate the
transactions contemplated hereby;
(i) affidavits from MCA and AC duly signed by an officer of
the respective company declaring that the MCA Contributed Assets represent
everything reasonably necessary to conduct the Business following Closing in a
manner consistent with the business conducted prior to Closing;
10
(j) a signed employment contract between the Company and the
President of the Company as previously reviewed and agreed by MCA, AC and M-I;
(k) a Parent Company Guarantee, attached as Exhibit B,
executed by AC on behalf of MCA, in which AC guarantees that it shall be
responsible for MCA's performance of all MCA's obligations under this Agreement
and any exhibits or schedules hereto should MCA fail to perform such
obligations.
The assignments referenced in this Section 2.3.5 shall include all
rights to claims for Damages for past infringement of any MCA Intellectual
Property, or for any misappropriation of proprietary information relating to the
MCA Business, with the right to ▇▇▇ for and collect Damages for the benefit of
the Company and said assignments shall, with respect to any United States
patents or patent applications and trademarks or trademark applications, be in a
form and state of completed execution, suitable for recording transfer of title
to the Company. The assignments referenced in this Section 2.3.5 shall also
include the obligation by Company to defend any counter-suit for invalidity of
the MCA Intellectual Property or for misappropriation of proprietary information
relating to the MCA Business. Individual assignments in a form and state of
completed execution, excluding legalization if otherwise necessary, suitable for
acceptance by individual jurisdictions other than the United States for
recording transfer of title to the Company shall be provided as soon after the
Closing as is reasonably possible. MCA shall cause to be delivered to the
Company all files and other related materials (including but not limited to lab
notebooks, conceptive documents and test data) pertaining to such patents,
trademarks, and copyrights, and applications therefore, domestic and foreign,
and shall notify the Company of MCA's assumption of future responsibility for
the patents, trademarks, copyrights and pending applications thereon related to
the MCA Intellectual Property, it being the intention of the Parties that MCA
shall assume this responsibility on behalf of the Company for all such current
and future matters. In connection with MCA's handling of patents, trademarks and
pending applications thereon, MCA shall keep the Company promptly advised of any
and all MCA Office Actions, proposed responses, or proposed dispositive actions
and any proposed decision by MCA to abandon or allow to lapse any patent,
trademark registration or application therefore. However, MCA shall have sole
authority and discretion to act as it sees fit with respect to MCA's handling of
the patents, trademarks and pending applications. Provided that in the event MCA
decides to abandon any patent, trademark or pending applications therefore, the
11
Company shall be given the opportunity to maintain and/or prosecute any such
patent, trademark or pending applications therefore, and M-I, AC and MCA shall
thereafter have no ownership in or any license under such patent, trademark or
pending application therefore. Further MCA agrees that it will provide all
reasonable assistance to the Company in connection with the Company's handling
of the patents, trademarks and pending applications with respect to MCA
Intellectual Property.
2.3.6. PRO-RATION OF TAXES. In the case of the Contributed Assets, any
ad valorem, property or similar Taxes shall be prorated on a per diem basis
through the Closing Date, with the Company being responsible for all of such
prorated Taxes attributable to the period or periods ending on or after the
Closing Date and M-I and MCA being responsible for the Taxes relating to their
Contributed Assets for the period ending on the Closing Date. Promptly upon
receipt, the Company or the Parties, as appropriate, shall provide the other
with copies of all bills for which the other Party or the Company is responsible
in whole or in part pursuant to this Section. The resulting amount payable by
the Parties or the Company shall be paid promptly upon demand by the Party
hereto to whom such payment is owed.
2.3.7. POST-CLOSING AUDIT. Within 60 days of Closing Date, each Party
shall cause to have undertaken a physical audit of the assets of the other Party
contributed to the Company. Any differences between the assets counted in this
audit and the lists in the Schedules of this Agreement will be agreed between
the Parties and corresponding adjustments of fair market values will be made to
the balance sheet of the Company. To maintain the equity interest of each Party
in the Company, the differences will be reconciled by making charges or credits
to the intercompany loans of each Party.
2.4 MANAGEMENT. MCA shall appoint the President of the Company, subject
to the approval of M-I, which approval shall not be unreasonably withheld. The
Management Committee shall have the power to terminate the President. The
President shall, under the supervision and direction of the Management Committee
of the Company, implement all policies, plans, programs, budgets and directives
of said Management Committee and generally manage all aspects of the day-to-day
activities of the Company in the conduct of the Business. The President shall
keep MCA and M-I advised of his activities to the same extent. The President
will implement or cause to be implemented the monthly planning, forecasting and
reporting requirements set forth in Schedule 2.4. The Parties shall cause the
12
Management Committee of the Company to delegate the management of the Company's
day-to-day activities to the President. Notwithstanding any other provision
contained in this Agreement to the contrary, the President shall not have
authority to undertake and shall not undertake any of the following actions,
without either the unanimous written consent of the Management Committee of the
Company, or the Management Committee's pre-approval on a unanimous basis as
identified in a delegation of authority document with approval limits for the
Company:
a. EQUIPMENT. The purchase of equipment in excess of US$20,000
unless the equipment is specifically included in the annual profit plan or
budget, in which case the limit is US$100,000, and leases of any equipment for a
term longer than one (1) year or for an amount in excess of US$50,000;
b. INVENTORY LEVELS. The purchase of inventory which would
take the total inventory value for the Company above US$1,000,000;
c. ASSET SALES. Sale of any assets valued at over US$100,000
and of any other assets not sold in the ordinary course of business;
d. MATERIAL CONTRACTS OR UNUSUAL TRANSACTIONS. Entering into
Material Contracts (defined in Section 18 hereof) or transactions outside the
regular course of business or which are materially different (in size, terms, or
subject matter) from the usual and regular course of the Company's ordinary
business affairs;
e. BORROWING. Any borrowing, whether secured or unsecured (not
including the receipt of credit in the ordinary course of business in connection
with the purchased services or products).
f. SALARIES AND BENEFIT PLANS. Establishing or changing
salaries, wages, benefit plans and other compensation paid to officers and key
employees of the Company, except as specifically approved in the annual profit
plan or budget.
g. CAPITAL EXPENDITURES. Approval of capital expenses over
US$20,000 and capital expenses not included in the annual operations expenditure
budget.
h. ACTIVITIES OUTSIDE BUSINESS PURPOSE. Making changes to or
modifications in the purpose or objectives of the Company in the conduct of the
Business.
13
i. CREATION OF LIENS. Creation of any liens, mortgages (other
than a lien resulting from application of the law) or any other fixed or
floating mortgages on all or any part of the Business, its property or assets.
j. APPROVAL OF BUSINESS ACCOUNTS. Approval of Business
Accounts, financial statements, distribution of profits, and/or cash, except as
specifically approved and instructed by the Management Committee.
k. ELECTION OF CORPORATE OFFICERS. Election of corporate
officers of the Company.
2.5 START-UP COSTS. AC, MCA and M-I shall each pay its respective legal
fees associated with the negotiation, implementation and execution of this
Agreement and the Exhibits hereto. The costs and expenses incurred in the
organization of the Company, including any fees for translation or registration
of documents or notarial fees or legal fees shall be paid by each Party hereto
in accordance with its equity ownership ratio in the Company. In addition, all
bank fees, loan fees, financing fees, or other fees, including legal fees of
bank or financing sources or qualification to do business by the Company in such
states where it will transact business, shall be paid by the Company at Closing
or reimbursed by the Company to such Party who may have previously paid such
fees.
2.6 FUNDING OF THE COMPANY. M-I and MCA agree to fund the Company by
making loans to the Company in proportion to their equity interest when required
by the Company following unanimous approval of the Management Committee. All
such loans shall bear interest at an annual percentage rate of five percent (5%)
or One-Year London Inter-Bank Offer Rate (LIBOR) plus two percent (2%),
whichever is the higher, payable quarterly until repaid in full. In no case
shall MCA, AC and M-I together be required to loan more than US$1,000,000 to the
Company in any one calendar year. Neither MCA nor AC together nor M-I
individually shall be expected to extend loans to the Company such that the
total outstanding loan exceeds US$2,000,000 each. The Company's initial funding
will be governed by the terms of the Funding Agreement, attached hereto as
Exhibit A. All fees and expenses related to the Funding Agreement shall be paid
for by the Company.
14
2.7 BUSINESS NAME. All activities of the Business shall be conducted
using the name AIRCOMP L.L.C., or any other name approved by the unanimous
consent of the Management Committee.
2.8 FUTURE TECHNOLOGY.
2.8.1 M-I, MCA and AC agree that any and all know-how, ideas,
inventions, improvements, developments, enhancements, discoveries, whether
patentable or not, arising out of or directly related to the Technology,
acquired by, conceived of, invented by, or developed by the Company during the
term of this Agreement shall be owned by the Company, and M-I, MCA and AC agree
to promptly notify the Company of any such future technology.
2.8.2 In the event that M-I on behalf of the Company fails to prepare,
file or prosecute a patent application to an invention related to the Technology
and transferred to or developed through it, e.g. by M-I as per Section 2.8.1.
above, or in the event M-I on behalf of the Company, decides not to pursue or
decides to discontinue preparation, filing or prosecution of any such patent
application or any continuations, divisions, reissues, reexaminations or
counterparts thereof, or in the event that M-I on behalf of the Company fails to
pay any tax or other fee with respect to a patent or patent application related
to the Technology or included in the M-I Intellectual Property, M-I shall give
timely notice thereof to the Company, and the Company shall have the right to
obtain and protect the entire right, title and interest in and to such
application, continuation, division, reissue, reexamination or counterpart
thereof at the election and expense of the Company, all without further
compensation to M-I. Thereafter, M-I shall, upon the request of the Company,
promptly execute any and all assignments or other papers or instruments and
shall provide such assistance and do all acts that the Company, deems necessary
or useful to accomplish the above. M-I shall, nevertheless, have a perpetual
royalty-free worldwide license with regard to any such Intellectual Property.
2.8.3 In the event that AC or MCA on behalf of the Company fails to
prepare, file or prosecute a patent application to an invention related to the
Technology and transferred to or developed through it, e.g. by AC or MCA as per
Section 2.8.1. above, or in the event AC or MCA on behalf of the Company,
decides not to pursue or decides to discontinue preparation, filing or
prosecution of any such patent application or any continuations, divisions,
reissues, reexaminations or counterparts thereof, or in the event that AC or MCA
on behalf of the Company fails to pay any tax or other fee with respect to a
patent or patent application related to the Technology or included in the MCA
Intellectual Property, AC or MCA shall give timely notice thereof to the
15
Company, and the Company shall have the right to obtain and protect the entire
right, title and interest in and to such application, continuation, division,
reissue, reexamination or counterpart thereof at the election and expense of the
Company, all without further compensation to AC or MCA. Thereafter, AC or MCA
shall, upon the request of the Company, promptly execute any and all assignments
or other papers or instruments and shall provide such assistance and do all acts
that the Company, deems necessary or useful to accomplish the above. MCA shall,
nevertheless, have a perpetual royalty-free worldwide license with regard to any
such Intellectual Property.
2.9 DISTRIBUTIONS OF PROFITS OR CASH; CAPITAL ACCOUNTS.
2.9.1 Upon the approval of and recommendation by the Management
Committee, after taking into consideration the cash requirements for debt
servicing, debt reduction, intercompany loans, equipment maintenance, capital
expenditures and working capital requirements of the Company, the Owners shall,
following unanimous consent of the Management Committee, either cause the
Company to distribute all available profits and/or cash, or distribute only a
portion of available profits and/or cash to the Owners in accordance with their
Percentage Interests. No distributions shall be made if prohibited by applicable
law or if the Company is then insolvent or would thereby be made insolvent or
would be rendered unable to carry on its business purposes as a result of such
distribution, or if the fair market value of the Company's assets after such
distribution would be insufficient to meet its liabilities. The value of any
non-cash assets, if any, to be distributed to the Owners shall be determined by
unanimous consent of the Management Committee. All distributions of non-cash
assets or mixed distributions of cash and non-cash assets shall be pro rata in
value.
2.9.2. Upon the unanimous consent of the Management Committee, such
profits and/or cash, as determined above, shall be distributed at least
semi-annually within forty-five (45) days of the close of the second and fourth
quarters of the fiscal year of the Company.
2.9.3 All distributions shall be made in direct proportion to the
respective Percentage Interests of each Owner in the Company. Any distribution
to an Owner shall reduce the amount of such Owner's Capital Account as defined
in Section 2.9.4, but no adjustment in Percentage Interest of any Owner shall be
made on account of any pro rata distribution.
16
2.9.4 As used herein, the term "Capital Account" shall mean and refer
to the capital account of each Owner in the Company, reflecting the amount of
the contribution of such Owner to the capital of the Company pursuant to section
2.2.1., as adjusted from time to time pursuant to Section 2.2.2. and Section
2.9.4(c). A Capital Account shall be maintained for each Owner. Neither Owner
shall be required to make any contribution to the capital of the Company, except
pursuant to this Section and other terms of this Agreement.
(a) NO INTEREST ON CAPITAL ACCOUNT. Interest earned on the
Company funds shall inure solely to the benefit of the Company, and no interest
shall be paid upon any contributions to the capital of the Company, nor upon any
undistributed or reinvested income or profits of the Company.
(b) INITIAL CAPITAL ACCOUNTS. AC, MCA and M-I agree that, as
of the date of this Agreement, the initial Capital Account balance of each Owner
is:
MCA $11,709,000 (rounded to the nearest thousand) 55% interest
M-I $9,580,000 (rounded to the nearest thousand) 45% interest
The Parties acknowledge and agree that at and on the Closing Date, AC will not
maintain a Capital Account in the Company, nor own a Percentage Interest in the
Company.
(c) ADJUSTMENT TO CAPITAL ACCOUNTS. The Capital Account of
each Owner shall be maintained in accordance with the final Treasury Regulations
promulgated under Section 704(b) of the Internal Revenue Code of 1986 (as
amended from time to time, the "Code"), and from time to time shall be:
(1) Increased by:
(i) the amount of cash and the Agreed Value of all
property contributed by such Owner to the Company (As used herein, the term
"Agreed Value" shall mean the fair market value of any property contributed to
the Company, as unanimously agreed to by the Management Committee, net of any
liabilities to which such property is subject),
17
(ii) the Owner's allocable share of income and gain
for federal income tax purposes,
(iii) that Owner's allocable share of income exempt
from tax described in section 705(a)(1)(B) of the Code,
(iv) the amount of any excess of such Owner's
allocable share of the total amount realized from the disposition of any
depletable Company property over such Owner's remaining adjusted tax basis in
such property as computed under the Treasury Regulations promulgated pursuant to
Section 704 of the Code,
(v) in the case of contributed property to which
Section 2.9.4(d)(2) applies that is sold (or deemed sold) or otherwise disposed
of, the amount of gain that would have been allocated to such Owner under
Section 2.9.4(d) if the adjusted basis of such contributed property on the date
it was contributed to the Company had been equal to the amount credited to the
contributing Owner's Capital Account pursuant to Section 2.9.4(c) and any
depreciation, depletion or amortization deemed to be allowable with respect to
such property prior to such sale or other disposition is the amount allocated to
the Owner's Capital Account pursuant to Section 2.9.4(c)(2)(v).
(2) Decreased by:
(i) the amount of cash and the Agreed Value of
property distributed to such Owner,
(ii) that Owner's allocable share of losses and other
items of deduction for federal income tax purposes,
(iii) that Owner's allocable share of expenditures
described in Section 705(a)(2)(B) of the Code,
(iv) that Owner's depletion allowance with respect to
any depletable Company property (for the Owner's taxable year that ends
with or within the Company's taxable year) and the amount of any excess of such
Owner's remaining adjusted tax basis in, any depletable Company property over
such Owner's allocable share of the total amount realized from the sale or other
disposition of such property,
18
(v) in the case of contributed property to which
Section 2.9.4(d)(2) applies that is subject to an allowance for
depreciation, depletion or amortization, the amount of depreciation, depletion
or amortization that would have been allocated to such Owner under Section
2.9.4(d) if the adjusted basis of such contributed property on the date it was
contributed to the Company had been equal to the amount credited to the
contributing Owner's Capital Account pursuant to Section 2.9.4(c), and
(vi) in the case of contributed property to which
Section 2.9.4(d)(2) applies that is sold (or deemed sold) or otherwise
disposed of, the amount of loss that would have been allocated to such Owner
under Section 2.9.4(d) if the adjusted basis of such contributed property on the
date it was contributed to the Company had been equal to the amount credited to
the contributing Owner's Capital Account pursuant to Section 2.9.4(c) and any
depreciation, depletion or amortization deemed to be allowable with respect to
such property prior to such sale or other disposition is the amount allocated to
the Owner's Capital Account pursuant to Section 2.9.4(c)(2)(v).
(3) In determining the amount of depreciation, depletion and
amortization deductions to be allocated and charged to the Capital Accounts of
the Owners pursuant to clause (v) of Section 2.9.4(c)(2), such amount shall be
determined in accordance with any method permissible under Treasury Regulation
Section 1.704-1(b)(2)(iv)(g)(3) that the Management Committee may select.
(d) TAX ALLOCATIONS.
(1) For federal income tax purposes, except as otherwise provided in
paragraphs (2) and (5) below, each item of amount realized, income, gain, loss,
deduction and credit of the Company shall be allocated between the Owners in
accordance with their respective Percentage Interests.
(2) In the case of any property contributed to the Company by an Owner,
any gain, loss, amortization, depreciation, depletion and cost recovery
deduction attributable to such property shall first be allocated to the
contributing Owner in a manner consistent with the principles of Section 704(c)
of the Code to take into account the variation between the Agreed Value of such
property and its adjusted basis for federal income tax purposes at the time of
contribution, and any remaining items shall be allocated among the Owners in
accordance with their respective Percentage Interests.
(3) It is intended that the allocations in paragraph (2) of this
Section 2.9.4(d) effect an allocation for federal income tax purposes pursuant
to Section 704(c) of the Code and comply with any limitations or restrictions
therein. Such allocations are designed to eliminate, to the extent possible,
19
disparities that otherwise exist between the balances of the Owners' Capital
Accounts as maintained pursuant to Section 2.9.4(c), and such balances had such
Capital Accounts been maintained strictly in accordance with tax accounting
principles. The Owners shall have complete discretion to make the allocations
pursuant to this Section 2.9.4(d) and the adjustments to Capital Accounts
pursuant to Section 2.9.4(c) in any reasonable manner consistent with the
intentions of the Owners as reflected in the provisions of this Agreement and
permitted or required by Section 704 of the Code or by final Treasury
regulations promulgated thereunder.
(4) To the extent of any recapture income resulting from the sale or
other taxable disposition of a Company property or asset, the amount of any gain
from such disposition allocated to an Owner (or its successor in interest) for
Federal income tax purposes pursuant to the above provisions shall be deemed to
be recapture income to the extent such Owner has been allocated or has claimed
any deduction directly or indirectly giving rise to the treatment of such gain
as recapture income.
(5) In the event of the transfer of an Owner's Percentage Interest
during a year, each item of Company amount realized, income, gain, loss,
deduction and credit attributable to the transferred Percentage Interest shall,
for Federal income tax purposes, be prorated between the transferor and the
transferee on a daily or other reasonable basis, as required by Section 706 of
the Code; provided, however, that gain or loss on the sale or other disposition
of all or a substantial portion of the assets of the Company shall be allocated
to the whole of the Owner's Percentage Interest on the date of sale.
(6) In the event the Internal Revenue Service allocates income to an
Owner pursuant to Section 482 of the Code, or any successor provision in law,
with respect to any license transferred by the Company to such Owner (or its
predecessor in interest), the deduction resulting to the Company from such
Section 482 adjustment shall be specially allocated to the Owner recognizing the
correlative income adjustment.
2.9.5. The Owners shall cause the Company to establish its fiscal year
as January 1 through December 31.
20
3.0 SCOPE OF AGREEMENT.
---------------------------
The Business shall consist of the marketing, sales and operations of
Products, services and Technology contributed to the Company by AC, MCA and M-I
and as may hereafter be developed and/or contributed to the Company pursuant to
Section 2.8.1.
3.1 THE TERRITORY, PURPOSES AND POWER. The Business will operate
worldwide. The purposes for which the Company is organized is to transact any or
all lawful business for which limited liability companies may be organized under
the Delaware Limited Liability Company Act. The Company shall have any and all
powers which are necessary or desirable to carry out the purpose and business of
the Company, to the extent the same may be legally exercised by limited
liability companies under the Delaware Limited Liability Company Act. The
Company shall carry out the foregoing activities pursuant to the arrangements
set forth in this Agreement.
3.2 EXCLUSIVITY. While this Agreement remains in effect, each Party
including any Affiliate, and any other company, partnership or joint venture in
which a Party has an ownership interest or an income interest, shall offer the
Products, services, and the Technology of the Business in the Territory
exclusively through the Company.
3.3 OTHER ACTIVITIES PERMITTED. Except as specifically set forth in
Section 3.2, nothing herein shall prohibit M-I and its Affiliates, or MCA and
its Affiliates, from conducting any and all aspects of its other businesses
throughout the world, provided, however, neither M-I and its Affiliates, nor MCA
and its Affiliates, shall engage in the business of providing compressed air
services.
4.0 ADDITIONAL SUPPORT BY THE PARTIES.
----------------------------------------
4.1 SUPPORT BY MCA. MCA shall use reasonable efforts to provide
additional support, either through itself or through AC, to the Company as
follows:
a. TECHNICAL ASSISTANCE. MCA shall provide technical
assistance to the Company, as required by the Company to support its customer's
use of Products. Such technical assistance shall be provided at a rate to be
mutually agreed upon between MCA and the Management Committee of the Company.
b. ACCOUNTING AND ADMINISTRATIVE ASSISTANCE. MCA shall provide
such accounting and administrative assistance to the Company, as required by the
Company. Such accounting and administrative assistance shall be provided at a
rate to be mutually agreed upon between MCA and the Management Committee of the
Company.
21
c. TRAINING. MCA shall, to the extent deemed appropriate by
the President, provide experienced personnel to train employees of the Company
as needed to support the Business operations throughout the world. Such training
shall be provided at a cost to be mutually agreed upon between MCA and the
Management Committee of the Company.
d. RESEARCH. In addition to the research described in Section
2.8, Future Technology, MCA will provide research needed to address product or
systems improvements or for problem solving arising from field applications of
Technology.
e. SALES AND COMMUNICATIONS INFRASTRUCTURE. At the request of
the President, MCA shall provide the Company access to its drilling sales and
communications infrastructure for the purposes of identifying markets,
accumulating market data and supplying said data in furtherance of the Business.
f. SUPPORT EQUIPMENT. MCA shall lease to the Company such
support equipment which MCA has available and which is deemed by the President
to be reasonable or necessary to carry out the Business of the Company on such
terms as are mutually agreeable between the Company and MCA. Any such lease
agreement shall be presented to the Management Committee of the Company for
prior approval.
g. PURCHASING SERVICES. If MCA is in a position to purchase
goods or services on behalf of the Company at lower prices than those available
to the Company directly or through MCA under Section 2.4(b) above, MCA shall, to
the extent deemed appropriate by the President, provide such purchasing services
to the Company. MCA shall charge the Company a rate for such services to be
mutually agreed upon by MCA and the Management Committee of the Company.
4.2 SUPPORT BY M-I. M-I shall use reasonable efforts to provide
additional support to the Company as follows:
a. TECHNICAL ASSISTANCE. M-I shall provide technical
assistance to the Company, as required by the Company to support its customer's
use of Products. Such technical assistance shall be provided at a rate to be
mutually agreed upon between M-I and the Management Committee of the Company.
22
b. TRAINING. M-I shall, to the extent deemed appropriate by
the President, provide experienced personnel to train employees of the Company
as needed to support the Business operations throughout the world. Such training
shall be provided at a cost to be mutually agreed upon between M-I and the
Management Committee of the Company.
c. RESEARCH. In addition to the research described in Section
2.8, Future Technology, M-I will provide research needed to address product or
systems improvements or for problem solving arising from field applications of
Technology.
d. SALES AND COMMUNICATIONS INFRASTRUCTURE. At the request of
the President, M-I shall provide the Company access to its world-wide drilling
sales and communications infrastructure for the purposes of identifying markets,
accumulating market data and supplying said data in furtherance of the Business.
e. SUPPORT EQUIPMENT. M-I shall lease to the Company such
support equipment which M-I has available and which is deemed by the President
to be reasonable or necessary to carry out the Business of the Company on such
terms as are mutually agreeable between the Company and M-I. Any such lease
agreement shall be presented to the Management Committee of the Company for
prior approval.
f. PURCHASING SERVICES. If M-I is in a position to purchase
goods or services on behalf of the Company at lower prices than those available
to the Company directly or through M-I under Section 2.4(b) above, M-I shall, to
the extent deemed appropriate by the President, provide such purchasing services
to the Company. M-I shall charge the Company a rate for such services to be
mutually agreed upon by M-I and the Management Committee of the Company.
5.0 ACCOUNTING AND BUSINESS PRACTICES.
----------------------------------------
5.1 ACCOUNTING PRACTICES. The Parties agree that the Company shall
follow sound generally accepted accounting principles in accordance with
accepted professional standards and any applicable laws or regulations. The
Parties shall cause the Company to establish and maintain such detailed books of
account as may be reasonably necessary to satisfy the financial and tax
reporting obligations of the Parties.
5.2 BUSINESS PRACTICES. The Parties agree to comply with all laws and
regulations applicable to any activities carried out in the name of or on behalf
of Company under the provisions of this Agreement and any amendments to it. Each
of the Parties warrants that it has not made nor will it make, with respect to
the operations of the Company hereunder, any payments, loans, gifts or promises
23
or offers of payment, loans or gifts, directly or indirectly, to or for the use
or benefit of any official or employee of any government or to any other person
if such Party knew or knows, or had/has reason to suspect, that any part of such
payment, loan or gift, or promise or offer, would violate the laws or
regulations of any government having jurisdiction over a Party hereto. The
Parties separately agree to respond promptly in reasonable detail to any notice
from the other Party or its auditors pertaining to the above-stated warranty and
shall furnish adequate documentary support for such response upon request.
6.0 AUDITS.
-------------
6.1 ANNUAL ACCOUNTING. The preparation of audited financial statements
of the Business shall be completed each year within ninety (90) days following
the close of the Company's fiscal year by a firm of independent certified public
accountants or chartered accountants approved by M-I and MCA. The President
shall be responsible for arranging to have a signed copy of the audited
financial statements submitted to each member of the Management Committee of the
Company within five (5) days from completion of said financial statements. The
expense of the annual accounting of the Company shall be paid by the Company.
Any additional reports required to be provided by the Company to the Company's
lenders shall also be provided to each Party at the time such reports are
provided to such lender.
6.2 SPECIAL AUDITS. Any Party may at any time request a special audit
of the books of account, records and affairs of the Company. The cost of any
such special audit shall be paid by the Party requesting it. The Company and the
Parties will cooperate with and use their best efforts to assist in such special
audit.
7.0 TERM AND TERMINATION.
--------------------------
7.1 TERM. Except as otherwise stated herein, the term of this
Agreement, and of the Business to be conducted hereunder, shall be for an
initial period of five (5) years from the Effective Date. On the fourth
anniversary of the Closing Date, the Owners may mutually agree to an additional
term ("Additional Term") for an additional period of time. In the absence of
such an agreement, M-I may, by notice in writing on or within ninety (90) days
following the fourth anniversary of the Closing Date, have the exclusive right
to extend the Agreement for an additional term ("M-I Term") of up to two (2)
years.
24
7.2 BUYOUT. At any time, either Owner may upon the written agreement of
the other Owner, purchase the other Owner's Percentage Interest in the Company
upon the terms and conditions contained in such written agreement.
7.2.1 BUYOUT AT TERMINATION. At or before the fourth anniversary of the
Closing Date or one (1) year before the expiration of the M-I Term, or one (1)
year before the expiration of the Additional Term, the Owners shall agree in
writing on the appointment of a suitably qualified investment banking firm or
broker ("Investment Banker") to solicit buyers for a sale of 100% interest in
the Company. Upon the solicitation and receipt by the Investment Banker of a
bona fide written offer for the Company, if both Owners agree in writing to such
offer by a third party, then the Owners shall instruct the Investment Banker to
facilitate such sale in which case the Owners shall each sell their Percentage
Interest in the Company and receive the proceeds of the sale in accordance with
their respective Percentage Interest in the Company. If one Owner does not agree
to such offer by a third party, then the procedure detailed in Section 7.2.2
shall be followed. If following solicitation of buyers by the Investment Banker
for at least a period of ninety (90) days there are no offers forthcoming for
the Company during such period, the Investment Banker shall be instructed to
"auction" the Company as a "going concern" and sell the Company at the highest
bid received during an additional ninety (90) day period in which the Investment
Banker conducts the "auction." Both Owners agree that once the auction has been
instituted that they shall sell their Percentage Interests in the Company at the
highest bid given in the auction, provided that the bid is worth more than fifty
percent (50%) of the New Book Value of the Company at that time. In any event
both Owners may bid during the auction for the Company. All licenses for any M-I
Intellectual Property and MCA Intellectual Property granted by M-I and MCA,
respectively, to the Company shall terminate and be of no further effect upon
the sale of the Company.
In the event that there is no bid worth more than fifty percent (50%)
of the Net Book Value of the Company at the auction or that there is no buyer
for the Company, the Owners may elect to (a) wind up the Company as described in
Section 7.2.5, (b) allow this Agreement to continue to the expiration of its
current Term and follow the procedures of Section 7.2.4, (c) extend this
Agreement for a further term which shall be treated as an Additional Term and
25
follow the procedures of Section 7.2.1, or (d) accept the highest auction bid if
there is one. In the event that the Owners cannot agree on one of the four above
options, the Company will continue to operate until the end of the then current
Term and then follow the procedures of Section 7.2.4.
7.2.2 THIRD PARTY OFFER. If a third party not affiliated with either
Owner hereto ("Potential Buyer") makes a bona fide written offer to the Owners
to buy the Company, and one Owner ("Disagreeing Owner") elects not to accept
that offer, and that offer is more than ninety percent (90%) of the Net Book
Value of the Company, then the Agreeing Owner may notify in writing the
Disagreeing Owner that the Agreeing Owner is invoking the provisions of this
Section 7.2.2 and either
(a) the Disagreeing Owner shall be required to sell along with
the Agreeing Owner their Percentage Interests in the Company.
Such sale of the Company shall be at the price and on the
terms contained in the Potential Buyer's offer, or
(b) the Disagreeing Owner shall be required to buy the
Agreeing Owner's Percentage Interest in the Company at the
Potential Buyer's offer price multiplied by the Percentage
Interest of the Agreeing Owner in the Company, or
(c) if the Potential Buyer agrees to buy only the Agreeing
Owner's Percentage Interest and reaches an agreement with the
Disagreeing Owner on terms to operate the Company, then the
Disagreeing Owner must give its written consent to the sale of
the Agreeing Owner's Percentage Interest in the Company to the
Potential Buyer.
In the event that the offer is less than ninety percent (90%) of the
Net Book Value of the Company, there will be no obligation on the part of the
Disagreeing Owner to comply with this Section 7.2.2.
Each offer required to be made pursuant to this Section 7.2.2 shall be
made by a written notice, and which shall set forth the name or names of the
proposed purchaser, the payment of the purchase price which shall be all cash
and the scheduled date of consummation of such proposed sale. A copy of the
written offer from any proposed third party purchasers shall be attached to each
notice hereunder.
26
7.2.3 OFFER TO BUY OR SELL BY AN OWNER. In the event that either Owner
("Offering Owner") is willing to make an offer, payable entirely in cash, to the
other Owner ("Offeree") to purchase all the Offeree's Percentage Interest in the
Company, or to sell the Offeree all of its Percentage Interest in the Company
for a purchase price payable entirely in cash, the Offering Owner shall notify
the Offeree in writing of its desire to do so, designating in such notice the
cash price at which it will either sell its Percentage Interest in the Company
to the Offeree or buy the Percentage Interest of the Offeree, and designating
the date ("Offer Date") of such notice (which date shall be the same date of
delivery of notice to the Offeree). Such price ("Purchase Price") shall be
stated in terms of the price attributable to one hundred percent (100%) of the
Company owned by the Owner. In the event that the Purchase Price is less than
ninety percent (90%) of the Net Book Value of the Company, then the offer shall
be deemed null and void and neither Owner shall be required to either sell or
buy the other Owner's Percentage Interest. In the event that the Purchase Price
is more than ninety percent (90%) of the Net Book Value of the Company, then the
Offering Owner shall then be obligated in accordance with the terms and
provisions of this Section 7.2.3 to either:
(a) to purchase the Percentage Interest of the Offeree at a
price equal to one hundred percent (100%) of the Purchase
Price above multiplied by the Percentage Interest owned by the
Offeree in the Company; or
(b) to sell to the Offeree the Offering Owner's Percentage
Interest in the Company at a price equal to one hundred
percent (100%) of the Purchase Price above multiplied by the
Percentage Interest owned by the Offering Owner in the
Company.
(c) ACCEPTANCE OF SALE OFFER. Within thirty (30) days
following the Offer Date, if the Offeree desires to purchase
the Offering Owner's Percentage Interest in the Company,
Offeree shall give written notice to the Company and Offering
Owner. In the event that the Offeree fails to so notify the
Company and the Offering Owner of its intent to purchase
within such thirty (30) day period, then the Offeree shall be
deemed to have notified Offering Owner of its intent to sell
its Percentage Interest in the Company.
(d) PURCHASE BY OFFERING OWNER. In the event that the Offeree
shall fail to elect to purchase all Offering Owner's
Percentage Interest in the Company pursuant to Section
7.2.3(c) above, the Offeree shall be deemed to have elected
(on the last day of such thirty (30) day period) to sell its
27
Percentage Interest in the Company to the Offering Owner, and
the Offeree shall sell, and Offering Owner shall buy, the
Offeree's Percentage Interest in the Company at the price and
upon the terms set forth in the Offering Owner's notice.
(e) CLOSING. Any sale or purchase of the Offering Owner's
Percentage Interest in the Company in accordance with this
Section 7.2.3 shall be closed at the principal office of the
Company, 10:00 a.m., Houston, Texas time, on or before the
ninetieth (90th) day after the Offer Date, and all requisite
documents, instruments and papers shall be signed at the
office's of the Company on the day fixed for Closing. All
expenses and fees, other than legal fees and expenses,
incurred in connection with any such Closing shall be paid
equally by the selling and purchasing Owners. Legal fees and
expenses relating to the purchase and sale shall be borne by
the Owner incurring such fees and expenses.
7.2.4 TERMINATION OF BUSINESS FOR NO SALE. If the Company is not sold
to a third party and neither Owner has provided notice to the other of its
respective intent to purchase the other's Percentage Interest, the Business
shall terminate at the latest of either (a) five (5) years from the Effective
Date of this Agreement, (b) at the expiration of the M-I Term, or (c) at the
expiration of the Additional Term, and the Owners shall cause the Company to be
wound up. In the event the Owners agree that the Company should be wound up, the
Owners shall agree in writing on the appointment of an Investment Banker to
solicit buyers for a sale of 100% interest in the Company. Upon the solicitation
and receipt by the Investment Banker of a bona fide written offer for the
Company, if both Owners agree in writing to such offer by a third party, then
both Owners shall instruct the Investment Banker to facilitate such sale in
which case the Owners shall each sell their Percentage Interests in the Company
and receive the proceeds of the sale in accordance with their respective
Percentage Interest in the Company. If one Owner does not agree to such offer by
a third party, then the procedure detailed in Section 7.2.2 shall be followed.
If following solicitation of buyers by the Investment Banker for at
least a period of ninety (90) days and there are no offers forthcoming for the
Company during such period, the Investment Banker shall be instructed to
"auction" the Company as a "going concern" and sell the Company at the highest
bid received during a period of an additional ninety (90) days. Both Owners
28
agree that once the auction has been instituted that they shall sell their
Percentage Interests in the Company at the highest bid given in the auction,
provided that the bid is worth more than fifty (50%) of the Net Book Value of
the Company at that time. In any event both Owners may bid during the auction
for the Company. All licenses for any Intellectual Property granted by the
Owners to the Company shall terminate and be of no further effect upon the
winding up of the Company.
In the event that there is no bid worth more than fifty percent (50%)
of the Net Book Value of the Company at that time or that there is no buyer for
the Company, the Owners shall cause the Company to be wound up in a liquidation
as per Section 7.2.5.
7.2.5 Winding-Up Process. In a winding-up and liquidation, ownership of
M-I Intellectual Property will revert to M-I, ownership of MCA Intellectual
Property will revert to MCA, and MCA and M-I shall own, in proportion to their
then Percentage Interests in the Company, an undivided interest in all of the
Company's other assets (including Intellectual Property and Technology but
excluding M-I Intellectual Property and MCA Intellectual Property) without any
further payments or amounts owed by either Owner to the other Owner with respect
to such ownership of the Company's other assets. All licenses for any
Intellectual Property, MCA Intellectual Property or M-I Intellectual Property
granted by the Owner to the Company shall terminate and be of no further effect
upon the winding up of the Company. Excluding the Owner's respective
Intellectual Property, the assets of the Company shall be applied or distributed
in liquidation in the following order of priority; provided, however, that if a
Owner shall have a negative balance in its Capital Account, such Owner shall
immediately, and prior to any distributions made pursuant to this Section 7.3,
pay to the Company in cash for distribution as provided in this Section 7.3 an
amount equal to the negative balance in said Owner's Capital Account:
(a) In payment of debts and obligations of the Company owed to third
parties or to the Owners;
(b) To the Owners in payment of any positive balances remaining in
their Capital Accounts as determined in accordance with Section 2.9.4 hereof;
and
(c) Any remaining assets shall be distributed to the Owners in
accordance with their Percentage Interests.
29
All licenses for any Intellectual Property, MCA Intellectual Property or M-I
Intellectual Property granted by the Owners to the Company shall terminate and
be of no further effect upon the winding up of the Company.
7.3 OTHER TERMINATION. Notwithstanding the language in Section 7.1,
either of the Owners may terminate this Agreement by notice in writing to the
other upon the occurrence of any of the following:
7.3.1 MCA, AC or M-I ceases or threatens to cease wholly or
substantially to carry on its business because of an actual or contemplated
bankruptcy, reconstruction or amalgamation;
7.3.2 MCA, AC or M-I becomes ultimately controlled by any person or
group of persons who, at the date of this Agreement, does not possess such
control. For these purposes "control" shall mean the right of the controlling
person whether by virtue of rights attaching to shares or otherwise to ensure
that the business and affairs of the controlled person are conducted in
accordance with the controlling person's wishes. Notwithstanding the foregoing,
(a) an Owner may only terminate this Agreement if the third party
acquiring such control of one of the other Parties to this Agreement is a direct
competitor of the terminating Owner in one of the terminating Owner's then
current lines of business, and
(b) neither MCA nor AC may terminate this Agreement if Schlumberger
Technology Corporation or one of its affiliates gets ultimate control of M-I.
If the other Party or Parties to whom the change of "control" does not
apply has consented in writing to such change in "control," then such change
will not constitute grounds for termination under this Agreement;
7.3.3 any Party commits a material breach of any term of this Agreement
which cannot effectively by remedied or which the Party fails effectively to
remedy within thirty (30) days of receipt of a written notice from another Party
specifying the breach and requiring remedy; or
7.3.4 any governmental agency requires the divestiture of more than
Twenty-Five percent (25%) of the Company's Business in order to obtain the
agency's approval of a sale as provided for in Section 7.2.
In the event of such termination, the Owners shall cause the Company to
be wound up and the Owners shall agree in writing on the appointment of an
Investment Banker to solicit buyers for a sale of 100% interest in the Company
or of the assets of the Company as described in Section 7.2.4.
30
7.4 TERMINATION BECAUSE OF SALE. This Agreement will also be terminated
if an Owner or the Owners sell their combined or individual Percentage Interests
in the Company to a third party. The procedure upon such a sale will be governed
by a separate written agreement between the Owners.
7.5 EFFECT OF TERMINATION. Termination of this Agreement shall not
affect any rights or obligations accrued by the Parties prior to such
termination.
8.0 ASSIGNMENT, INDEMNITIES AND INSURANCE.
--------------------------------------------
8.1 ASSIGNMENT OR TRANSFER. Except as otherwise permitted in this
Agreement, neither this Agreement nor any rights or obligations under this
Agreement shall be assigned or transferred by AC, MCA or M-I without the prior
written consent of the other Parties. Any such attempted assignment or transfer
without such written consent shall be null and void, provided, however, that
while a Party shall remain fully obligated hereunder, it may nevertheless
perform all or any part of its obligations through one or more of its
Affiliates, and it may assign and transfer its Percentage Interest, if an Owner,
in the Company to an Affiliate.
8.2 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 8.1,
this Agreement shall be binding upon and inure to the benefit of the permitted
successors and assigns of AC, MCA and M-I.
8.3 INDEMNITIES.
8.3.1 MCA INDEMNITY OBLIGATIONS.Subject to the provisions of this
Section 8.3.1, MCA shall indemnify and hold M-I and its Affiliates and the
officers, Management Committee Managers, stockholders, employees and agents of
M-I and its Affiliates ("M-I Indemnitees") harmless from and against Damages to
the M-I Indemnitees to the extent arising out of or based upon:
(i) the ownership, management, operation or use by MCA of the
MCA Contributed Assets or MCA Business on or prior to the Closing Date,
including without limitation any (A) liability claim on an MCA Product; (B)
Taxes with respect to the MCA Business during the period before the Closing; (C)
environmental liabilities and obligations of MCA relating to or arising from the
31
MCA Contributed Assets or MCA Business on or prior to the Closing Date,
including (i) payments, penalties, and fines imposed by governmental agencies,
(ii) the costs of clean-up and remediation, and (iii) third-party damages for
any environmental or contractual liabilities, now or at anytime hereafter
arising from MCA Contributed Assets or MCA Business on or prior to the Closing
Date; or (D) any commercial, contractual, employment liabilities or disputes now
or at anytime hereafter arising from the MCA Contributed Assets or MCA Business
on or prior to the Closing Date, including without limitation any breach of
MCA's or AC's obligations under Section 2.3.5.
(ii) any actual or threatened violation or noncompliance by AC
or MCA with any statute, ordinance or other law, federal, state, local or
foreign, or any rule or regulation of any Governmental Entity, including without
limitation any Environmental Laws, in connection with the ownership, management,
operation or use of the MCA Contributed Assets or the conduct of the MCA
Business in each case on or prior to the Closing Date;
(iii) any misrepresentation, breach of warranty or breach or
nonfulfillment of any covenant of AC or MCA in this Agreement, including the
Schedules hereto;
(iv) any claims of intellectual property infringement (e.g.
patent infringement) based on the Company's resale of MCA Products to the
Company's customers.
Notwithstanding, the foregoing such indemnification under this Section 8.3.1
shall not apply to any liabilities and obligations under the MCA Assumed
Contracts arising after the Closing Date.
8.3.2 M-I INDEMNITY OBLIGATIONS. Subject to this Section 8.3.2, M-I
shall indemnify and hold AC, MCA and the officers, Board of Directors,
stockholders, employees and agents of AC and MCA ("MCA Indemnitees") harmless
from and against any Damages of the MCA Indemnitees to the extent arising out of
or based upon:
(i) the ownership, management, operation or use by M-I of the
M-I Contributed Assets or M-I Business on or prior to the Closing Date,
including without limitation any (A) liability claim on an M-I Product; (B)
Taxes with respect to the M-I Business during the period before the Closing; or
(C) environmental liabilities and obligations of M-I relating to or arising from
the M-I Contributed Assets or M-I Business on or prior to the Closing Date,
including (i) payments, penalties, and fines imposed by governmental agencies,
(ii) the costs of clean-up and remediation, and (iii) third-party damages for
32
any environmental or contractual liabilities, now or at anytime hereafter
arising from M-I Contributed Assets or M-I Business on or prior to the Closing
Date; or (D) any commercial, contractual, employment liabilities or disputes now
or at anytime hereafter arising from the M-I Contributed Assets or M-I Business
on or prior to the Closing Date, including without limitation any breach of
M-I's obligations under Section 2.3.4.
(ii) any actual or threatened violation or noncompliance by
M-I with any statute, ordinance or other law, federal, state, local or foreign,
or any rule or regulation of any Governmental Entity, including without
limitation any Environmental Laws, in connection with the ownership, management,
operation or use of the M-I Contributed Assets or the conduct of the M-I
Business in each case on or prior to the Closing Date;
(iii) any misrepresentation, breach of warranty or breach or
nonfulfillment of any covenant of M-I in this Agreement, including the Schedules
hereto;
(iv) any claims of intellectual property infringement (e.g.
patent infringement) based on the Company's resale of M-I Products to the
Company's customers.
Notwithstanding the foregoing such indemnification under this Section 8.3.2
shall not apply to any liabilities or obligations under the M-I Assumed
Contracts arising after the Closing Date.
8.3.3 NOTICE, PARTICIPATION AND DURATION OF INDEMNITY RIGHTS.
(a) If a claim, demand or action is asserted by a third Person against
a Person indemnified pursuant to this Section 8.3 ("Indemnitee"), and if such
Indemnitee intends to seek indemnity with respect thereto under this Section 8.3
(which claim, demand or action is herein called an "Indemnified Claim), the
Indemnitee shall promptly, and in any event within 30 days of the assertion of
such Indemnified Claim notify the Person from whom indemnification is sought
("Indemnitor") of such Indemnified claim. Failure to notify the Indemnitor
timely shall not relieve the Indemnitor of any liability which the Indemnitor
might have to the Indemnitee except to the extent (and only to the extent) such
failure materially prejudices the Indemnitor's position. Upon the assertion of
any Indemnified Claim, Indemnitor, at its option, may assume the defense of any
Indemnified Claim, and may assert any defense of Indemnitee or Indemnitor;
PROVIDED, HOWEVER, that Indemnitee shall have the right at its own expense to
participate jointly with Indemnitor in the defense of any such Indemnified
Claim. If Indemnitor elects to undertake the defense of any Indemnified Claim
hereunder, Indemnitee shall cooperate with Indemnitor in the defense or
settlement of the Indemnified Claim. The Indemnitor shall not be entitled to
settle any Indemnified Claim without the prior written consent of the
Indemnitee, which consent shall not be unreasonably withheld, unless such
settlement involves only the payment of money and the claimant provides to the
Indemnitee, in form and substance satisfactory to such Indemnitee, a release
from all liability in respect of such Indemnified Claim.
33
(b) If the Indemnitor, by the 30th day after receipt of notice of any
Indemnified Claim (or, if earlier, by the tenth day preceding the day on which
an answer or other pleading must be served to prevent judgment by default in
favor of the Person asserting the Indemnified Claim) does not elect to defend
against such Indemnified Claim, the Indemnitee will (upon further notice to the
Indemnitor) have the right to undertake the defense, compromise or settlement of
such Indemnified Claim on behalf of and for the account and risk of the
Indemnitor, subject to the right of the Indemnitor to assume the defense of such
Indemnified Claimed at any time prior to settlement, compromise or final
determination thereof.
8.4 INDEMNIFICATION NOTWITHSTANDING INVESTIGATION OR NEGLIGENCE. NO
INVESTIGATION BY OR ON BEHALF OF M-I OR MCA OR THEIR RESPECTIVE AFFILIATES, NOR
ANY INFORMATION THAT THEY MAY HAVE OR OBTAIN, NOR NEGLIGENCE ON THE PART OF ANY
M-I OR MCA INDEMNITEE, WILL AFFECT THE INDEMNIFICATION PROVIDED IN THIS SECTION
8.
8.5 SURVIVAL OF INDEMNIFICATION AND REPRESENTATIONS AND WARRANTIES. The
respective obligations of the Parties hereto to indemnify and hold harmless the
other Party, or any authorized representative thereof, imposed herein or any
certificate, agreement, document or other instrument delivered in connection
herewith shall survive the Closing and remain in full force and effect until the
later of (a) five (5) years after the Closing Date, (b) the termination of the
M-I Term, (c) the termination of the Additional Term (collectively called the
"Indemnification Period"), or (d) the final resolution of any bona fide claim
asserted before the end of such Indemnification Period, except as follows:
(i) MCA's indemnification obligations and representations and
warranties shall survive indefinitely to the extent of claims (A) of fraud
perpetrated by MCA or its Affiliates and (B) except for liabilities and
obligations pursuant to the MCA Assumed Contracts with respect to the period
after the Closing, for liabilities and obligations of MCA otherwise relating to
or arising from the MCA Business or the MCA Contributed Assets with respect to
the period before the Closing, (including, but not limited to, liabilities for
environmental remediation and any claim for the violation of any Environmental
Law) provided that, the liability or obligation of MCA or its Affiliates for
34
breach of the representations in Section 2.3.5(i) and/or to perform any
covenants hereunder shall also survive for the Indemnification Period;
(ii) MCA's indemnification obligations and representations and
warranties with respect to Taxes set forth in 8.3.1.(i) shall survive until the
expiration of any statute of limitations or prescription period, including
extensions thereof, during which any liability for Taxes may be assessed.
(iii) M-I's indemnification obligations and representations and
warranties shall survive indefinitely to the extent of claims (A) of fraud
perpetrated by M-I or its Affiliates and (B) except for liabilities and
obligations pursuant to the M-I Assumed Contracts with respect to the period
after the Closing, for liabilities and obligations of M-I otherwise relating to
or arising from the M-I Business or the M-I Contributed Assets with respect to
the period before the Closing, (including, but not limited to, liabilities for
environmental remediation and any claim for the violation of any Environmental
Law) provided that, the liability or obligation of M-I or its Affiliates for
breach of the representations in Section 2.3.4(i) and/or to perform any
covenants hereunder shall also survive for the Indemnification Period;
(iv) M-I's indemnification obligations and representations and
warranties with respect to Taxes set forth in 8.3.2.(i) shall survive until the
expiration of any statute of limitations or prescription period, including
extensions thereof, during which any liability for Taxes may be assessed.
8.6 LIABILITY LIMITATION. Notwithstanding anything contained herein to
the contrary, the maximum liability any Party shall have to the other pursuant
to this Agreement shall be limited to Two Million Dollars (US$2,000,000.00) in
the aggregate.
8.7 INSURANCE. M-I, AC and MCA shall each contract and maintain, in
effect at its own expense, the amount of insurance which it deems necessary to
cover the liabilities which it may incur under the terms of this Agreement
including the schedules hereto.
35
8.8 WAIVER OF SUBROGATION. M-I, MCA and AC each agree to obtain from
its insurer a waiver of its right to subrogation with respect to the other
Parties for that which concerns any Damage resulting from the execution of this
Agreement.
8.9 COMPANY INSURANCE. The Parties shall cause the Company to be
insured, at its own expense, in accordance with the insurance laws of the State
of Texas, unless more insurance is deemed prudent relative to international
practices generally accepted in the petroleum industry, including but not
limited to the following:
A. Workers' Compensation and Employers Liability
B. Comprehensive General Liability
C. Comprehensive Automobile Liability
D. Protection and Indemnity Insurance
E. Marine, Vessel, Hull & Machinery Insurance
F. All Risk Property Insurance
The above required coverages shall be in such amounts and forms as may be
approved from time to time by the Management Committee.
The coverages shall provide that the Parties and their Affiliates be named as
additional insureds and further provide that the insurers waive subrogation
rights in favor of the Parties and their Affiliates. The additional insured and
waiver provisions shall apply only with respect to and to the extent of
liabilities of the Company.
9.0 FORCE MAJEURE.
-------------------
No Party shall be liable to the other Parties for any failure to
perform or comply with any obligation or condition of this Agreement if such
failure is caused by or arises out of acts of God; floods; fire; earthquake;
water; hurricanes; tornadoes; cyclones; riots; insurrections; war; civil
disturbances; acts or restrictions of civil or military or governmental officers
acting under claim of authority; inability to secure or delay in securing any
necessary governmental approval, permit, or license; any government request or
regulation; strikes; lockouts; differences with workmen or other labor
disturbances; breakages of equipment, tankage, or pipelines; or (without
limiting the foregoing) any acts or causes whatsoever beyond the control of the
Parties.
36
10.0 GOVERNING LAW.
--------------------
This Agreement shall be construed and enforced in accordance with the
laws of the State of Delaware, excluding its conflict of laws provisions.
11.0 NON-BINDING ARBITRATION.
-------------------------------
(a) On the request of any Party hereto, whether made before or
after the institution of any legal proceeding, any action, dispute,
claim or controversy of any kind now existing or hereafter arising
between any of the Parties hereto in any way arising out of, pertaining
to or in connection with this Agreement (a "Dispute") shall be resolved
by non-binding arbitration in accordance with the terms hereof. In the
event of any Dispute, any Party may serve written notice of such
Dispute on any other Party and each Party to such Dispute shall
undertake in good faith to resolve such Dispute. If the Parties cannot
agree to resolve such Dispute within fifteen (15) days after such
written notice, any Party to such Dispute may, by further written
notice (the "Arbitration Notice") to the other Party, commence an
arbitration proceeding by bringing the Dispute to one arbitrator or to
an arbitration panel selected as provided below.
(b) ARBITRATORS. Dispute shall be decided by a single
arbitrator, unless the Parties cannot agree within ten (10) days on a
single arbitrator, in which case they shall choose an arbitration panel
comprised of three arbitrators, one arbitrator to be selected by the
Party who sent the Arbitration Notice, a second arbitrator to be
selected by the other Party, and the third arbitrator (the "Independent
Arbitrator") who will be the Chairman of the arbitration panel, to be
appointed by the first two arbitrators. In the event the first two
arbitrators fail to agree on the appointment of the Independent
Arbitrator within fifteen (15) days, the Independent Arbitrator shall
be appointed on request of any Party hereto by any state district court
judge in ▇▇▇▇▇▇ County, Texas. Whether there is one arbitrator or a
panel, each arbitrator shall be a third party and a business person
knowledgeable in the subject matter of the Dispute. In the event that
any arbitrator shall resign, be unable or otherwise fail to perform his
or her duties, the Party appointing the arbitrator shall immediately
notify the other Party of such resignation, inability or failure, and a
37
replacement shall immediately be selected by the Party who selected
such arbitrator in the instance, or, if the arbitrator to be replaced
is the Independent Arbitrator, then the Parties shall attempt in good
faith to appoint a mutually agreeable replacement Independent
Arbitrator. If the Parties fail to agree on such replacement within
fifteen (15) days, either Party may request any state district court
judge in ▇▇▇▇▇▇ County, Texas to appoint such replacement Independent
Arbitrator.
11.1 CONDUCT OF ARBITRATION. The arbitrator or the arbitration panel
shall conduct the arbitration in accordance with the Rules of Arbitration of the
American Arbitration Association then in effect, except to the extent such rules
are inconsistent with the provisions of this Section 11. The Parties shall
prepare in writing a statement of their positions, together with counterclaims,
with supporting facts, data, and affidavits, if any, and shall submit such
statement to the arbitrator, or arbitration panel within fifteen (15) days after
selection, but, in any event, within forty-five (45) days after service of the
Arbitration Notice. The arbitrator or the arbitration panel shall give all
Parties the opportunity to make an oral presentation to the arbitrator or the
arbitration panel in the presence of the other Party, if either Party so
requests. The Parties shall have, for a period of one-hundred twenty (120) days
after service of the Arbitration Notice (the "Discovery Period"), all rights of
discovery provided by the Texas Rules of Civil Procedures then obtaining,
except, unless otherwise agreed, that all responses to discovery requests shall
be served within ten (10) days of such discovery request and no discovery
request may be served after the date ten (10) days before the termination of the
Discovery Period. The arbitrator or the arbitration panel shall assume
jurisdiction over the Dispute, may order interim equitable relief (which shall
be specifically enforceable as if it were an Award, as hereinafter defined), and
shall be required to make a non-binding determination (the ""▇▇▇▇"). The Award
shall determine (i) whether each Party's obligations under this Agreement were
met, and (ii) what damages or remedies (which may include equitable relief) are
due under the terms of this Agreement. In addition, the arbitrator or the
arbitration panel shall award recovery of all costs and fees of arbitration to
the prevailing Party. The agreement to arbitrate contained in this Section 11
38
shall be specifically enforceable under the prevailing arbitration law, and
shall survive termination of this Agreement. Judgment upon the Award rendered by
the arbitrator or the arbitration panel may be entered in accordance with
applicable law in any court having jurisdiction therefor. Arbitration shall,
unless all the Parties otherwise agree in writing, take place in Houston, Texas.
12.0 CONFIDENTIALITY.
-----------------------
All information, whether business or technical, of a confidential
nature developed or generated by the Company after the Closing Date shall be
considered the Company's Confidential Information. The Parties agree that the
Company's Confidential Information will only be used in the furtherance of the
Business and will be maintained in confidence by the Parties. The Parties
acknowledge that as a consequence of being a Party hereto or of being
represented on the Management Committee of the Company that one Party
("Receiving Party") may learn of business and financial information of the other
Party ("Disclosing Party") that the Disclosing Party considers confidential. The
Receiving Party agrees to maintain such information in strict confidence, not
disclose it to a third party, and not use it for its own purposes. A Receiving
Party shall not be bound by the covenants of the preceding sentence with respect
to information known to it on the date of this Agreement or that becomes public
hereafter through no fault of said Receiving Party.
13.0 OTHER AGREEMENTS.
-----------------------
This Agreement and the Funding Agreement hereby cancel and supersede
any and all previous oral or written agreements between the Parties and their
Affiliates dealing with the same or a similar subject matter. All discussions
and negotiations about the subject matter hereof are merged herein. This
Agreement (including all Schedules and Exhibits attached hereto) constitutes the
only agreement between the Parties with respect to the subject matter hereof.
This Agreement shall not be modified, supplemented, explained, or waived by
parole evidence, custom, prior dealing between the Parties, or by any means
other than a written document signed by both Parties and dated subsequent to the
date hereof.
14.0 SEVERABILITY.
--------------------
If any provision hereof, not of the essence of this Agreement, shall be
held by a court or tribunal of competent jurisdiction to be void or
unenforceable, such provisions shall be disregarded or be deemed modified to the
least extent necessary to make it valid and enforceable, while preserving to the
fullest extent possible the intention and bargain of the Parties as manifested
39
hereby. In such case, the remainder of the Agreement shall be unaffected and
shall remain in full force and effect and enforceable according to its terms. In
the event that either Party hereto considers that the application of the
provisions of this Section seriously disrupts its bargain, then such Party may
seek relief under the terms of Section 11.0 above.
15.0 NOTICES.
---------------
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
Party may designate by notice to the other Parties):
MCA M-I
---
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Attention: General Counsel
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile:_▇▇▇-▇▇▇-▇▇▇▇ or by hand:
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
AC With a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇. Pound III
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Wilson, Cribbs, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ 2500 ▇▇▇▇▇▇
Chairman & Chief Executive Officer ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile:_▇▇▇-▇▇▇-▇▇▇▇ Facsimile No: ▇▇▇-▇▇▇-▇▇▇▇
40
16.0 GENERAL PROVISIONS.
--------------------------
16.1 NON-WAIVER. The failure of MCA or M-I to enforce, at any time, any
right either of them may have under this Agreement shall not be a waiver of such
right or of any other right.
16.2 MANAGEMENT COMMITTEE. The initial Management Committee shall
consist of the following Managers:
From MCA: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇. ▇▇▇▇▇▇
From M-I: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇ W. E. Darling
W. ▇▇▇▇▇ ▇▇▇▇▇▇▇
16.3 NO AGENCY.
Each Party agrees that nothing contained in this Agreement creates nor
is intended to create any agency right in one Party or the others. As such, each
Party agrees that it does not have the right to bind in any way the other
Parties to any obligations, contract or commitment of the Company without the
express written consent of the Party intended to be bound.
17.0 NON-COMPETITION OF PARTIES.
---------------------------------
17.1 Notwithstanding anything contained in this Agreement to the
contrary, AC, MCA and M-I each acknowledge that (i) the Business is national and
international in scope, (ii) the agreements and covenants in this Section 17 are
essential to protect the Business, and (iii) neither M-I nor AC nor MCA would
enter into this Agreement but for the covenants and agreements contained in this
Section 17. MCA and M-I covenant and agree that, during the term of this
Agreement and for a period of five (5) years thereafter, MCA and its Affiliates,
including AC, and M-I and its Affiliates will not own, manage, operate, join,
control or participate in, directly or indirectly, or be a partner or
stockholder of, any business engaged in any activity that is in competition in
any manner whatsoever with the Business as conducted by the Company, or has been
conducted by MCA in the MCA Business three (3) years prior to the date of this
41
Agreement, or has been conducted by M-I in the M-I Business three (3) years
prior to the date of the Agreement, nor shall either MCA or M-I render
assistance or advice to any Person that is so engaged, unless MCA or M-I
acquires the Percentage Interest of the other in the Company, in which case the
acquiring Owner may continue to operate the Company or unless the Company is
liquidated, in which case this Section 17.1 will not apply thereafter.
17.2 AC, MCA and M-I acknowledge that any breach of the provisions of
this Section 17 by AC, MCA or M-I will cause irreparable harm to the Company for
which there may be no adequate remedy at law and for which the ascertainment of
damages would be difficult. Therefore, upon determination that AC, MCA or M-I is
breaching any of its obligations hereunder or under a separate non-competition
agreement, the Company or AC or MCA or M-I, as the case may be, shall be
entitled, in addition to, and without having to prove the adequacy of, any
remedies at law (including without limitation damages for prior breaches
hereof), to specific performance of the obligations of AC or MCA or M-I under
this Section 17 as well as injunctive relief (without being required to post
bond or other security).
18.0 DEFINITIONS.
-------------------
"AFFILIATE" means any Person that, directly or indirectly, controls, or
is controlled by or under common control with, another Person. For purposes of
this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the possession
directly or indirectly, of the power to direct or cause the directions of the
management and policies of a person whether through the ownership of voting
securities or by contract or otherwise. Any new line of business which
Schlumberger Technology Corporation and its affiliates, except for M-I, enters
into after the Closing Date are specifically excluded from the definition of
Affiliate as it pertains to M-I. AC is specifically included within the
definition of Affiliate as it pertains to MCA.
"BUSINESS" means those activities involving air compression services.
"BUSINESS ACCOUNTS" shall mean any and all books and records or
financial statements which reflect the financial condition and/or performance of
the Business.
"CLOSING" means the consummation of the transactions among AC, MCA and
M-I contemplated hereby.
"CLOSING DATE" has the meaning ascribed thereto in Section 2.3.1.
"COMPANY" has the meaning ascribed in Section 2.1.
42
"CONFIDENTIAL INFORMATION" shall include those items set forth in
Section 12.0.
"DAMAGES" means all judgments, good faith settlements, claims (whether
or not such claims are ultimately defeated), losses, penalties, fines,
liabilities (including strict liability), costs, and expenses, of whatever kind
or nature, contingent or otherwise, reasonable attorney's fees, costs and
expenses incurred in enforcing this Agreement or collecting any sums due
hereunder.
"ENVIRONMENTAL LAWS" means any and all laws, statutes, ordinances,
rules, regulations or orders of any Governmental Entity (including common law
duties established by courts or other Governmental Entities) pertaining to the
protection of human health (provided, however, this definition is not intended
to include health and safety laws, including but not limited to OSHA) and the
environment in effect on the date of this Agreement in any jurisdiction,
federal, state, local or foreign, in which the Business is operated, including
without limitation the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Federal
Water Pollution Control Act, as amended, the Resource Conservation and Recovery
Act, as amended, the Safe Drinking Water Act, as amended, and the Toxic
Substances Control Act, as amended.
"GOVERNMENTAL ENTITY" means any court or any federal, state, local, or
foreign legislative body or governmental department, commission, board, bureau,
agency or authority.
"INDEMNIFIED CLAIM" has the meaning ascribed thereto in Section 8.3.
"INDEMNITEE" has the meaning ascribed thereto in Section 8.3.
"INDEMNITOR" has the meaning ascribed thereto in Section 8.3.
"INTANGIBLE ASSETS" means engineering, lab books, manuals, catalogs,
brochures, sales literature, promotional or other selling materials,
nonproprietary computer software, microfilm records, drawings, specifications,
nonproprietary technology, customer lists and all other nonproprietary rights of
any kind or character and wherever located which are owned by the Business and
used or being developed by and in connection with the Business.
"INTELLECTUAL PROPERTY" means domestic or foreign patents, patents
pending, patent applications, inventions, disclosures, trademarks, trade
secrets, proprietary information, know-how, chemical formulation, service marks,
license rights, copyrights, whether registered or pending, that relate to the
Business after the Closing Date.
"LEGAL PROCEEDING" means any judicial, administrative or arbitral
action, suit, proceeding (public or private), written claim or governmental
proceeding.
43
"MATERIAL CONTRACTS" means contracts and agreements that provide for
payments or receipts by the Business of US$100,000 or more annually, excluding
all leases of real property.
"MCA ASSUMED CONTRACTS" means (i) all product, service or sales
contracts relating to the MCA Business, (ii) the MCA Real Property Leases, (iii)
other contracts, agreements, and arrangements in any way connected to or
supporting the MCA Business.
"MCA BUSINESS" has the meaning ascribed thereto in the Recitals. "MCA
CONTRIBUTED ASSETS" shall have the meaning ascribed to it in Section 2.2.
"MCA INDEMNITEES" has the meaning ascribed thereto in Section 8.3.2(a).
"MCA INTELLECTUAL PROPERTY" means domestic or foreign patents, patents
pending, patent applications, inventions, disclosures, trademarks, trade
secrets, proprietary information, know-how, chemical formulation, service marks,
license rights, copyrights, whether registered or pending, that relate to the
MCA Business and include those items set forth in Schedule 2.3.5(e).
"MCA OFFICE ACTIONS" means any substantive correspondence from any
patent office or trademark office related to any MCA Intellectual Property.
"MCA PRODUCT" OR "MCA PRODUCTS" shall mean all products that involve
MCA Intellectual Property which are supplied by MCA for resale or rental by the
Company to the oil and gas drilling industry.
"MCA REAL ESTATE LEASES" means any leases which relate to the MCA
Business and include those items set forth in Schedule 2.3.5(d).
"M-I ASSUMED CONTRACTS" means (i) all product, service or sales
contracts relating to the M-I Business, (ii) the M-I Real Property Leases, (iii)
other contracts, agreements, and arrangements in any way connected to or
supporting the M-I Business.
"M-I BUSINESS" shall have the meaning ascribed to it in the Recitals.
"M-I CONTRIBUTED ASSETS" shall have the meaning ascribed to it in
Section 2.2.
"M-I INDEMNITEES" has the meaning ascribed thereto in Section 8.3.1(a).
"M-I INTELLECTUAL PROPERTY" means domestic or foreign patents, patents
pending, patent applications, inventions, disclosures, trademarks, trade
secrets, proprietary information, know-how, chemical formulation, service marks,
license rights, copyrights, whether registered or pending, that relate to the
M-I Business and include those items set forth in Schedule 2.3.4(e).
"M-I OFFICE ACTIONS" means any substantive correspondence from any
patent office or trademark office related to any M-I Intellectual Property.
44
"M-I PRODUCT" OR "M-I PRODUCTS" shall mean all products that involve
M-I Intellectual Property which are supplied by M-I for resale or rental by the
Company to the oil and gas drilling industry.
"M-I REAL ESTATE LEASES" means any leases which relate to the M-I
Business and include those items set forth in Schedule 2.3.4(d).
"NET BOOK VALUE" means the accounting value of the assets less all the
liabilities, determined as of the date of the last audited financial statementof
the Company prior to the time that such Net Book Value shall be determined under
this Agreement.
"OWNER" OR OWNERS" mean either M-I or MCA, or both M-I and MCA, as
applicable.
"PARTY" OR PARTIES" mean either M-I or MCA or AC, or M-I, MCA and AC,
as applicable.
"PERMITS" means all permits, licenses, franchises and authorizations
that are material to and that relate to the operation of the Business and the
ownership and operation of the Contributed Assets all as the same may exist on
the Closing Date.
"PERSON" means an individual, partnership, joint venture, corporation,
bank, trust, unincorporated organization or a Governmental Entity.
"PERSONALTY" means all tools, equipment (including without limitation
all computer equipment and hardware), rental equipment, machinery, vehicles and
other transportation equipment, furniture, spare parts, supplies and all other
tangible personal property of every kind and description (other than
Improvements and the Inventories), insofar as any of the foregoing is owned by
the Business.
"PRODUCT" OR "PRODUCTS" shall mean all services that are supplied by
the Company for resale or rental to the oil and gas drilling industry.
"TAXES" means any federal, state, local or foreign income, profit,
franchise (including without limitation those that are based on net worth,
capitalization, income or total assets), sales, use, transfer, real property
transfer, recording, value added, real or personal property or other taxes,
assessments, fees, levies, duties (including without limitations customs duties
and similar charges), deductions or other charges of any nature whatsoever
(including without limitation interest and penalties) imposed by any law, rule
or regulation.
45
"TECHNOLOGY" means Intellectual Property, Intangible Assets, patents,
patents pending, trademarks, trade secrets, know how, copyrights, commercial
formulations, processes, proprietary technology, slogans, research and
development projects, all other proprietary rights of any kind or character,
wherever located, that are used, are being developed or are hereafter developed
in connection with the Business of the Company.
19.0 EMPLOYEES.
-----------------
19.1 NO OBLIGATIONS UNDER PLANS. The Company is not assuming and will
not assume either hereunder or otherwise, any obligations to either MCA or M-I
former or existing employees with respect to or arising out of any Plan or with
respect to any employee benefit which MCA or M-I's former or existing employees
may receive from MCA or M-I, respectively, including, but not limited to, any
benefits that such employees may be entitled to pursuant to any employment
agreement, except as provided in Section 19.2.
19.2 HIRED EMPLOYEES.
19.2.1 M-I agrees that the Company will not be obligated to employ any
of M-I's former or present employees; provided, however, that the Company may
determine, in its sole discretion, to offer employment to the employees listed
on SCHEDULE 19.2.1 (the "M-I HIRED EMPLOYEES"), and M-I will use its reasonable
efforts to cause such M-I Hired Employees to make available their employment
services to the Company. Employment offered to the M-I Hired Employees shall be
offered on similar terms (in the aggregate) to those under which M-I employed
such M-I Hired Employees as of the Closing; PROVIDED that, the Company is making
no assurances as to the length of such employment or that the terms of
employment are substantially similar. The Company will credit the M-I Hired
Employees with service, for eligibility and vesting purposes, under the
Company's employee benefits plans substantially equal to the M-I Hired
Employee's service with M-I as of the Closing Date. Any severance obligations
due to M-I Hired Employees for previous employment with M-I shall be the sole
obligation and responsibility of M-I.
19.2.2 MCA agrees that the Company will not be obligated to employ any
of MCA's former or present employees; provided, however, that the Company may
determine, in its sole discretion, to offer employment to the employees listed
on SCHEDULE 19.2.2 (the "MCA HIRED EMPLOYEES"), and MCA will use its reasonable
efforts to cause such MCA Hired Employees to make available their employment
services to the Company. Employment offered to the MCA Hired Employees shall be
46
offered on similar terms (in the aggregate) to those under which MCA employed
such MCA Hired Employees as of the Closing; PROVIDED that, the Company is making
no assurances as to the length of such employment or that the terms of
employment are substantially similar. The Company will credit the MCA Hired
Employees with service, for eligibility and vesting purposes, under the
Company's employee benefits plans substantially equal to the MCA Hired
Employee's service with MCA as of the Closing Date. Any severance obligations
due to MCA Hired Employees for previous employment with MCA shall be the sole
obligation and responsibility of MCA.
19.2.3 The Company agrees to provide comprehensive medical insurance
benefits to the MCA Hired Employees and M-I Hired Employees (collectively "Hired
Employees" and individually "Hired Employee") and their dependents, if
applicable, which shall be determined without reference to waiting periods and
"pre-existing condition" exceptions, except for those waiting periods and
pre-existing conditions that were excluded under the applicable Party's health
insurance plan. The Company agrees to credit any deductibles, co-pays and out of
pocket expense maximums to the Company's medical insurance policies that provide
coverage to Hired Employees and their dependents, if applicable.
19.2.4 For purposes of determining each Hired Employee's unused
calendar year 2003 vacation entitlement, the Hired Employee shall be deemed
transferred as of close of business on June 30, 2003. The Company shall not be
obligated to carry-over any unused calendar year 2003 or pre-calendar year 2003
vacation entitlement nor be obligated to make any payment in lieu of such unused
vacation entitlement. If any Hired Employee, who was allowed to carry-over
unused vacation entitlement from year-to-year while in the employment of M-I or
MCA or its Affiliate, as applicable,, has unused vacation entitlement at the
Closing Date, M-I or MCA, as applicable, shall be obligated to pay to such Hired
Employee wages in lieu of such unused carry-over vacation entitlement within ten
(10) days after the Closing Date.
19.3 NO SOLICITATION.
M-I and MCA each covenants and agrees that, commencing on the Closing
Date and continuing for a period of five (5) years thereafter, neither it nor
any of its Affiliates will directly or indirectly (a) attempt to solicit
employment from any Key Employee as set forth in SCHEDULE 19.3 or (b) attempt to
induce any Key Employee to terminate employment with the Company. However, the
preceding sentence shall not apply to those Key Employees who either are
terminated by the Company or independently respond to a general publication
solicitation for employment by M-I or MCA or one of their Affiliates.
47
19.4 SEVERANCE OBLIGATIONS - NON-HIRED EMPLOYEES.
The Company and its Affiliates shall not be obligated to assume or pay,
any obligation for severance (including vacation, thirteenth month, profit
sharing or any other benefit arising out of or related to employment with a
Party) or separation pay or benefits that becomes payable as a result of the
termination of employment of Non-Hired Employees of the Business.
19.5 SEVERANCE OBLIGATIONS - HIRED EMPLOYEES.
Any severance indemnity obligation (vacation, thirteenth month salary,
profit sharing or any other benefit arising out of or related to employment with
a Party) claimed by or awarded to a Hired Employee, as the result of the
termination of employment of the Hired Employee within two years after the
Closing Date, shall be allocated pro rata to the relevant Party and the Company
based on the Hired Employee's pre-Closing Date period of employment and
post-Closing Date period of employment. The relevant Party and the Company agree
that the total period of employment is the measure for said claim or award.
19.6 SEVERANCE/TERMINATION OBLIGATIONS - CONSULTANTS AND CONTRACTORS.
Each Party and its Affiliates agree to assume full responsibility for
and costs associated with the termination of any contracts, whether oral or
written, arising by virtue of the consulting or independent contracting services
performed for the benefit of the Party or its Affiliates.
20.0 INCOME TAX RETURNS, TAX ACCOUNTING, TAX ELECTIONS.
-----------------------------------------------------------
20.1. PREPARATION OF TAX RETURNS.
Federal, state and local income tax returns of the Company shall be
prepared by the Company. Copies of all tax returns of the Company shall be
furnished to MCA, AC and M-I for review and approval by the Management Committee
at least thirty (30) days prior to the statutory date for filing, including
extensions thereof, if any.
48
20.2. SECTION 754 ELECTION.
In the event of a transfer of all or part of the interest of either of
the Parties, at the request of the transferee, the Management Committee will
cause the Company to elect, pursuant to Section 754 of the Code, or the
corresponding provision of subsequent law, to adjust the basis of property as
provided by Sections 734 and 743 of the Code.
20.3. TAX DECISIONS NOT SPECIFIED.
Tax decisions and elections for the Company not provided for herein
shall be determined by the Management Committee, subject to the following
procedures. The Management Committee shall supervise the preparation of and
determine methods and elections to be used in filing tax returns provided,
however, that the Company shall provide notice of contemplated elections or
changes in methods used in the preparation of returns to the Parties, no later
than 90 days prior to the statutory date for filing, including extensions
thereof, and shall consult with the Parties regarding the decisions and
elections. The Parties shall have 10 days after the receipt of such notification
to make a written objection to the proposed election or method, and following
such objection, the Parties shall negotiate in good faith to resolve the
disagreement. Should the Parties fail to resolve any such dispute, the matter
shall be referred to an independent accounting firm whose determination shall be
final and binding on the Parties. If the Parties fails to provide timely written
objection as provided for herein, the method or election shall be considered
approved by the Parties.
20.4 NOTICE OF TAX AUDIT.
Prompt notice shall be given to the Parties by the Company upon receipt
of advice that the Internal Revenue Service or any other taxing authority
intends to examine the Company's tax returns for any period.
In connection with any audit of a tax return of the Company, the
Management Committee shall control the supervision of and responses to such
audit and shall determine the method and conduct of any contest of a proposed
adjustment resulting from such audit; provided however, that the Party shall:
(i) consult in good faith with the Parties regarding the manner of responding to
49
such audit and the conduct of any contest of a proposed adjustment arising from
such audit, (ii) keep the Parties promptly informed of all developments arising
in connection with any such audit or contest, and (iii) not enter into any
settlement of any audit or contest with the Internal Revenue Service without the
written consent of the Parties, which shall not be unreasonably withheld.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first above written.
M-I L.L.C. Mountain Compressed Air, Inc.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Vice President, CFO and Treasurer Title: Chairman and Chief Executive
Officer
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
50
Exhibit A
Funding Agreement
THIS FUNDING AGREEMENT (this "AGREEMENT"), dated as of the 27th day of June,
2003 (the "Closing"), is entered into by and among M-I L.L.C., a Delaware
limited liability company ("M-I"), ▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation, a Delaware
corporation ("AC"), Mountain Compressed Air, Inc., a Texas corporation ("MCA"),
and AirComp L.L.C., a Delaware limited liability company ("Company"), all
collectively referred to herein as the "Parties").
WHEREAS, the Company is a joint venture company, 55% of which is owned by MCA
and 45% of which is owned by M-I pursuant to that certain Business Venture
Agreement ("Venture Agreement") among AC, MCA and M-I dated as of the date
hereof;
WHEREAS, the Company will need funding for its operations after the Closing;
WHEREAS, the Company is willing to obtain financing in the form of one or more
loans from ▇▇▇▇▇ Fargo Bank Texas, N.A. (the "Bank") to fund its operations;
WHEREAS, MCA and/or its assignees are willing to secure payment of the financing
obtained by the Company from the Bank through MCA's outstanding limited
liability company interest in the Company (the "Guarantors"); and
WHEREAS, Company is willing to execute a promissory note in favor of M-I in
exchange for assets contributed to the Company by M-I.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the Parties agree as follows:
1. LOANS.
a. SENIOR TERM LOAN. The Company shall obtain a loan of
Eight Million Dollars (US$8,000,000.00) on or around
the date of Closing, payable by the Company to the
Bank on or before the fourth anniversary of the date
of Closing (the "Senior Term Loan"). The Senior Term
Loan will be used by the Company in part to refinance
certain existing indebtedness of the Guarantors,
provide working capital, and for general corporate
purposes.
b. DELAYED DRAW TERM LOAN. The Company shall obtain a
loan of One Million Dollars (US$1,000,000.00) on or
around the date of Closing, payable by the Company to
the Bank at its maturity date, which will be the end
of the draw period, such period being no less than
eighteen months after the date of Closing and no more
than four years after the date of Closing (the
"Delayed Draw Term Loan"). The Delayed Draw Term Loan
will be used in part by the Company for planned
purchases of capital equipment, upgrades, parts and
labor.
c. REVOLVING LINE OF CREDIT. The Company shall obtain a
line of credit of One Million Dollars
(US$1,000,000.00) on or around the date of Closing,
payable by the Company to the Bank on or around the
fourth anniversary of the date of Closing (the
"Revolving Line of Credit"). The Revolving Line of
Credit will be used in part by the Company for
refinancing existing indebtedness of the Guarantors,
providing working capital, and for general corporate
purposes.
51
d. MasterCard Credit Agreement. The Company shall obtain
credit not to exceed One Hundred Thousand Dollars
($100,000.00) from the Bank's affiliate ▇▇▇▇▇ Fargo
Bank, N.A., on or around the date of Closing,
pursuant to the ▇▇▇▇▇ Fargo Commercial MasterCard
Customer Agreement (the "Credit Card Agreement").
e. LOANS. The Senior Term Loan, Delayed Draw Term Loan,
Revolving Line of Credit and Credit Card Agreement
are hereinafter collectively referred to as the
"Loans," and individually referred to as the "Loan".
The terms of the Loans are defined by the Credit
Agreement between the Company and the Bank, attached
hereto as Attachment 1.
2. PAYMENT OF LOANS. The Company agrees to repay the amount of the
Loans actually funded by the Bank when such repayment is due to the Bank
according to the terms of the individual credit agreements and other agreements
required by the Bank to evidence the Loans. The Loans shall bear interest at an
annual rate equal to a grid indexed to the London Inter-Bank Offer Rate
("LIBOR"), unless stated otherwise in the respective Loan documents.
3. ASSIGNMENT. Neither this Agreement nor any rights created hereunder
shall be assignable by any of the Parties hereto without the consent of the
other Parties, which consent will not be unreasonably withheld.
4. NOTICES. All notices hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes if personally
delivered or within five days after the same is deposited with a reputable
international carrier or upon receipt of a facsimile transmission, to any Party
hereto at the address for such Party set forth below:
To M-I:
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
To AC:
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Chairman & Chief Executive Officer
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
To MCA:
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
To Company:
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
52
5. ENTIRE AGREEMENT. This Agreement, together, with the Business
Venture Agreement by and among M-I, AC and MCA, having an Effective Date of June
30, 2003, and any attachments delivered therewith, constitute the entire
agreement between the Parties. No amendment, modification or termination of this
Agreement shall be deemed valid unless in writing and signed by the Parties
hereto.
6. FURTHER ASSURANCES. The Parties hereby agree to take such further
actions and execute such additional documents as may be reasonably necessary to
effectuate the terms of this Agreement and the financing intent evidenced
hereby.
7. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the Parties hereto and their respective successors and
assigns.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to any
principles of conflicts of law.
9. WAIVER OF BREACH. The failure of any Party hereto to enforce at any
time any of the provisions of this Agreement shall in no way be construed to
constitute a waiver of any such provision nor in any way to affect the validity
of this Agreement or any part hereof, including the right of any Party
thereafter to enforce each and every provision. The waiver by any Party to this
Agreement of any breach or violation of any provision of this Agreement by the
other Parties hereto shall not operate or be construed to be a waiver of any
subsequent breach of violation thereof.
10. SEVERABILITY. The terms and conditions of this Agreement are hereby
deemed by the Parties to be severable, and the invalidity or unenforceability of
any one or more of the provisions of this Agreement shall not affect the
validity and enforceability of the other provisions hereof.
11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to be one and the same instrument, regardless of whether any one or more
Parties sign the same counterpart.
12. SECURITY AND DEFAULT. MCA by its signature below and through its
execution of credit and security or other agreements required by the Bank
acknowledges and agrees that all outstanding limited liability company interests
in the Company which are owned by MCA and/or its assignees, including AC, (the
"MCA Interest") are collateral for, and secure, all of the Loans which Company
will obtain from the Bank. Should Company default in its repayment of any Loan
amount due to Bank at the time of the Loan's maturity date, MCA and AC (MCA's
Guarantor) jointly and severally agree to repay any such Loan amount and accrued
interest then due. Should MCA default in repayment of such amounts, then the
Bank may obtain the MCA Interest which secures the Loan and sell it to pay any
amounts due to the Bank on the Loans. M-I will have the right of first refusal
to purchase the MCA Interest from the Bank. Any excess money from the sale of
MCA Interest will be returned to MCA. If there is insufficient money from the
sale of MCA Interest to pay the amounts due under the Loans, then AC as MCA's
Guarantor will pay the difference.
13. OTHER INDEBTEDNESS. The Company holds a loan of Four Million Eight
Hundred Eighteen Thousand Dollars (US $4,818,000.00) from M-I, payable by the
Company according to the terms of the promissory note, attached hereto as
Attachment 2 and incorporated herein by reference (the "Subordinated Debt"). M-I
agrees and acknowledges that the Subordinated Debt owed by the Company to M-I is
subordinate to the Loans defined in this Agreement and such Subordinated Debt
will be repaid in full with any outstanding accrued interest when the M-I
Percentage Interest, as defined in the Business Venture Agreement, is sold by
M-I. Annual interest on the Subordinated Debt will be fixed at five percent (5%)
per annum and such annual interest will be payable by the Company to M-I only if
the Company is in compliance with all the credit agreements and other agreements
securing the Loans.
53
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
M-I L.L.C.:
By: /S/ ▇▇▇▇▇ ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Financial Officer
▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORPORATION:
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive
Officer
MOUNTAIN COMPRESSED AIR, INC.:
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
AIRCOMP L.L.C.:
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Operating Officer
54
ATTACHMENT 1
CREDIT AGREEMENT
----------------
[See Security Agreement attached as Exhibit 10.35]
55
LEGEND FOR SUBORDINATED NOTE - AIRCOMP
Payment of this note is subordinated to the payment of the indebtedness
described in that certain Subordination Agreement dated June 26, 2003 between
Aircomp L.L.C., M-I L.L.C., and ▇▇▇▇▇ Fargo Texas, National Association pursuant
to the terms and conditions set forth therein.
ATTACHMENT 2
PROMISSORY NOTE
DATE: June 27, 2003
MAKER: AirComp L.L.C.
PAYEE: M-I L.L.C.
PLACE FOR PAYMENT: P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
PRINCIPAL AMOUNT: Four Million Eight Hundred Eighteen Thousand and
00/100 United States Dollars (USD $4,818,000.00)
TERMS OF PAYMENT: The Principal amount shall be
due and payable when Payee sells the M-I
Percentage Interest which is defined in the
Business Venture Agreement by and among
Maker, ▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation and
Mountain Compressed Air, Inc. dated June 27,
2003. Interest shall be calculated on the
unpaid principal and accrued interest amount
and any payment made shall be credited first
to the discharge of any interest owed and
then the balance to the reduction of the
principal outstanding.
ANNUAL INTEREST RATE ON UNPAID PRINCIPAL AMOUNT: FIVE Percent (5%)
Maker hereby promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount, which is categorized as
an unpaid loan, plus interest at the rate stated above. Maker reserves the right
to prepay this note in any amount at any time prior to maturity without penalty.
All unpaid amounts shall be due by the closing of the sale of the M-I Percentage
Interest.
On default in the payment of this note, it shall become immediately due at the
election of Payee. Maker waives all demands for payment, presentations for
payment, notices of intention to accelerate maturity, protests, and notices of
protest.
If this note is given to an attorney for collection, or if suit is brought for
collection, or if it is collected through bankruptcy, or other judicial
proceeding, then Maker shall pay Payee reasonable attorney's fees in addition to
other amounts due. Nothing in this note shall authorize the collection of
interest in excess of the highest rate allowed by law.
This Note and the right to receive any payments hereon, including prepayments,
is subject to the terms of that certain Subordination Agreement dated as of June
27, 2003, by and among AirComp L.L.C., M-I L.L.C. and ▇▇▇▇▇ Fargo Bank Texas,
National Association, reference to which instrument is here made and which
instrument is incorporated by reference for all purposes. This is not a
negotiable note. Any holder's rights in this Note are subject to the provisions
of the Subordination Agreement.
AirComp L.L.C.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President
56
Exhibit B
Parent Company Guarantee
We have taken due note that at the date hereof, M-I L.L.C. ("M-I") has entered
into a Business Venture Agreement (the "Agreement") with ▇▇▇▇▇-▇▇▇▇▇▇▇▇
Corporation ("▇▇▇▇▇-▇▇▇▇▇▇▇▇") and Mountain Compressed Air, Inc. ("MCA"), a
wholly-owned subsidiary of OilQuip Rentals, Inc. ("OilQuip"), a wholly-owned
subsidiary of ▇▇▇▇▇-▇▇▇▇▇▇▇▇, and that pursuant to that Agreement, M-I,
▇▇▇▇▇-▇▇▇▇▇▇▇▇ and MCA have entered into a joint venture for the purpose of
developing and expanding the business for air compression in the drilling and
workover markets worldwide.
We hereby unconditionally, absolutely, irrevocably, and continuously guarantee
MCA's, its successors or assigns' payment of liabilities and/or performance and
fulfillment of any and all obligations, terms and conditions set forth under the
Agreement and the transactions therein provided. If MCA in any respect fails to
perform the obligations contained in the Agreement or commits any breach of the
Agreement, ▇▇▇▇▇-▇▇▇▇▇▇▇▇ will perform on simple demand from M-I or take
whatever steps are necessary to achieve performance of the obligations of MCA
under the Agreement and will be responsible for any obligations, damages, costs
and expenses, arising from the failure or breach for which MCA may be liable
under the Agreement. This guarantee shall continue with respect to MCA's
obligations under the Agreement, even if we sell MCA, wind up MCA or otherwise
cause MCA to cease to exist.
We hereby waive any right to require M-I to (a) proceed against MCA, its
successor or assigns, (b) have ▇▇▇▇▇-▇▇▇▇▇▇▇▇ joined with MCA, its successor or
assigns in any suit or proceeding arising out of this guarantee, or (c) pursue
any other remedy available to Seller before proceeding immediately and directly
against ▇▇▇▇▇-▇▇▇▇▇▇▇▇.
This guarantee continues in force notwithstanding any alterations to or
deletions from the Agreement until all of MCA's obligations under the Agreement
have been performed.
We are not discharged or released from our undertakings hereunder by any waiver
or forbearance under the Agreement by M-I whether as to payment, time,
performance or otherwise.
IN WITNESS WHEREOF, we have caused this guarantee to be duly executed as of the
27th day of June 2003.
▇▇▇▇▇-▇▇▇▇▇▇▇▇ Corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
57
