1
Conformed Copy
AGREEMENT AND PLAN OF MERGER
AMONG
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ MERGER, INC.
AND
DRILEX INTERNATIONAL INC.
DATED AS OF APRIL 16, 1997
2
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger.................... 1
1.2 Closing..................................................... 1
1.3 Effects of the Merger....................................... 1
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock..................................... 2
2.2 Exchange of Certificates.................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Drilex.................... 6
3.2 Representations and Warranties of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub...... 15
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS OF DRILEX
4.1 Conduct of Business by Drilex Pending the Merger............ 22
4.2 No Solicitation............................................. 23
4.3 Conduct of Business by ▇▇▇▇▇ ▇▇▇▇▇▇ Pending the Merger...... 24
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Proxy Statement.................. 25
5.2 Letter of Drilex's Accountants.............................. 25
5.3 Letter of ▇▇▇▇▇ Hughes's Accountants........................ 25
5.4 Access to Information....................................... 26
5.5 Drilex Stockholders Meeting................................. 26
5.6 Filings; Other Action....................................... 26
5.7 Agreements of Others........................................ 26
5.8 Authorization for Shares and Stock Exchange Listing......... 27
5.9 Employee Matters............................................ 27
5.10 Stock Options............................................... 27
5.11 Indemnification; Directors' and Officers' Insurance......... 28
5.12 Drilex Credit Agreement..................................... 29
5.13 Agreement to Defend......................................... 29
5.14 Public Announcements........................................ 29
5.15 Other Actions............................................... 29
5.16 Advice of Changes; SEC Filings.............................. 29
5.17 Reorganization.............................................. 29
5.18 Accounting Matters.......................................... 30
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... 30
6.2 Conditions of Obligations of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub........... 30
6.3 Conditions of Obligations of Drilex......................... 31
i
3
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination................................................. 32
7.2 Effect of Termination....................................... 33
7.3 Amendment................................................... 34
7.4 Extension; Waiver........................................... 34
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses......................................... 34
8.2 Nonsurvival of Representations, Warranties and Agreements... 34
8.3 Notices..................................................... 35
8.4 Interpretation.............................................. 35
8.5 Counterparts................................................ 35
8.6 Entire Agreement; No Third Party Beneficiaries.............. 36
8.7 Governing Law............................................... 36
8.8 No Remedy in Certain Circumstances.......................... 36
8.9 Assignment.................................................. 36
8.10 Schedules................................................... 36
ii
4
GLOSSARY OF DEFINED TERMS
Acquisition Proposal........................................ 4.2(e)
Affiliates.................................................. 5.7
Agreement................................................... Preamble
Antitrust Laws.............................................. 7.2(c)
Average Closing Price....................................... 2.1(d)
▇▇▇▇▇ ▇▇▇▇▇▇................................................ Preamble
▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock................................... 2.1(c)
▇▇▇▇▇ ▇▇▇▇▇▇ Employee Benefit Plans......................... 3.2(l)(iii)
▇▇▇▇▇ ▇▇▇▇▇▇ Equity Plans................................... 3.2(b)
▇▇▇▇▇ ▇▇▇▇▇▇ ERISA Affiliate................................ 3.2(l)(i)
▇▇▇▇▇ ▇▇▇▇▇▇ Intangible Property............................ 3.2(n)
▇▇▇▇▇ ▇▇▇▇▇▇ Litigation..................................... 3.2(j)
▇▇▇▇▇ ▇▇▇▇▇▇ Order.......................................... 3.2(j)
▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans.................................. 3.2(l)(i)
▇▇▇▇▇ ▇▇▇▇▇▇ Permits........................................ 3.2(i)
▇▇▇▇▇ ▇▇▇▇▇▇ Preferred Stock................................ 3.2(b)
▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents.................................. 3.2(d)
Bank Credit Facility........................................ 5.12
CERCLA...................................................... 3.1(o)(A)
Certificate of Merger....................................... 1.1
Certificates................................................ 2.2(b)
Closing..................................................... 1.1
Closing Date................................................ 1.2
Code........................................................ Recitals
Confidentiality Agreement................................... 5.4
Constituent Corporations.................................... 1.3(a)
DGCL........................................................ 1.1
Drilex...................................................... Preamble
Drilex Common Stock......................................... 2.1
Drilex Employee Benefit Plans............................... 3.1(l)(iv)
Drilex ERISA Affiliate...................................... 3.1(l)(i)
Drilex Intangible Property.................................. 3.1(n)
Drilex Litigation........................................... 3.1(j)
Drilex Order................................................ 3.1(j)
Drilex Pension Plans........................................ 3.1(l)(i)
Drilex Permits.............................................. 3.1(i)
Drilex Preferred Stock...................................... 3.1(b)
Drilex Representatives...................................... 4.2(a)
Drilex SEC Documents........................................ 3.1(d)
Drilex Stock Option......................................... 5.10(a)
Drilex Stock Plan........................................... 3.1(b)
Drilex Value................................................ 2.1(e)(vii)
Drilex Warrants............................................. 3.1(b)
EBITDA...................................................... 2.1(e)(ii)
Effective Time.............................................. 1.1
Environmental Law........................................... 3.1(o)(A)
ERISA....................................................... 3.1(l)(i)
Exchange Act................................................ 3.1(c)(iii)
Exchange Agent.............................................. 2.2(a)
Exchange Fund............................................... 2.2(a)
Exchange Ratio.............................................. 2.1(c)
iii
5
GAAP........................................................ 3.1(d)
Governmental Entity......................................... 3.1(c)(iii)
Hazardous Materials......................................... 3.1(o)(B)
HSR Act..................................................... 3.1(c)(iii)
Indemnified Liabilities..................................... 5.11(a)
Indemnified Parties......................................... 5.11(a)
Injunction.................................................. 6.1(e)
IRS......................................................... 3.1(k)(ii)
Material Adverse Change..................................... 3.1(a)
Material Adverse Effect..................................... 3.1(a)
Merger...................................................... Recitals
Monthly..................................................... 2.1(e)(iv)
Monthly Statements.......................................... 2.1(e)(v)
NYSE........................................................ 2.1(d)
OSHA........................................................ 3.1(o)(A)
PBGC........................................................ 3.1(l)(iii)
Pricing Period.............................................. 2.1(d)
Proxy Statement............................................. 3.1(c)(iii)
Release..................................................... 3.1(o)(C)
Remedial Action............................................. 3.1(o)(D)
Returns..................................................... 3.1(k)(i)
Revenue..................................................... 2.1(e)(i)
S-4......................................................... 3.1(e)
SEC......................................................... 3.1(a)
Securities Act.............................................. 3.1(d)
Significant Subsidiary...................................... 3.1(a)
Stockholder Agreement....................................... Recitals
Surviving Corporation....................................... 1.3(a)
Sub......................................................... Preamble
Subsidiary.................................................. 2.1(b)
Taxes....................................................... 3.1(k)
Test Period................................................. 2.1(e)(iii)
Unexercisable Option........................................ 5.10(c)
Voting Debt................................................. 3.1(b)
iv
6
SCHEDULES TO THE AGREEMENT AND PLAN OF MERGER
SCHEDULE NO. DESCRIPTION
------------ -----------
3.1(a) -- Significant Subsidiaries; Jurisdiction of Incorporation
3.1(b) -- Capital Structure
3.1(c) -- Authority; No Violations; Consents and Approvals
3.1(d) -- SEC Documents
3.1(f) -- Absence of Certain Changes or Events
3.1(g) -- No Undisclosed Material Liabilities
3.1(h) -- No Default
3.1(i) -- Compliance with Applicable Laws
3.1(j) -- Litigation
3.1(k)(i),(ii),(iii),(vi) -- Taxes
3.1(l)(ii),(v) -- Pension and Benefit Plans; ERISA
3.1(m)(i),(ii) -- Labor Matters
3.1(n) -- Intangible Property
3.1(o) -- Environmental Matters
3.1(t) -- Brokers
3.1(u) -- Tax Matters
4.1(a) -- Ordinary Course
4.1(b) -- Dividends; Changes in Stock
4.1(c) -- Issuance of Securities
4.1(e) -- No Acquisitions
4.1(f) -- No Dispositions
4.1(h) -- Certain Employee Matters
4.1(i) -- Indebtedness; Leases; Capital Expenditures
5.9 -- Employee Matters
3.2(b) -- Capital Structure
3.2(f) -- Absence of Certain Changes or Events
3.2(g) -- No Undisclosed Material Liabilities
3.2(h) -- No Default
3.2(i) -- Compliance with Applicable Laws
3.2(j) -- Litigation
3.2(k)(i),(ii),(iii) -- Taxes
3.2(m) -- Labor Matters
3.2(n) -- Intangible Property
3.2(o) -- Environmental Matters
3.2(u) -- Tax Matters
v
7
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 16, 1997 (this
"Agreement"), among ▇▇▇▇▇ ▇▇▇▇▇▇ Incorporated, a Delaware corporation ("▇▇▇▇▇
▇▇▇▇▇▇"), ▇▇▇▇▇ ▇▇▇▇▇▇ Merger, Inc., a Delaware corporation and a direct wholly
owned subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇ ("Sub"), and Drilex International Inc., a
Delaware corporation ("Drilex").
WHEREAS, the Boards of Directors of ▇▇▇▇▇ ▇▇▇▇▇▇, Sub and Drilex each have
determined that it is in the best interests of their respective stockholders for
Sub to merge with and into Drilex (the "Merger") upon the terms and subject to
the conditions of this Agreement;
WHEREAS, concurrently with the execution and delivery hereof, DRLX
Partners, L.P., the owner of approximately 61.8% of the outstanding Drilex
Common Stock (as hereinafter defined), is entering into a Stockholder Agreement
(the "Stockholder Agreement") with ▇▇▇▇▇ ▇▇▇▇▇▇ providing for, among other
things, the voting of the shares of Drilex Common Stock owned by DRLX Partners,
L.P. and the grant to ▇▇▇▇▇ ▇▇▇▇▇▇ of an option to purchase a portion of such
shares of Drilex Common Stock;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests; and
WHEREAS, ▇▇▇▇▇ ▇▇▇▇▇▇, Sub and Drilex desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger. Upon the terms and subject
to the conditions of this Agreement and in accordance with the Delaware General
Corporation Law (the "DGCL"), Sub shall be merged with and into Drilex at the
Effective Time (as hereinafter defined). The Merger shall become effective
immediately when a certificate of merger (the "Certificate of Merger"), prepared
and executed in accordance with the relevant provisions of the DGCL, is filed
with the Secretary of State of the State of Delaware or, if agreed to by the
parties, at such time thereafter as is provided in the Certificate of Merger
(the "Effective Time"). The filing of the Certificate of Merger shall be made as
soon as practicable on or after the closing of the Merger (the "Closing").
1.2 Closing. The Closing shall take place at 10:00 a.m. on a date to be
specified by the parties, which shall be no later than the second business day
after satisfaction (or waiver in accordance with this Agreement) of the latest
to occur of the conditions set forth in Article VI (the "Closing Date"), at the
offices of ▇▇▇▇▇ & ▇▇▇▇▇, L.L.P., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, provided that the Closing Date shall be delayed if the Drilex Value has
not been determined until the business day after the Drilex Value has been
determined, unless another date or place is agreed to in writing by the parties.
1.3 Effects of the Merger. (a) At the Effective Time: (i) Sub shall be
merged with and into Drilex, the separate existence of Sub shall cease and
Drilex shall continue as the surviving corporation (Sub and Drilex are sometimes
referred to herein as the "Constituent Corporations" and Drilex is sometimes
referred to herein as the "Surviving Corporation"); (ii) the Restated
Certificate of Incorporation of Drilex as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation; and (iii) the Bylaws of Drilex as in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation.
1
8
(b) The directors of Sub at the Effective Time shall, from and after the
Effective Time, be the initial directors of the Surviving Corporation, and the
officers of Drilex at the Effective Time shall, from and after the Effective
Time, be the initial officers of the Surviving Corporation, and such directors
and officers shall serve until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Restated Certificate of
Incorporation and Bylaws.
(c) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations; and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired; and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts and liabilities had been
incurred by it.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of common
stock, par value $0.01 per share, of Drilex ("Drilex Common Stock") or capital
stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
common stock of Sub shall be converted into and become 10,000 fully paid
and nonassessable shares of common stock, par value $0.01 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and ▇▇▇▇▇ ▇▇▇▇▇▇-Owned Stock. Each
share of Drilex Common Stock and all other shares of capital stock of
Drilex that are owned by Drilex as treasury stock and any shares of Drilex
Common Stock and all other shares of capital stock of Drilex owned by ▇▇▇▇▇
▇▇▇▇▇▇, Sub or any other wholly owned Subsidiary (as hereinafter defined)
of ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex shall be canceled and retired and shall cease to
exist and no stock of ▇▇▇▇▇ ▇▇▇▇▇▇ or other consideration shall be
delivered or deliverable in exchange therefor. As used in this Agreement,
the word "Subsidiary" means, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which: (i)
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which are
held by such party or any Subsidiary of such party that do not have a
majority of the voting interest in such partnership); or (ii) at least a
majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or
other organization is, directly or indirectly, owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and any
one or more of its Subsidiaries.
(c) Exchange Ratio for Drilex Common Stock. Subject to the provisions
of Section 2.2(e) hereof, each share of Drilex Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to
be canceled in accordance with Section 2.1(b)) shall be converted into a
fraction of a duly authorized, validly issued, fully paid and nonassessable
share of common stock, par value $1.00 per share, of ▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇
▇▇▇▇▇▇ Common Stock"), calculated by dividing (i) the Drilex Value by (ii)
the Average Closing Price, rounded to four decimal places (such fraction
being referred to herein as the "Exchange Ratio"). All such shares of
Drilex Common Stock, when so converted, shall no longer
2
9
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock and cash in lieu
of fractional shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock as contemplated by
Section 2.2(e), to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2, without
interest.
(d) Average Closing Price. "Average Closing Price" shall mean the
average of the per share closing prices of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock as
reported on the consolidated transaction reporting system for securities
traded on the New York Stock Exchange, Inc. ("NYSE") for the ten
consecutive trading days ending immediately prior to the second trading day
prior to the Closing Date (the "Pricing Period"), appropriately adjusted
for any stock splits, reverse stock splits, stock dividends,
recapitalizations or similar transactions; provided, however, that if any
ex-dividend trading with respect to any regular quarterly cash dividend on
▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock occurs on or after the first day of the Pricing
Period and prior to the Closing Date, then for purposes of calculating the
Average Closing Price (x) if the related record date occurs prior to the
Effective Time, the closing price of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock for each day
prior to the related ex-dividend date included in the Pricing Period shall
be reduced by the amount per share of such dividend and (y) if the related
record date occurs at or after the Effective Time, the closing price of
▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock for each day on or after such ex-dividend date
included in the Pricing Period shall be increased by the amount per share
of such dividend.
(e) Drilex Value. For purposes of this Agreement:
(i) "Revenue" with respect to a period means the net revenues of
Drilex for such period, determined on a consolidated basis in accordance
with GAAP (as defined herein) applied on a basis consistent with that
used in preparing the financial statements of Drilex referred to in
Section 3.1(d), as finally determined pursuant to the procedures set
forth in this Section 2.1.
(ii) "EBITDA" with respect to a period means the net income plus
interest expense, provision for income taxes, and depreciation and
amortization of Drilex for such period, determined on a consolidated
basis in accordance with GAAP applied on a basis consistent with that
used in preparing the financial statements of Drilex referred to in
Section 3.1(d), as finally determined pursuant to the procedures set
forth in this Section 2.1.
(iii) "Test Period" means the period from April 1, 1997 to (i)
April 30, 1997, if the Closing occurs prior to June 15, 1997 (or if the
Closing would have occurred prior to such date except for delay caused
by the procedures of Section 2.1(e)(vi)), (ii) May 31, 1997, if the
Closing occurs prior to July 15, 1997 (or if the Closing would have
occurred prior to such date except for delay caused by the procedures of
Section 2.1(e)(vi)) and (iii) June 30, 1997, otherwise.
(iv) "Monthly," when used with respect to Revenue or EBITDA, means
the total amount of Revenue or EBITDA, as the case may be, for the Test
Period divided by the number of months in the Test Period.
(v) As soon as available after the end of each of April, May and
June 1997 but in any event by the 20th day of the next month, Drilex
shall prepare, with the input and participation of ▇▇▇▇▇ ▇▇▇▇▇▇, and
shall furnish to ▇▇▇▇▇ ▇▇▇▇▇▇ financial statements (a balance sheet and
income statement) of Drilex for such month and for the period from April
1, 1997 to the end of such month, prepared on a consolidated basis in
accordance with GAAP applied on a basis consistent with that used in
preparing the financial statements of Drilex referred to in Section
3.1(d) (the "Monthly Statements"). Drilex shall provide ▇▇▇▇▇ ▇▇▇▇▇▇
with access to preliminary copies and drafts of the Monthly Statements.
Such Monthly Statements shall include a calculation of Revenue and
EBITDA (calculated separately for purposes of Section 2.1(e)(vii) and
Section 7.1(c)(v)) for such month and for the Test Period, and shall be
certified by the Chief Financial Officer and the Chief Executive Officer
of Drilex as having been prepared in accordance with the requirements of
this Agreement.
3
10
(vi) Drilex shall provide ▇▇▇▇▇ ▇▇▇▇▇▇ with access to copies of all
work papers and other relevant documents to permit ▇▇▇▇▇ ▇▇▇▇▇▇ to
verify the accuracy of the Monthly Statements. ▇▇▇▇▇ ▇▇▇▇▇▇ shall have a
period of ten calendar days after delivery of the Monthly Statements for
April 1997, May 1997 and June 1997 to review them and make any
objections it may have in writing to Drilex. If written objections to
such Monthly Statements are delivered to Drilex by ▇▇▇▇▇ ▇▇▇▇▇▇ within
such period, then Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ shall attempt to resolve the
matter or matters in dispute. If no written objections are made by
Drilex within such period, then such Monthly Statements shall be final
and binding on the parties hereto. If disputes with respect to such
Monthly Statements cannot be resolved by Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ within
five business days after the delivery of the objections to such Monthly
Statements, then the specific matters in dispute shall be submitted to
Deloitte & Touche LLP or such other independent accounting firm as may
be approved by Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇, which firm shall decide such
matters. Such independent accounting firm will send to Drilex and ▇▇▇▇▇
▇▇▇▇▇▇ its determination on the specified matters in dispute within five
business days of such submission, which determination shall be final and
binding on the parties hereto. The fees and expenses of such independent
accounting firm shall be borne by one-half by Drilex and one-half by
▇▇▇▇▇ ▇▇▇▇▇▇.
(vii) The "Drilex Value" shall be $15.00, unless Monthly Revenue
exceeds $6,000,000 and Monthly EBITDA exceeds $1,000,000, each as
finally determined in accordance with this Section 2.1, in which case
the Drilex Value shall be $16.00 (subject to the provisions of Sections
6.2(e) and 7.1(c)(vi)).
(viii) For purposes of determining Revenue and EBITDA for any
period, (1) amounts attributable to OEM sales (accounted consistently
with Drilex's past practice) (but not ordinary sales under existing
contracts) destined to ultimate purchasers outside the United States,
the United Kingdom, Canada, Argentina and Venezuela shall be excluded
(x) with respect to the calculations for purposes of Section
2.1(e)(vii), to the extent of transactions generating revenues in excess
of $500,000 in the aggregate during such period, and (y) with respect to
the calculations for purposes of Section 7.1(c)(v), to the extent of any
single transaction (or group of related transactions) generating
revenues in excess of $300,000 per transaction (or group of related
transactions); (2) the effects of any investment banking, legal and
other advisory fees and expenses, employment costs arising from the
agreements referred to in Schedule 5.9 or other expenses primarily
attributable to, or resulting from, this Agreement and the transactions
contemplated hereby shall be excluded; and (3) the effects of any
adjustment or change in accruals or reserves except to the extent made
pursuant to GAAP consistent with past practices resulting from events
occurring after March 31, 1997 shall be excluded.
(f) Treatment of Stock Options. Each outstanding Drilex Stock Option
(as defined in Section 5.10) shall be treated as provided in Section 5.10.
(g) Drilex Warrants. ▇▇▇▇▇ ▇▇▇▇▇▇ shall agree to be bound by the
conversion provisions of the Drilex Warrants (as defined in Section
3.1(b)), such that the Drilex Warrants shall be exercisable for ▇▇▇▇▇
▇▇▇▇▇▇ Common Stock based on the Exchange Ratio in accordance with the
terms of Drilex Warrants.
2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ shall deposit,
or cause to be deposited, with ▇▇▇▇▇ Hughes's transfer agent for ▇▇▇▇▇ ▇▇▇▇▇▇
Common Stock or such other bank or trust company designated by ▇▇▇▇▇ ▇▇▇▇▇▇ and
reasonably acceptable to Drilex (the "Exchange Agent"), for the benefit of the
holders of shares of Drilex Common Stock, for exchange in accordance with this
Article II, through the Exchange Agent, certificates representing the shares of
▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock (such shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 2.1 in exchange
for outstanding shares of Drilex Common Stock, together with cash in lieu of
fractional shares as provided herein. The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock contemplated to
be
4
11
issued pursuant to Section 2.1 out of the Exchange Fund. The Exchange Fund shall
not be used for any other purpose.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which, immediately prior to the Effective Time,
represented outstanding shares of Drilex Common Stock (the "Certificates"),
which holder's shares of Drilex Common Stock were converted into the right to
receive shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock pursuant to Section 2.1: (i) a
letter of transmittal (which shall specify that delivery shall be effected and
risk of loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as ▇▇▇▇▇ ▇▇▇▇▇▇ may reasonably specify); and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by ▇▇▇▇▇ ▇▇▇▇▇▇, together with such letter of
transmittal, duly executed, and any other required documents, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock which such
holder has the right to receive pursuant to the provisions of this Article II
and cash in lieu of fractional shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock as
contemplated by Section 2.2(e), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Drilex Common
Stock which is not registered in the transfer records of Drilex, a certificate
representing the appropriate number of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock may
be issued to a transferee if the Certificate representing such Drilex Common
Stock is presented to the Exchange Agent accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock and cash in lieu of any
fractional shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock as contemplated by this Section
2.2. The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock held by it from time to
time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect thereto for the account of
persons entitled thereto.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock declared or made after
the Effective Time with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the right to receive
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
2.2(e) until the holder of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder thereof, without interest: (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common
Stock.
(d) No Further Ownership Rights in Drilex Common Stock. All shares of ▇▇▇▇▇
▇▇▇▇▇▇ Common Stock issued upon the surrender for exchange of shares of Drilex
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Drilex Common
Stock, subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time that may have been declared or made by Drilex on such shares of
Drilex Common Stock in accordance with the terms of this Agreement or prior to
the date hereof and which remain unpaid at the Effective Time, and after the
Effective Time there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Drilex Common Stock
that were outstanding
5
12
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article II, and, except as provided in
this Section 2.2(e), no dividend or other distribution, stock split or interest
shall relate to any such fractional security, and such fractional interests
shall not entitle the owner thereof to vote or to any rights of a security
holder of ▇▇▇▇▇ ▇▇▇▇▇▇. In lieu of any fractional security, each holder of
shares of Drilex Common Stock who would otherwise have been entitled to a
fraction of a share of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock upon surrender of Certificates
for exchange pursuant to this Article II will be paid an amount in cash (without
interest) equal to the Average Closing Price multiplied by the fractional
interest the holder would otherwise be entitled to receive.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund and any
cash in lieu of fractional shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock made available to
the Exchange Agent that remain undistributed to the former stockholders of
Drilex for one year after the Effective Time shall be delivered to ▇▇▇▇▇ ▇▇▇▇▇▇,
upon demand, and any stockholders of Drilex who have not theretofore complied
with this Article II shall thereafter look only to ▇▇▇▇▇ ▇▇▇▇▇▇ for payment of
their claim for ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock, any cash in lieu of fractional shares
of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock and any dividends or distributions with respect to
▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock.
(g) No Liability. Neither ▇▇▇▇▇ ▇▇▇▇▇▇ nor Drilex shall be liable to any
holder of shares of Drilex Common Stock or ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock, as the
case may be, for such shares (or dividends or distributions with respect
thereto) or cash in lieu of fractional shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Drilex. Drilex represents and
warrants to ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub as follows:
(a) Organization, Standing and Power. Each of Drilex and its
Subsidiaries is a corporation, limited liability company or partnership
duly organized, validly existing and in good standing under the laws of its
state or jurisdiction of incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not have a Material Adverse Effect (as defined
below) on Drilex. Drilex has heretofore delivered to ▇▇▇▇▇ ▇▇▇▇▇▇ complete
and correct copies of its Restated Certificate of Incorporation and Bylaws.
All Significant Subsidiaries of Drilex and their respective jurisdictions
of incorporation or organization are identified on Schedule 3.1(a). As used
in this Agreement: (i) a "Significant Subsidiary" means any Subsidiary of
Drilex or ▇▇▇▇▇ ▇▇▇▇▇▇, as the case may be, that would constitute a
Significant Subsidiary of such party within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC"); and
(ii) a "Material Adverse Effect" or "Material Adverse Change" shall mean,
in respect of Drilex or ▇▇▇▇▇ ▇▇▇▇▇▇, as the case may be, any effect or
change that is or, as far as can be reasonably determined, is reasonably
likely to be, materially adverse to the business, operations, assets,
condition (financial or otherwise) or results of operation of such party
and its Subsidiaries taken as a whole.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of Drilex consists of 25,000,000 shares of Drilex Common Stock and
10,000,000 shares of preferred stock, par value $0.01 per share ("Drilex
Preferred Stock"). At the close of business on April 1, 1997: (i) 6,663,356
shares of Drilex Common Stock and no shares of Drilex Preferred Stock were
issued and outstanding, 184,187 shares of Drilex Common Stock were reserved
for issuance pursuant to outstanding options under
6
13
Drilex's Stock Option Plan (the "Drilex Stock Plan") and 180,981 shares of
Drilex Common Stock were reserved for issuance pursuant to outstanding
warrants to purchase Drilex Common Stock at an exercise price of $5.53 per
share, subject to adjustment (the "Drilex Warrants"), (ii) 96,523 shares of
Drilex Common Stock were held by Drilex in its treasury; and (iii) no
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any matters on
which Drilex stockholders may vote ("Voting Debt") were issued or
outstanding. Except as set forth on Schedule 3.1(b), all outstanding shares
of Drilex Common Stock are validly issued, fully paid and nonassessable and
are not subject to preemptive rights. Except as set forth on Schedule
3.1(b), all outstanding shares of capital stock of the Subsidiaries of
Drilex are owned by Drilex, or a direct or indirect wholly owned Subsidiary
of Drilex, free and clear of all liens, charges, encumbrances, claims and
options of any nature. Except as set forth in this Section 3.1(b) or on
Schedule 3.1(b) and except for changes since April 1, 1997 resulting from
the exercise of employee stock options granted pursuant to, or from
issuances or purchases under, the Drilex Stock Plan, the exercise of the
Drilex Warrants or as contemplated by this Agreement, there are
outstanding: (i) no shares of capital stock, Voting Debt or other voting
securities of Drilex; (ii) no securities of Drilex or any Subsidiary of
Drilex convertible into or exchangeable for shares of capital stock, Voting
Debt or other voting securities of Drilex or any Subsidiary of Drilex; and
(iii) no options, warrants, calls, rights (including preemptive rights),
commitments or agreements to which Drilex or any Subsidiary of Drilex is a
party or by which it is bound in any case obligating Drilex or any
Subsidiary of Drilex to issue, deliver, sell, purchase, redeem or acquire,
or cause to be issued, delivered, sold, purchased, redeemed or acquired,
additional shares of capital stock or any Voting Debt or other voting
securities of Drilex or of any Subsidiary of Drilex, or obligating Drilex
or any Subsidiary of Drilex to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Except as set forth on
Schedule 3.1(b), there are not as of the date hereof and there will not be
at the Effective Time any stockholder agreements, voting trusts or other
agreements or understandings to which Drilex is a party or by which it is
bound relating to the voting of any shares of the capital stock of Drilex
that will limit in any way the solicitation of proxies by or on behalf of
Drilex from, or the casting of votes by, the stockholders of Drilex with
respect to the Merger. Except as set forth on Schedule 3.1(b), there are no
restrictions on Drilex to vote the stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of Drilex has, by vote of the directors
with no negative vote, (i) approved the Merger and the Merger Agreement and
declared the Merger and the Merger Agreement to be in the best interests of
the stockholders of Drilex and (ii) approved for all purposes (including,
without limitation, purposes of Section 203 of the DGCL) the transactions
contemplated by the Stockholder Agreement (including, without limitation,
the grant and exercise of the option contained therein). The directors have
advised Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ that they currently intend to vote or cause
to be voted all of the shares beneficially owned by them and their
affiliates in favor of approval of the Merger and the Merger Agreement.
Drilex has all requisite corporate power and authority to enter into this
Agreement and, subject, with respect to consummation of the Merger, to
approval of this Agreement and the Merger by the stockholders of Drilex in
accordance with the DGCL, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Drilex, subject, with respect to
consummation of the Merger, to approval of this Agreement and the Merger by
the stockholders of Drilex in accordance with the DGCL. This Agreement has
been duly executed and delivered by Drilex and, subject, with respect to
consummation of the Merger, to approval of this Agreement and the Merger by
the stockholders of Drilex in accordance with the DGCL, and assuming this
Agreement constitutes the valid and binding obligation of ▇▇▇▇▇ ▇▇▇▇▇▇ and
Sub, constitutes a valid and binding obligation of Drilex enforceable in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity.
7
14
(ii) Except as set forth on Schedule 3.1(c), the execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss
of a material benefit under, or give rise to a right of purchase under,
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Drilex or any of its
Subsidiaries under, or otherwise result in a detriment to Drilex or any of
its Subsidiaries under, any provision of (i) the Restated Certificate of
Incorporation or Bylaws of Drilex or any provision of the comparable
charter or organizational documents of any of its Subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Drilex or any of its Subsidiaries, (iii) any joint venture or other
ownership arrangement or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in
Section 3.1(c)(iii) are duly and timely obtained or made and the approval
of the Merger and this Agreement by the stockholders of Drilex has been
obtained, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Drilex or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clause (ii),
(iii) or (iv), any such conflicts, violations, defaults, rights, liens,
security interests, charges, encumbrances or detriments that, individually
or in the aggregate, would not have a Material Adverse Effect on Drilex,
materially impair the ability of Drilex to perform its obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any court,
governmental, regulatory or administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Drilex or any of
its Subsidiaries in connection with the execution and delivery of this
Agreement by Drilex or the consummation by Drilex of the transactions
contemplated hereby, as to which the failure to obtain or make would have a
Material Adverse Effect, except for: (A) the filing of a premerger
notification report by Drilex under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the expiration or
termination of the applicable waiting period with respect thereto; (B) the
appropriate filings or notifications as may be required by comparable
Canadian or European laws; (C) the filing with the SEC of (x) a proxy
statement in preliminary and definitive form relating to the meeting of
Drilex's stockholders to be held in connection with the Merger (the "Proxy
Statement") and (y) such reports under Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such other
compliance with the Exchange Act and the rules and regulations thereunder,
as may be required in connection with this Agreement and the transactions
contemplated hereby; (D) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware; (E) such filings and approvals
as may be required by any applicable state securities, "blue sky" or
takeover laws, or environmental laws; and (F) such filings and approvals as
may be required by any foreign premerger notification, securities,
corporate or other law, rule or regulation.
(d) SEC Documents. Drilex has made available to ▇▇▇▇▇ ▇▇▇▇▇▇ a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Drilex with the SEC since May 9, 1996
and prior to the date of this Agreement (the "Drilex SEC Documents") which
are all the documents that Drilex was required to file with the SEC since
such date. As of their respective dates, the Drilex SEC Documents complied
in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to
such Drilex SEC Documents, and none of the Drilex SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of Drilex included in the Drilex SEC Documents
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted
by Rule 10-01 of Regulation S-X
8
15
of the SEC) and fairly present in accordance with applicable requirements
of GAAP (subject, in the case of the unaudited statements, to normal,
recurring adjustments, none of which are material) the consolidated
financial position of Drilex and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the
consolidated cash flows of Drilex and its consolidated Subsidiaries for the
periods presented therein. Except as disclosed in the Drilex SEC Documents
or in Schedule 3.1(d), there are no agreements, arrangements or
understandings between Drilex and any party who is at the date of this
Agreement or was at any time prior to the date hereof but after December
31, 1996 an Affiliate of Drilex that are required to be disclosed in the
Drilex SEC Documents.
(e) Information Supplied. None of the information supplied or to be
supplied by Drilex for inclusion or incorporation by reference in the
Registration Statement on Form S-4 to be filed with the SEC by ▇▇▇▇▇ ▇▇▇▇▇▇
in connection with the issuance of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock in
the Merger (the "S-4") will, at the time the S-4 becomes effective under
the Securities Act or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
none of the information supplied or to be supplied by Drilex and included
or incorporated by reference in the Proxy Statement will, at the date
mailed to stockholders of Drilex or at the time of the meeting of such
stockholders to be held in connection with the Merger or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
with respect to Drilex or any of its Subsidiaries, or with respect to other
information supplied by Drilex for inclusion in the Proxy Statement or S-4,
shall occur which is required to be described in an amendment of, or a
supplement to, the Proxy Statement or the S-4, such event shall be so
described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the stockholders of
Drilex. The Proxy Statement, insofar as it relates to Drilex or its
Subsidiaries or other information supplied by Drilex for inclusion therein,
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
(f) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in, the Drilex SEC Documents
or on Schedule 3.1(f), or except as contemplated by this Agreement, since
December 31, 1996, there has not been: (i) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Drilex's capital stock; (ii) any amendment
of any material term of any outstanding equity security of Drilex or any
Subsidiary; (iii) any repurchase, redemption or other acquisition by Drilex
or any Subsidiary of any outstanding shares of capital stock or other
equity securities of, or other ownership interests in, Drilex or any
Subsidiary, except as contemplated by Drilex Benefit Plans; (iv) any
material change in any method of accounting or accounting practice or any
tax method, practice or election by Drilex or any Subsidiary; or (v) any
other transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) that has had a Material Adverse Effect on Drilex,
except for general economic changes and changes that may affect the
industries of Drilex or any of its Subsidiaries generally.
(g) No Undisclosed Material Liabilities. Except as disclosed in the
Drilex SEC Documents or on Schedule 3.1(g), as of the date hereof, there
are no liabilities of Drilex or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, that are reasonably likely to have a Material Adverse Effect
on Drilex, other than: (i) liabilities adequately provided for on the
balance sheet of Drilex dated as of December 31, 1996 (including the notes
thereto) contained in Drilex's Annual Report on Form 10-K for the year
ended December 31, 1996; and (ii) liabilities under this Agreement.
(h) No Default. Neither Drilex nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the
lapse of time or both, would constitute a default or violation) of any
term, condition or provision of (i) their respective charter and by-laws,
(ii) except as disclosed in Schedule 3.1(h), any note, bond, mortgage,
indenture, license, agreement or other instrument or
9
16
obligation to which Drilex or any of its Subsidiaries is now a party or by
which Drilex or any of its Subsidiaries or any of their respective
properties or assets may be bound or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to Drilex or any of its
Subsidiaries, except in the case of (ii) and (iii) for defaults or
violations which in the aggregate would not have a Material Adverse Effect
on Drilex.
(i) Compliance with Applicable Laws. Drilex and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, franchises and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Drilex Permits"), except where the
failure so to hold would not have a Material Adverse Effect on Drilex.
Drilex and its Subsidiaries are in compliance with the terms of the Drilex
Permits, except where the failure so to comply would not have a Material
Adverse Effect on Drilex. Except as disclosed in the Drilex SEC Documents
or as set forth on Schedule 3.1(i), 3.1(j), 3.1(k), 3.1(l), 3.1(m) or
3.1(o), the businesses of Drilex and its Subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which would not have a
Material Adverse Effect on Drilex. Except as set forth on Schedule 3.1(i),
as of the date of this Agreement, no investigation or review by any
Governmental Entity with respect to Drilex or any of its Subsidiaries is
pending or, to the best knowledge of Drilex as of the date hereof,
threatened, other than those the outcome of which would not have a Material
Adverse Effect on Drilex. Schedule 3.1(i) sets forth each such failure to
hold or comply with the terms of Drilex Permits, each such violation of
law, ordinance or regulation of any governmental entity and each such
pending or threatened investigation or review by any governmental entity
existing on the date hereof that involves amounts in excess of $100,000.
(j) Litigation. Except as disclosed in the Drilex SEC Documents or on
Schedule 3.1(j) hereto, there is no suit, action or proceeding pending, or,
to the best knowledge of Drilex, threatened against or affecting Drilex or
any Subsidiary of Drilex ("Drilex Litigation"), and Drilex and its
Subsidiaries have no knowledge of any facts that are likely to give rise to
any Drilex Litigation, that (in any case) is reasonably likely to have a
Material Adverse Effect on Drilex, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Drilex or any Subsidiary of Drilex ("Drilex Order")
that is reasonably likely to have a Material Adverse Effect on Drilex or
its ability to consummate the transactions contemplated by this Agreement.
In addition, the aggregate reasonable estimate of uninsured exposures or
losses under all claims and judgments pending, or to the best knowledge of
Drilex as of the date hereof, threatened, pursuant to all Drilex Litigation
and Drilex Orders, existing on the date hereof, excluding individual,
unrelated claims or judgments of less than $100,000 each, does not exceed
$5,000,000.
(k) Taxes.
(i) Except as set forth on Schedule 3.1(k)(i), each of Drilex, each of
its Subsidiaries and any affiliated, consolidated, combined, unitary or
similar group of which any such corporation is or was a member has (A) duly
filed on a timely basis (taking into account any extensions) all federal
and all material state, local, foreign and other returns, declarations,
reports, estimates, information returns and statements ("Returns") required
to be filed or sent by or with respect to it in respect of any Taxes (as
hereinafter defined), (B) duly paid or deposited on a timely basis all
Taxes that are due and payable (except for audit adjustments not material
in the aggregate or to the extent that liability therefor is reserved for
in Drilex's most recent audited financial statements) for which Drilex or
any of its Subsidiaries may be liable, (C) established reserves that are
adequate for the payment of all Taxes not yet due and payable with respect
to the results of operations of Drilex and its Subsidiaries through the
date hereof, and (D) complied in all material respects with all applicable
laws, rules and regulations relating to the reporting, payment and
withholding of Taxes and has in all material respects timely withheld from
employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over.
(ii) Schedule 3.1(k)(ii) sets forth (A) the last taxable period
through which the federal income Tax Returns of Drilex and any of its
Subsidiaries have been examined by the Internal Revenue Service
10
17
("IRS") or otherwise closed and (B) any affiliated, consolidated, combined,
unitary or similar group or Return in which Drilex or any of its
Subsidiaries is or has been a member or is or has joined in the filing.
Except to the extent being contested in good faith, all material
deficiencies asserted as a result of such examinations and any examination
by any applicable taxing authority have been paid, fully settled or
adequately provided for in Drilex's most recent audited financial
statements. Except as adequately provided for in the Drilex SEC Documents,
no material audits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes for which Drilex or any of
its Subsidiaries would be liable, and no material deficiency for any Taxes
has been proposed, asserted or assessed pursuant to such examination
against Drilex or any of its Subsidiaries by any authority with respect to
any period other than as set forth in Schedule 3.1(k)(ii).
(iii) Except as disclosed on Schedule 3.1(k)(iii), neither Drilex nor
any of its Subsidiaries has executed or entered into (or prior to the close
of business on the Closing Date will execute or enter into) with the IRS or
any taxing authority (i) any agreement or other document extending or
having the effect of extending the period for assessments or collection of
any income or franchise Taxes for which Drilex or any of its Subsidiaries
would be liable or (ii) a closing agreement pursuant to Section 7121 of the
Code, or any predecessor provision thereof or any similar provision of
state, local, foreign or other income tax law that relates to the assets or
operations of Drilex or any of its Subsidiaries.
(iv) Neither Drilex nor any of its Subsidiaries is a party to an
agreement that provides for the payment of any amount that would constitute
an "excess parachute payment" within the meaning of Section 280G of the
Code.
(v) Neither Drilex nor any of its Subsidiaries has made an election
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Drilex or any of its
Subsidiaries.
(vi) Except as set forth in Drilex SEC Documents or as disclosed on
Schedule 3.1(k)(vi), neither Drilex nor any of its Subsidiaries is a party
to, is bound by or has any obligation under any tax sharing or allocation
agreement or similar agreement or arrangement.
For purposes of this Agreement, "Taxes" shall mean all federal, state,
county, local, foreign or other taxes, charges, fees, levies, imposts,
duties, licenses or other assessments, together with any interest,
penalties, additions to tax or additional amounts imposed by any taxing
authority.
(l) Pension and Benefit Plans; ERISA.
(i) All "employee pension plans," as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained by Drilex or any of its Subsidiaries or any trade or business
(whether or not incorporated) which is under common control, or which is
treated as a single employer, with Drilex under Section 414(b), (c), (m) or
(o) of the Code ("Drilex ERISA Affiliate") or to which Drilex or any of its
Subsidiaries or any Drilex ERISA Affiliate contributed or is obligated to
contribute thereunder (the "Drilex Pension Plans") intended to qualify
under Section 401 of the Code so qualify and the trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the
Code, and, to the best knowledge of Drilex as of the date hereof, nothing
has occurred with respect to the operation of the Drilex Pension Plans that
could reasonably be expected to cause the loss of such qualification or
exemption or the imposition of any liability, penalty, or tax under ERISA
or the Code that is reasonably likely to have a Material Adverse Effect on
Drilex.
(ii) Except as disclosed in Schedule 3.1(l)(ii), there has been no
"reportable event" as that term is defined in Section 4043 of ERISA and the
regulations thereunder with respect to the Drilex Pension Plans subject to
Title IV of ERISA that would require the giving of notice or any event
requiring disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(iii) As to the Drilex Pension Plans and as to the "employee pension
benefit plans" maintained or contributed to by Drilex, its Subsidiaries or
by any Drilex ERISA Affiliate within six years prior to the Effective Time
subject to Title IV of ERISA, there has been no event or condition which
presents a
11
18
material risk of termination, no notice of intent to terminate has been
given under Section 4041 of ERISA and no proceeding has been instituted
under Section 4042 of ERISA to terminate, such that would result in a
material liability to Drilex, its Subsidiaries, or Drilex ERISA Affiliates;
no material liability to the Pension Benefit Guaranty Corporation ("PBGC")
has been incurred; no material accumulated funding deficiency, whether or
not waived, within the meaning of Section 302 of ERISA or Section 412 of
the Code has been incurred; and the assets of each Drilex Pension Plan
equal or exceed the actuarial present value of the benefit liabilities,
within the meaning of Section 4041 of ERISA, under such Drilex Pension
Plan, based upon reasonable actuarial assumptions and the asset valuation
principles established by the PBGC.
(iv) There is no violation of ERISA with respect to the filing of
applicable reports, documents, and notices regarding all the "employee
benefit plans," as defined in Section 3(3) of the ERISA and all other
material employee compensation and benefit arrangements or payroll
practices, including, without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, consulting or other
compensation agreements, retirement, deferred compensation, bonus,
long-term incentive, stock option, stock purchase, hospitalization, medical
insurance, life insurance and scholarship programs maintained by Drilex or
any of its Subsidiaries or to which Drilex or any of its Subsidiaries
contributed or is obligated to contribute thereunder (all such plans, other
than the Drilex Pension Plans, being hereinafter referred to as the "Drilex
Employee Benefit Plans"), or Drilex Pension Plans with the Secretary of
Labor and the Secretary of the Treasury or the furnishing of such documents
to the participants or beneficiaries of the Drilex Employee Benefit Plans
or Drilex Pension Plans, which violation is reasonably likely to have a
Material Adverse Effect on Drilex.
(v) Except as disclosed on Schedule 3.1(l)(v), the Drilex Employee
Benefit Plans and Drilex Pension Plans have been maintained, in all
material respects, in accordance with their terms and with all provisions
of ERISA (including rules and regulations thereunder) and other applicable
Federal and state law, all contributions to the Drilex Employee Benefit
Plans and Drilex Pension Plans have been timely made pursuant to their
terms, there is no material liability for breaches of fiduciary duty in
connection with the Drilex Employee Benefit Plans and Drilex Pension Plans,
there have been no material defaults, violations, actions, suits or claims
pending (except ordinary claims for benefits), or to the knowledge of
Drilex, threatened respecting the Drilex Employee Benefit Plans and Drilex
Pension Plans, and neither Drilex nor any of its Subsidiaries has engaged
in a material "prohibited transaction" within the meaning of Section 4975
of the Code or Section 406 of ERISA with respect to the Drilex Employee
Benefit Plans and Drilex Pension Plans.
(vi) Except as disclosed or referenced on Schedule 5.9, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment becoming
due to any employee or group of employees of Drilex or any of its
Subsidiaries; (ii) increase any benefits otherwise payable under any Drilex
Employee Benefit Plan or Drilex Pension Plan or the profit sharing plan of
Drilex or (iii) result in the acceleration of the time of payment or
vesting of any such benefits. Except as disclosed or referenced on Schedule
5.9 or in the Drilex SEC Documents, there are no severance agreements or
employment agreements between Drilex or any of its Subsidiaries and any
employee of Drilex or such Subsidiary.
True and correct copies of all such severance agreements and
employment agreements have been provided to ▇▇▇▇▇ ▇▇▇▇▇▇. Except as set
forth or otherwise referenced on Schedule 5.9, neither Drilex nor any of
its Subsidiaries has any consulting agreement or arrangement with any
person involving compensation in excess of $50,000, except as are
terminable upon one month's notice or less.
(vii) No stock or other security issued by Drilex or any of its
subsidiaries forms or has formed a material part of the assets of any
funded Drilex Employee Benefit Plan or Drilex Pension Plan.
(viii) Neither Drilex nor any of its Subsidiaries nor any Drilex ERISA
Affiliate contributes to, or has an obligation to contribute to, and has
not within six years prior to the Effective Time contributed to, or had an
obligation to contribute to, a multiemployer plan within the meaning of
Section 3(37) of ERISA.
12
19
(m) Labor Matters.
(i) Except as set forth in Schedule 3.1(m)(i) hereto, as of the date
of this Agreement, (1) no employees of Drilex or any of its Subsidiaries
are represented by any labor organization; (2) no labor organization or
group of employees of Drilex or any of its Subsidiaries has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority; and (3) to the knowledge of Drilex, there are no organizing
activities involving Drilex or any of its Subsidiaries pending with any
labor organization or group of employees of Drilex or any of its
Subsidiaries.
(ii) Except as set forth on Schedule 3.1(m)(ii) hereto, Drilex and
each of its Subsidiaries is in compliance with all laws and orders relating
to the employment of labor, including all such laws and orders relating to
wages, hours, collective bargaining, discrimination, civil rights, safety
and health, workers' compensation and the collection and payment of
withholding and/or Social Security Taxes and similar Taxes, except where
the failure to comply would not have a Material Adverse Effect on Drilex.
(n) Intangible Property. Drilex and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights necessary for the operation of the
businesses of each of Drilex and its Subsidiaries (collectively, the
"Drilex Intangible Property"), except where the failure to possess or have
adequate rights to use such properties would not reasonably be expected to
have a Material Adverse Effect on Drilex. Except as set forth on Schedule
3.1(n), all of the Drilex Intangible Property is owned by Drilex or its
Subsidiaries free and clear of any and all liens, claims or encumbrances,
except those that are not reasonably likely to have a Material Adverse
Effect on Drilex, and neither Drilex nor any such Subsidiary has forfeited
or otherwise relinquished any Drilex Intangible Property which forfeiture
would result in a Material Adverse Effect. To the knowledge of Drilex, the
use of the Drilex Intangible Property by Drilex or its Subsidiaries does
not, in any material respect, conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest
or goodwill, including, without limitation, any intellectual property
right, trademark, trade name, patent, service ▇▇▇▇, brand ▇▇▇▇, brand name,
computer program, database, industrial design, copyright or any pending
application therefor of any other person and there have been no claims made
and neither Drilex nor any of its Subsidiaries has received any notice of
any claim or otherwise knows that any of the Drilex Intangible Property is
invalid or conflicts with the asserted rights of any other person or has
not been used or enforced or has been failed to be used or enforced in a
manner that would result in the abandonment, cancellation or
unenforceability of any of the Drilex Intangible Property, except for any
such conflict, infringement, violation, interference, claim, invalidity,
abandonment, cancellation or unenforceability that would not reasonably be
expected to have a Material Adverse Effect.
(o) Environmental Matters.
For purposes of this Agreement:
(A) "Environmental Law" means any applicable law regulating or
prohibiting Releases into any part of the natural environment, or
pertaining to the protection of natural resources, the environment and
public and employee health and safety including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (33
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. Section 7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 et seq.), and the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.) ("OSHA") and the
regulations promulgated pursuant thereto, and any such applicable state
or local statutes, and the regulations promulgated pursuant thereto, as
such laws have been and may be amended or supplemented through the
Closing Date.
13
20
(B) "Hazardous Material" means any substance, material or waste
which is regulated pursuant to any Environmental Law by any public or
governmental authority in the jurisdictions in which the applicable
party or its Subsidiaries conducts business, or the United States,
including, without limitation, any material or substance which is
defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law;
(C) "Release" means any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment, or into or
out of any property owned, operated or leased by the applicable party or
its Subsidiaries; and
(D) "Remedial Action" means all actions, including, without
limitation, any capital expenditures, required by a governmental entity
or required under any Environmental Law, or voluntarily undertaken to
(I) clean up, remove, treat, or in any other way ameliorate or address
any Hazardous Materials or other substance in the indoor or outdoor
environment; (II) prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it does not endanger or
threaten to endanger the public health or welfare of the indoor or
outdoor environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (IV) bring the applicable party into
compliance with any Environmental Law.
(i) Except as disclosed on Schedule 3.1(o), the operations of
Drilex and its Subsidiaries have been and, as of the Closing Date, will
be, in compliance with all Environmental Laws, except where the failure
to so comply would not reasonably be expected to have a Material Adverse
Effect on Drilex;
(ii) Except as disclosed on Schedule 3.1(o), Drilex and its
Subsidiaries have obtained and will, as of the Closing Date, maintain
all permits required under applicable Environmental Laws for the
continued operations of their respective businesses, except such permits
the lack of which would not reasonably be expected to lead to a Material
Adverse Effect on Drilex;
(iii) Except as disclosed on Schedule 3.1(o), as of the date hereof
Drilex and its Subsidiaries are not subject to any material
(individually or in the aggregate) outstanding written orders or
material contracts with any Governmental Entity or other person
respecting (A) Environmental Laws, (B) Remedial Action or (C) any
Release or threatened Release of a Hazardous Material;
(iv) Except as disclosed on Schedule 3.1(o), Drilex and its
Subsidiaries have not received any written communication alleging, with
respect to any such party, the violation of or liability under any
Environmental Law, which violation or liability would reasonably be
expected to have a Material Adverse Effect on Drilex;
(v) Except as disclosed on Schedule 3.1(o), neither Drilex nor any
of its Subsidiaries has any contingent liability in connection with the
Release of any Hazardous Material into the indoor or outdoor environment
(whether on-site or off-site) that would reasonably be expected to lead
to a Material Adverse Effect on Drilex;
(vi) Except as disclosed on Schedule 3.1(o), the operations of
Drilex or its Subsidiaries involving the generation, transportation,
treatment, storage or disposal of hazardous waste, as defined and
regulated under 40 C.F.R. Parts 260-270 (in effect as of the date of
this Agreement) or any state equivalent, are in compliance with
applicable Environmental Laws, except where the failure to so comply
would not reasonably be expected to have a Material Adverse Effect on
Drilex; and
(vii) Except as disclosed on Schedule 3.1(o), to the knowledge of
Drilex as of the date hereof, there is not now on or in any property of
Drilex or its Subsidiaries any of the following: (A) any underground
storage tanks or surface impoundments, (B) any asbestos-containing
materials, or (C) any polychlorinated biphenyls, any of which ((A), (B),
or (C) preceding) could reasonably be expected to have a Material
Adverse Effect on Drilex.
14
21
(p) Opinion of Financial Advisor. Drilex has received the opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co to the effect that, as of the date hereof, the
consideration to be received by the holders of Drilex Common Stock pursuant
to this Agreement is fair from a financial point of view to such holders.
(q) Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Drilex Common Stock is the only vote of the
holders of any class or series of Drilex capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
(r) Beneficial Ownership of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock. As of the date
hereof, assuming the accuracy of the representation set forth in Section
3.2(b), neither Drilex nor its Subsidiaries "beneficially owns" (as defined
in Rule 13d-3 under the Exchange Act) in the aggregate one percent (1%) or
more of the outstanding ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock.
(s) Insurance. Drilex has delivered to ▇▇▇▇▇ ▇▇▇▇▇▇ an insurance
schedule of Drilex's and each of its Subsidiaries' directors' and officers'
liability insurance, primary and excess casualty insurance policies,
providing coverage for bodily injury and property damage to third parties,
including products liability and completed operations coverage, and
worker's compensation, in effect as of the date hereof. Drilex maintains
insurance coverage reasonably adequate for the operation of the business of
Drilex and each of its Subsidiaries (taking into account the cost and
availability of such insurance), and the transactions contemplated hereby
will not materially adversely affect such coverage.
(t) Brokers. Except as disclosed on Schedules 3.1(t) or 5.9 hereof, no
broker, investment banker, or other person is entitled to any broker's,
finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Drilex.
(u) Tax Matters. As of the date hereof, to the knowledge of Drilex,
the representations set forth in the numbered paragraphs of the form of
Certificate of Drilex included as Schedule 3.1(u) are true and correct in
all material respects, assuming for purposes of this representation and
warranty that the Merger referred to in such form had been consummated on
the date hereof.
(v) Accounting Matters. Drilex has previously (i) requested its
outside accountants to disclose to ▇▇▇▇▇ ▇▇▇▇▇▇ any actions taken by Drilex
or any of its affiliates, and (ii) accurately answered all questions posed
by ▇▇▇▇▇ ▇▇▇▇▇▇, that in either such case are relevant to the determination
of the treatment of the business combination to be effected by the Merger
as a pooling of interests for accounting purposes.
3.2 Representations and Warranties of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub. ▇▇▇▇▇ ▇▇▇▇▇▇
and Sub jointly and severally represent and warrant to Drilex as follows:
(a) Organization, Standing and Power. Each of ▇▇▇▇▇ ▇▇▇▇▇▇, Sub and
▇▇▇▇▇ Hughes's Significant Subsidiaries is a corporation, limited liability
company or partnership duly organized, validly existing and in good
standing under the laws of its state or jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify would not
have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub have
heretofore delivered to Drilex complete and correct copies of their
respective Certificates of Incorporation and Bylaws.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of ▇▇▇▇▇ ▇▇▇▇▇▇ consists of 400,000,000 shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common
Stock and 15,000,000 shares of preferred stock, par value $1.00 per share,
of ▇▇▇▇▇ ▇▇▇▇▇▇ (the "▇▇▇▇▇ ▇▇▇▇▇▇ Preferred Stock"). At the close of
business on March 31, 1997 (i) 145,642,230 shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common
Stock were issued and outstanding; (ii) 8,300,000 shares of ▇▇▇▇▇ ▇▇▇▇▇▇
Common Stock were held by ▇▇▇▇▇ ▇▇▇▇▇▇ in its treasury or by its wholly
owned Subsidiaries, which are treated for purposes of clause (i) and
financial reporting purposes as having been effectively retired; (iii) no
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Preferred Stock are issued
15
22
and outstanding; and (iv) no Voting Debt was outstanding. All outstanding
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ capital stock are, and the shares of ▇▇▇▇▇ ▇▇▇▇▇▇
Common Stock when issued in accordance with this Agreement, and upon
exercise of the Drilex Stock Options (as defined in Section 5.10) and the
Drilex Warrants to be assumed pursuant to the Merger, will be, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth on Schedule 3.2(b), all outstanding shares of capital
stock of the Significant Subsidiaries of ▇▇▇▇▇ ▇▇▇▇▇▇ are owned by ▇▇▇▇▇
▇▇▇▇▇▇ or a direct or indirect wholly owned Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇,
free and clear of all liens, charges, encumbrances, claims and options of
any nature. Except as set forth in this Section 3.2(b) or on Schedule
3.2(b) or as described in the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents and except for
changes since March 31, 1997 resulting from the exercise of employee stock
options or convertible debentures granted pursuant to, or from issuances or
purchases under, plans described in the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents (as
defined herein) (collectively, the "▇▇▇▇▇ ▇▇▇▇▇▇ Equity Plans"), or as
contemplated by this Agreement, there are outstanding: (i) no shares of
capital stock, Voting Debt or other voting securities of ▇▇▇▇▇ ▇▇▇▇▇▇; (ii)
no securities of ▇▇▇▇▇ ▇▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇ convertible
into or exchangeable for shares of capital stock, Voting Debt or other
voting securities of ▇▇▇▇▇ ▇▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇; and
(iii) no options, warrants, calls, rights (including preemptive rights),
commitments or agreements to which ▇▇▇▇▇ ▇▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇
▇▇▇▇▇▇ is a party or by which it is bound in any case obligating ▇▇▇▇▇
▇▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇ to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or any Voting Debt
or other voting securities of ▇▇▇▇▇ ▇▇▇▇▇▇ or of any Subsidiary of ▇▇▇▇▇
▇▇▇▇▇▇ or obligating ▇▇▇▇▇ ▇▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇ to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. There are not as of the date hereof and there will
not be at the Effective Time any stockholder agreements, voting trusts or
other agreements or understandings to which ▇▇▇▇▇ ▇▇▇▇▇▇ is a party or by
which it is bound relating to the voting of any shares of the capital stock
of ▇▇▇▇▇ ▇▇▇▇▇▇. As of the date hereof, the authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $0.01 per share, 1,000
shares of which are validly issued, fully paid and nonassessable and are
owned by ▇▇▇▇▇ ▇▇▇▇▇▇ and the balance of which are not issued or
outstanding.
(c) Authority; No Violations, Consents and Approvals.
(i) Each of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including but not limited to the issuance of the ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock
pursuant to the Merger, have been duly authorized by all necessary
corporate action on the part of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub. This Agreement has
been duly executed and delivered by ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub and, assuming this
Agreement constitutes the valid and binding obligation of Drilex,
constitutes a valid and binding obligation of each of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub
enforceable in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity.
(ii) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or give rise to a
right of purchase under, result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries under, or otherwise result in a
detriment to ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries under, any provision
of (i) the Certificate of Incorporation or Bylaws of ▇▇▇▇▇ ▇▇▇▇▇▇ or any
provision of the comparable charter or organizational documents of any of
its Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries,
(iii) any joint venture or other ownership arrangement or (iv) assuming the
consents, approvals, authorizations or permits and filings or notifica-
16
23
tions referred to in Section 3.2(c)(iii) are duly and timely obtained or
made, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries or any of
their respective properties or assets, other than, in the case of clause
(ii), (iii) or (iv), any such conflicts, violations, defaults, rights,
liens, security interests, charges, encumbrances or detriments that,
individually or in the aggregate, would not have a Material Adverse Effect
on ▇▇▇▇▇ ▇▇▇▇▇▇, materially impair the ability of ▇▇▇▇▇ ▇▇▇▇▇▇ to perform
its obligations hereunder or thereunder or prevent the consummation of any
of the transactions contemplated hereby or thereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any Governmental
Entity is required by or with respect to ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its
Subsidiaries in connection with the execution and delivery of this
Agreement by ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub or the consummation by ▇▇▇▇▇ ▇▇▇▇▇▇ and
Sub of the transactions contemplated hereby, as to which the failure to
obtain or make would have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇, except
for: (A) the filing of a premerger notification report by ▇▇▇▇▇ ▇▇▇▇▇▇
under the HSR Act and the expiration or termination of the applicable
waiting period with respect thereto; (B) the filing with the SEC of the
Proxy Statement, the S-4, such reports under Section 13(a) of the Exchange
Act and such other compliance with the Securities Act and the Exchange Act
and the rules and regulations thereunder as may be required in connection
with this Agreement and the transactions contemplated hereby, and the
obtaining from the SEC of such orders as may be so required; (C) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware; (D) filings with, and approval of, the NYSE; (E) such filings and
approvals as may be required by any applicable state securities, "blue sky"
or takeover laws or environmental laws; and (F) such filings and approvals
as may be required by any foreign premerger notification, securities,
corporate or other law, rule or regulation.
(d) SEC Documents. ▇▇▇▇▇ ▇▇▇▇▇▇ has made available to Drilex a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by ▇▇▇▇▇ ▇▇▇▇▇▇ with the SEC since
September 30, 1996 and prior to the date of this Agreement (the "▇▇▇▇▇
▇▇▇▇▇▇ SEC Documents"), which are all the documents (other than preliminary
material) that ▇▇▇▇▇ ▇▇▇▇▇▇ was required to file with the SEC since such
date. As of their respective dates, the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents, and none of the
▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
▇▇▇▇▇ ▇▇▇▇▇▇ included in the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents complied as to form
in all material respects with the published rules and regulations of the
SEC with respect thereto, were prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, as
permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in
accordance with applicable requirements of GAAP (subject, in the case of
the unaudited statements, to normal, recurring adjustments, none of which
will be material) the consolidated financial position of ▇▇▇▇▇ ▇▇▇▇▇▇ and
its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of ▇▇▇▇▇
▇▇▇▇▇▇ and its consolidated Subsidiaries for the periods presented therein.
(e) Information Supplied. None of the information supplied or to be
supplied by ▇▇▇▇▇ ▇▇▇▇▇▇ or Sub for inclusion or incorporation by reference
in the S-4 will, at the time the S-4 becomes effective under the Securities
Act or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and none of the
information supplied or to be supplied by ▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇ Sub
and included or incorporated by reference in the Proxy Statement will, at
the date mailed to stockholders of Drilex or at the time of the meeting of
such stockholders to be held in connection with the Merger or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of
17
24
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to ▇▇▇▇▇ ▇▇▇▇▇▇ or any
of its Subsidiaries, or with respect to other information supplied by ▇▇▇▇▇
▇▇▇▇▇▇ or Sub for inclusion in the Proxy Statement or S-4, shall occur
which is required to be described in an amendment of, or a supplement to,
the Proxy Statement or the S-4, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC. The Proxy
Statement, insofar as it relates to ▇▇▇▇▇ ▇▇▇▇▇▇, Sub or other Subsidiaries
of ▇▇▇▇▇ ▇▇▇▇▇▇ or other information supplied by ▇▇▇▇▇ ▇▇▇▇▇▇ or Sub for
inclusion therein, will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
(f) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in, the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC
Documents or on Schedule 3.2(f), or except as contemplated by this
Agreement, since September 30, 1996, there has not been: (i) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of ▇▇▇▇▇ Hughes's
capital stock, except for regular quarterly cash dividends not in excess of
$.115 per share on ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock (or a pro rata amount for any
dividend less than a full quarter) with usual record and payment dates for
such dividends; (ii) any amendment of any material term of any outstanding
equity security of ▇▇▇▇▇ ▇▇▇▇▇▇ or any Significant Subsidiary; (iii) any
repurchase, redemption or other acquisition by ▇▇▇▇▇ ▇▇▇▇▇▇ or any
Subsidiary of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, ▇▇▇▇▇ ▇▇▇▇▇▇ or any
Subsidiary, except as contemplated by ▇▇▇▇▇ ▇▇▇▇▇▇ Benefit Plans; (iv) any
material change in any method of accounting or accounting practice or any
tax method, practice or election by ▇▇▇▇▇ ▇▇▇▇▇▇ or any Subsidiary; or (v)
any other transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) that has had a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇,
except for general economic changes and changes that may affect the
industries of ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries generally.
(g) No Undisclosed Material Liabilities. Except as disclosed in the
▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents or on Schedule 3.2(g), as of the date hereof,
there are no liabilities of ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, that are reasonably likely to have a Material
Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇, other than: (i) liabilities adequately
provided for on the balance sheet of ▇▇▇▇▇ ▇▇▇▇▇▇ dated as of December 31,
1996 (including the notes thereto) contained in ▇▇▇▇▇ Hughes's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996; and (ii)
liabilities under this Agreement.
(h) No Default. Neither ▇▇▇▇▇ ▇▇▇▇▇▇ nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the
lapse of time or both, would constitute a default or violation) of any
term, condition or provision of (i) their respective charter and by-laws,
(ii) except as disclosed in Schedule 3.2(h), any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which
▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries is now a party or by which ▇▇▇▇▇
▇▇▇▇▇▇ or any of its Subsidiaries or any of their respective properties or
assets may be bound (except for the requirement under certain of such
instruments to file supplemental indentures as a result of the transactions
contemplated hereby) or (iii) any order, writ, injunction, decree, statute,
rule or regulation applicable to ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries,
except in the case of (ii) and (iii) for defaults or violations which in
the aggregate would not have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇.
(i) Compliance with Applicable Laws. ▇▇▇▇▇ ▇▇▇▇▇▇ and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders, franchises and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "▇▇▇▇▇ ▇▇▇▇▇▇ Permits"), except where the
failure so to hold would not have a Material Adverse Effect on ▇▇▇▇▇
▇▇▇▇▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ and its Subsidiaries are in compliance with the terms
of the ▇▇▇▇▇ ▇▇▇▇▇▇ Permits, except where the failure so to comply would
not have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇. Except as disclosed in
the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents or as set forth in Schedules 3.2(i), 3.2(j),
3.2(k), 3.2(m) or 3.2(o), the businesses of ▇▇▇▇▇ ▇▇▇▇▇▇ and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
would not have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇. Except as set
forth on Schedule 3.2(i), as of the date of this
18
25
Agreement, no investigation or review by any Governmental Entity with
respect to ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries is pending or, to the
best knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇ as of the date hereof, threatened, other
than those the outcome of which would not have a Material Adverse Effect on
▇▇▇▇▇ ▇▇▇▇▇▇.
(j) Litigation. Except as disclosed in the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents
or on Schedule 3.2(j) hereto, there is no suit, action or proceeding
pending, or, to the best knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇, threatened against or
affecting ▇▇▇▇▇ ▇▇▇▇▇▇ or any Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇ ▇▇▇▇▇▇
Litigation"), and ▇▇▇▇▇ ▇▇▇▇▇▇ and its Subsidiaries have no knowledge of
any facts that are likely to give rise to any ▇▇▇▇▇ ▇▇▇▇▇▇ Litigation, that
(in any case) is reasonably likely to have a Material Adverse Effect on
▇▇▇▇▇ ▇▇▇▇▇▇, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator outstanding against ▇▇▇▇▇ ▇▇▇▇▇▇
or any Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇ ▇▇▇▇▇▇ Order") that is reasonably
likely to have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇ or its ability to
consummate the transactions contemplated by this Agreement. In addition,
the aggregate reasonable estimate of uninsured exposures or losses under
all claims and judgments pending, or to the best knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇,
threatened, pursuant to all ▇▇▇▇▇ ▇▇▇▇▇▇ Litigation and ▇▇▇▇▇ ▇▇▇▇▇▇
Orders, existing on the date hereof, excluding individual, unrelated claims
or judgments of less than $1,500,000 each, does not exceed $70,000,000.
(k) Taxes.
(i) Except as set forth on Schedule 3.2(k)(i), each of ▇▇▇▇▇ ▇▇▇▇▇▇,
each of its Subsidiaries and any affiliated, consolidated, combined,
unitary or similar group of which any such corporation is or was a member
has (A) duly filed on a timely basis (taking into account any extensions)
all federal and all material state, local, foreign and other Returns,
required to be filed or sent by or with respect to it in respect of any
Taxes, (B) duly paid or deposited on a timely basis all Taxes that are due
and payable (except for audit adjustments not material in the aggregate or
to the extent that liability therefor is reserved for in ▇▇▇▇▇ Hughes's
most recent audited financial statements) for which ▇▇▇▇▇ ▇▇▇▇▇▇ or any of
its Subsidiaries may be liable, (C) established reserves that are adequate
for the payment of all Taxes not yet due and payable with respect to the
results of operations of ▇▇▇▇▇ ▇▇▇▇▇▇ and its Subsidiaries through the date
hereof, and (D) complied in all material respects with all applicable laws,
rules and regulations relating to the reporting, payment and withholding of
Taxes and has in all material respects timely withheld from employee wages
and paid over to the proper governmental authorities all amounts required
to be so withheld and paid over.
(ii) Schedule 3.2(k)(ii) sets forth the last taxable period through
which the federal income Tax Returns of ▇▇▇▇▇ ▇▇▇▇▇▇ and any of its
Subsidiaries have been examined by the IRS or otherwise closed. Except to
the extent being contested in good faith, all deficiencies asserted as a
result of such examinations and any examination by any applicable taxing
authority have been paid, fully settled or adequately provided for in ▇▇▇▇▇
Hughes's most recent audited financial statements. Except as adequately
provided for in the ▇▇▇▇▇ ▇▇▇▇▇▇ SEC Documents, no material audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes for which ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries would
be liable, and no material deficiency for any Taxes has been proposed,
asserted or assessed pursuant to such examination against ▇▇▇▇▇ ▇▇▇▇▇▇ or
any of its Subsidiaries by any taxing authority with respect to any period
other than as set forth in Schedule 3.2(k)(ii).
(iii) Except as disclosed on Schedule 3.2(k)(iii), neither ▇▇▇▇▇
▇▇▇▇▇▇ nor any of its Subsidiaries has executed or entered into (or prior
to the close of business on the Closing Date will execute or enter into)
with the IRS or any taxing authority (i) any agreement or other document
extending or having the effect of extending the period for assessments or
collection of any income or franchise Taxes for which ▇▇▇▇▇ ▇▇▇▇▇▇ or any
of its Subsidiaries would be liable or (ii) a closing agreement pursuant to
Section 7121 of the Code, or any predecessor provision thereof or any
similar provision of state, local, foreign or other income tax law that
relates to the assets or operations of ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its
Subsidiaries.
19
26
(iv) Neither ▇▇▇▇▇ ▇▇▇▇▇▇ nor any of its Subsidiaries has made an
election under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by ▇▇▇▇▇
▇▇▇▇▇▇ or any of its Subsidiaries.
(l) Pension and Benefit Plans; ERISA.
(i) All "employee pension plans," as defined in Section 3(2) of ERISA,
maintained by ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries or any trade or
business (whether or not incorporated) which is under common control, or
which is treated as a single employer, with ▇▇▇▇▇ ▇▇▇▇▇▇ under Section
414(b), (c), (m) or (o) of the Code ("▇▇▇▇▇ ▇▇▇▇▇▇ ERISA Affiliate") or to
which ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries or any ▇▇▇▇▇ ▇▇▇▇▇▇ ERISA
Affiliate contributed or is obligated to contribute thereunder (the "▇▇▇▇▇
▇▇▇▇▇▇ Pension Plans") intended to qualify under Section 401 of the Code so
qualify and the trusts maintained pursuant thereto are exempt from federal
income taxation under Section 501 of the Code, and, to the best knowledge
of ▇▇▇▇▇ ▇▇▇▇▇▇ as of the date hereof, nothing has occurred with respect to
the operation of the ▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans that could cause the loss
of such qualification or exemption or the imposition of any liability,
penalty, or tax under ERISA or the Code that is reasonably likely to have a
Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇.
(ii) There has been no "reportable event" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to the
▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans subject to Title IV of ERISA that would require
the giving of notice or any event requiring disclosure under Section
4041(c)(3)(C) or 4063(a) of ERISA.
(iii) There is no violation of ERISA with respect to the filing of
applicable reports, documents, and notices regarding the "employee benefit
plans," as defined in Section 3(3) of ERISA and all other material employee
compensation and benefit arrangements or payroll practices including,
without limitation, severance pay, sick leave, vacation pay, salary
continuation for disability, consulting or other compensation agreements,
retirement, deferred compensation, bonus, long-term incentive, stock
option, stock purchase, hospitalization, medical insurance, life insurance
and scholarship programs maintained by ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its
Subsidiaries or to which ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its Subsidiaries
contributed or is obligated to contribute thereunder (all such plans, other
than the ▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans, being hereinafter referred to as the
"▇▇▇▇▇ ▇▇▇▇▇▇ Employee Benefit Plans") or ▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans with
the Secretary of Labor and the Secretary of the Treasury or the furnishing
of such documents to the participants or beneficiaries of the ▇▇▇▇▇ ▇▇▇▇▇▇
Employee Benefit Plans or ▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans, which violation is
reasonably likely to have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇.
(iv) The ▇▇▇▇▇ ▇▇▇▇▇▇ Employee Benefit Plans and ▇▇▇▇▇ ▇▇▇▇▇▇ Pension
Plans have been maintained, in all material respects, in accordance with
their terms and with all provisions of ERISA (including rules and
regulations thereunder) and other applicable Federal and state law, and
neither ▇▇▇▇▇ ▇▇▇▇▇▇ nor any of its Subsidiaries has engaged in a material
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA with respect to the ▇▇▇▇▇ ▇▇▇▇▇▇ Employee Benefit
Plans and ▇▇▇▇▇ ▇▇▇▇▇▇ Pension Plans.
(m) Labor Matters. Except as set forth on Schedule 3.2(m) hereto,
▇▇▇▇▇ ▇▇▇▇▇▇ and each of its Subsidiaries is in compliance with all laws
and orders relating to the employment of labor, including all such laws and
orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health workers' compensation and the collection
and payment of withholding and or Social Security Taxes and similar Taxes,
except where the failure to comply would not have a Material Adverse Effect
on ▇▇▇▇▇ ▇▇▇▇▇▇.
(n) Intangible Property. ▇▇▇▇▇ ▇▇▇▇▇▇ and its Subsidiaries possess or
have adequate rights to use all material trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights necessary for the operation of the
businesses of each of ▇▇▇▇▇ ▇▇▇▇▇▇ and its Subsidiaries (collectively, the
"▇▇▇▇▇ ▇▇▇▇▇▇ Intangible Property"), except where the failure to possess or
have adequate rights to use such properties would not reasonably be
20
27
expected to have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇. Except as set
forth on Schedule 3.2(n), all of the ▇▇▇▇▇ ▇▇▇▇▇▇ Intangible Property is
owned by ▇▇▇▇▇ ▇▇▇▇▇▇ or its Subsidiaries free and clear of any and all
liens, claims or encumbrances, except those that are not reasonably likely
to have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇ and neither ▇▇▇▇▇ ▇▇▇▇▇▇
nor any such Subsidiary has forfeited or otherwise relinquished any ▇▇▇▇▇
▇▇▇▇▇▇ Intangible Property which forfeiture would result in a Material
Adverse Effect. To the knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇, the use of the ▇▇▇▇▇
▇▇▇▇▇▇ Intangible Property by ▇▇▇▇▇ ▇▇▇▇▇▇ or its Subsidiaries does not, in
any material respect, conflict with, infringe upon, violate or interfere
with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, patent, service ▇▇▇▇, brand ▇▇▇▇, brand name,
computer program, database, industrial design, copyright or any pending
application therefor of any other person and there have been no claims made
and neither ▇▇▇▇▇ ▇▇▇▇▇▇ nor any of its Subsidiaries has received any
notice of any claim or otherwise knows that any of the ▇▇▇▇▇ ▇▇▇▇▇▇
Intangible Property is invalid or conflicts with the asserted rights of any
other person or has not been used or enforced or has been failed to be used
or enforced in a manner that would result in the abandonment, cancellation
or unenforceability of any of the ▇▇▇▇▇ ▇▇▇▇▇▇ Intangible Property, except
for any such conflict, infringement, violation, interference, claim,
invalidity, abandonment, cancellation or unenforceability that would not
reasonably be expected to have a Material Adverse Effect.
(o) Environmental Matters.
(i) Except as disclosed on Schedule 3.2(o), the operations of ▇▇▇▇▇
▇▇▇▇▇▇ and its Subsidiaries have been and, as of the Closing Date, will
be, in compliance with all Environmental Laws, except where the failure
to so comply would not reasonably be expected to have a Material Adverse
Effect on ▇▇▇▇▇ ▇▇▇▇▇▇;
(ii) Except as disclosed on Schedule 3.2(o), ▇▇▇▇▇ ▇▇▇▇▇▇ and its
Subsidiaries have obtained and will, as of the Closing Date, maintain
all permits required under applicable Environmental Laws for the
continued operations of their respective businesses, except such permits
the lack of which would not reasonably be expected to lead to a Material
Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇;
(iii) Except as disclosed on Schedule 3.2(o), ▇▇▇▇▇ ▇▇▇▇▇▇ and its
Subsidiaries are not subject to any outstanding written orders or
material contracts with any Governmental Entity or other person
respecting (A) Environmental Laws, (B) Remedial Action or (C) any
Release or threatened Release of a Hazardous Material, except such
orders or contracts the compliance with which would not reasonably be
expected to have a Material Adverse Effect;
(iv) Except as disclosed on Schedule 3.2(o), ▇▇▇▇▇ ▇▇▇▇▇▇ and its
Subsidiaries have not received any written communication alleging, with
respect to any such party, the violation of or liability under any
Environmental Law, which violation or liability would reasonably be
expected to have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇;
(v) Except as disclosed on Schedule 3.2(o), neither ▇▇▇▇▇ ▇▇▇▇▇▇
nor any of its Subsidiaries has any contingent liability in connection
with the Release of any Hazardous Material into the indoor or outdoor
environment (whether on-site or off-site) that would reasonably be
expected to lead to a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇;
(vi) Except as disclosed on Schedule 3.2(o), none of the operations
of ▇▇▇▇▇ ▇▇▇▇▇▇ or its Subsidiaries involving the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of the
date of this Agreement) or any state equivalent are in compliance with
applicable Environmental Laws, except where the failure to so comply
would not reasonably be expected to have a Material Adverse Effect on
▇▇▇▇▇ ▇▇▇▇▇▇; and
(vii) Except as disclosed on Schedule 3.2(o), to the knowledge of
▇▇▇▇▇ ▇▇▇▇▇▇ as of the date hereof, there is not now on or in any
property of ▇▇▇▇▇ ▇▇▇▇▇▇ or its Subsidiaries any of the following: (A)
any underground storage tanks or surface impoundments, (B) any asbestos-
21
28
containing materials, or (C) any polychlorinated biphenyls, which ((A),
(B), or (C) preceding) could reasonably be expected to have a Material
Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇.
(p) No Vote Required. No vote of the holders of any class or series of
▇▇▇▇▇ ▇▇▇▇▇▇ capital stock is necessary to approve the issuance of ▇▇▇▇▇
▇▇▇▇▇▇ Common Stock pursuant to this Agreement and the transactions
contemplated hereby.
(q) Beneficial Ownership of Drilex Common Stock. As of the date
hereof, assuming the accuracy of the representation set forth in Section
3.1(b), neither ▇▇▇▇▇ ▇▇▇▇▇▇ nor its Subsidiaries "beneficially owns" (as
defined in Rule 13d-3 under the Exchange Act) any of the outstanding Drilex
Common Stock.
(r) Brokers. No broker, investment banker or other person is entitled
to any broker's, finder's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of ▇▇▇▇▇ ▇▇▇▇▇▇.
(s) Interim Operations of Sub. Sub was formed by ▇▇▇▇▇ ▇▇▇▇▇▇ solely
for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business or activities, has incurred no other
obligations or liabilities, has no other assets and has conducted its
operations only as contemplated hereby. All of the outstanding capital
stock of Sub is owned directly by ▇▇▇▇▇ ▇▇▇▇▇▇.
(t) Tax Matters. As of the date hereof, to the knowledge of ▇▇▇▇▇
▇▇▇▇▇▇, the representations in the numbered paragraphs set forth in the
form of Certificate of Purchaser included as Schedule 3.2(t) are true and
correct in all material respects, assuming for purposes of this
representation and warranty that the Merger referred to in such form had
been consummated on the date hereof.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS OF DRILEX
4.1 Conduct of Business by Drilex Pending the Merger. During the period
from the date of this Agreement and continuing until the Effective Time, Drilex
agrees as to itself and its Subsidiaries that (except as expressly contemplated
or permitted by this Agreement, or to the extent that ▇▇▇▇▇ ▇▇▇▇▇▇ shall
otherwise consent in writing):
(a) Ordinary Course. Except as provided on Schedule 4.1(a), each of
Drilex and its Subsidiaries shall carry on its businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and shall use all reasonable efforts to preserve intact its
present business organizations, keep available the services of its current
officers and employees, and endeavor to preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall not be impaired in any
material respect at the Effective Time.
(b) Dividends; Changes in Stock. Except as provided on Schedule
4.1(b), Drilex shall not and it shall not permit any of its Subsidiaries
to: (i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock or partnership interests, except for
the declaration and payment of dividends from a Subsidiary of Drilex to
Drilex or another Subsidiary of Drilex and except for cash dividends or
distributions paid on or with respect to the capital stock or partnership
interests of a Subsidiary of Drilex; (ii) split, combine or reclassify any
of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Drilex capital stock; or (iii) repurchase, redeem or otherwise acquire, or
permit any of its Subsidiaries to purchase, redeem or otherwise acquire,
any shares of its capital stock, except as required by the terms of its
securities outstanding on the date hereof or as contemplated by any
existing employee benefit plan.
(c) Issuance of Securities. Except as provided on Schedule 4.1(c),
Drilex shall not and it shall not permit any of its Subsidiaries to, issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class, any Voting Debt or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, Voting Debt or convertible securities, other than: (i) the issuance
of Drilex Common Stock upon the exercise of stock options granted under the
Drilex Stock Plan
22
29
that are outstanding on the date hereof, or in satisfaction of stock grants
or stock based awards made prior to the date hereof pursuant to the Drilex
Stock Plan or upon exercise of the Drilex Warrants; and (ii) issuances by a
wholly owned Subsidiary of its capital stock to its parent.
(d) Governing Documents. Except as contemplated hereby or in
connection herewith, Drilex shall not amend or propose to amend its
Restated Certificate of Incorporation or Bylaws.
(e) No Acquisitions. Other than acquisitions listed on Schedule
4.1(e), Drilex shall not and it shall not permit any of its Subsidiaries
to, acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof.
(f) No Dispositions. Other than: (i) dispositions or proposed
dispositions listed on Schedule 4.1(f), (ii) dispositions in the ordinary
course of business consistent with past practice that are not material,
individually or in the aggregate, to Drilex and its Subsidiaries taken as a
whole, and (iii) product sales in the ordinary course of business
consistent with past practice, Drilex shall not and it shall not permit any
of its Subsidiaries to sell, lease, encumber or otherwise dispose of, or
agree to sell, lease (whether such lease is an operating or capital lease),
encumber or otherwise dispose of, any of its assets.
(g) No Dissolution, Etc. Except as otherwise permitted or contemplated
by this Agreement, Drilex shall not authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of Drilex or any of its Significant Subsidiaries.
(h) Certain Employee Matters. Except as set forth on Schedule 4.1(h)
or pursuant to Section 5.9, Drilex shall not and it shall not permit any of
its Subsidiaries to: (i) grant any increases in the compensation of any of
its directors, officers or employees, except increases to employees who are
not officers or directors in the ordinary course of business and in
accordance with past practice; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or contemplated
by any of the existing Drilex Employee Benefit Plans or Drilex Pension
Plans as in effect on the date hereof to any director, officer or employee,
whether past or present; (iii) enter into any new, or amend any existing,
employment or severance or termination agreement with any director, officer
or key employee; (iv) become obligated under any new Drilex Employee
Benefit Plan or Drilex Pension Plan, which was not in existence or approved
by the Board of Directors of Drilex prior to or on the date hereof, or
amend any such plan or arrangement in existence on the date hereof if such
amendment would have the effect of materially enhancing any benefits
thereunder; or (v) terminate the employment of any executive or employee of
Drilex without cause.
(i) Indebtedness; Leases; Capital Expenditures. Except as set forth on
Schedule 4.1(i), Drilex shall not, nor shall Drilex permit any of its
Subsidiaries to, (i) incur any indebtedness for borrowed money (except for
working capital under Drilex's existing credit facilities, and refinancings
of existing debt that permit prepayment of such debt without penalty (other
than LIBOR breakage costs)) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire any debt
securities of such party or any of its Subsidiaries or guarantee any debt
securities of others, (ii) except in the ordinary course of business, enter
into any lease (whether such lease is an operating or capital lease) or
create any mortgages, liens, security interests or other encumbrances on
the property of Drilex or any of its Subsidiaries in connection with any
indebtedness thereof, or (iii) commit to aggregate capital expenditures in
excess of $500,000 outside the capital budget, as amended and approved by
Drilex prior to the date hereof and disclosed to ▇▇▇▇▇ ▇▇▇▇▇▇ on Schedule
4.1(i).
4.2 No Solicitation.
(a) From and after the date hereof, Drilex will not, and will not authorize
or permit any of its officers, directors, employees, agents, affiliates or other
representatives or those of any of its Subsidiaries (collectively, "Drilex
Representatives") to, directly or indirectly, solicit or encourage (including by
way of providing information) any prospective acquiror or the invitation or
submission of any inquiries, proposals or offers or
23
30
any other efforts or attempts that constitute, or may reasonably be expected to
lead to, an Acquisition Proposal (as defined herein) from any person or engage
in any discussions or negotiations with respect thereto or otherwise cooperate
with or assist or participate in or facilitate any such proposal; provided,
however, that, notwithstanding any other provision of this Agreement, (i)
Drilex's Board of Directors may take and disclose to Drilex's stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act and
(ii) following receipt from a third party (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with
Drilex or any Drilex Representatives) of a bona fide Acquisition Proposal that
is financially superior to the Merger and reasonably capable of being financed
(as determined in each case in good faith by Drilex's Board of Directors after
consultation with Drilex's financial advisors), (x) Drilex may engage in
discussions or negotiations with such third party and may furnish such third
party information concerning Drilex, and its business, properties and assets if
such third party executes a confidentiality agreement in reasonably customary
form and (y) the Board of Directors of Drilex may withdraw, modify or not make
its recommendation referred to in Section 5.5 or terminate this Agreement in
accordance with Section 7.1(f), but in each case referred to in the foregoing
clauses (i) and (ii) only to the extent that the Board of Directors of Drilex
shall conclude in good faith after consultation with Drilex's outside counsel
that such action is necessary in order for the Board of Directors of Drilex to
act in a manner that is consistent with its fiduciary obligations under
applicable law notwithstanding any concessions that may be offered by ▇▇▇▇▇
▇▇▇▇▇▇.
(b) Drilex shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Drilex or any Drilex Representatives
with respect to any Acquisition Proposal existing on the date hereof.
(c) Prior to taking any action referred to in Section 4.2(a), if Drilex
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, Drilex shall give prior notice to
▇▇▇▇▇ ▇▇▇▇▇▇ of such action. Drilex will promptly notify ▇▇▇▇▇ ▇▇▇▇▇▇ of any
such requests for such information or the receipt of any Acquisition Proposal,
including the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such Acquisition Proposal,
and the material terms and conditions of any Acquisition Proposal.
(d) Nothing in this Section 4.2 shall permit Drilex to enter into any
agreement with respect to an Acquisition Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement, Drilex shall
not enter into any agreement with any person that provides for, or in any way
facilitates, an Acquisition Proposal other than a confidentiality agreement in
the form referred to above).
(e) As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer, other than a proposal or offer by ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its
affiliates, for, or that could be reasonably expected to lead to, a tender or
exchange offer, a merger, consolidation or other business combination involving
Drilex or any Significant Subsidiary of Drilex or any proposal to acquire in any
manner a substantial equity interest in, or any substantial portion of the
assets of, Drilex or any of its Significant Subsidiaries.
4.3 Conduct of Business by ▇▇▇▇▇ ▇▇▇▇▇▇ Pending the Merger. During the
period from the date of this Agreement and continuing until the Effective Time,
▇▇▇▇▇ ▇▇▇▇▇▇ agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, or to the extent that Drilex shall
otherwise consent in writing):
(a) Governing Documents. ▇▇▇▇▇ ▇▇▇▇▇▇ shall not amend its Restated
Certificate of Incorporation or Bylaws in any way that materially and
adversely affects the rights of holders of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock.
(b) ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock. (i) During the period beginning five
business days prior to the Pricing Period and ending at the Effective Time,
▇▇▇▇▇ ▇▇▇▇▇▇ shall not (and shall cause its Subsidiaries not to) issue or
sell any shares of ▇▇▇▇▇ Hughes's capital stock or the capital stock of any
of its Subsidiaries (or securities convertible into or exchangeable for
capital stock) for less than the fair market value thereof, except for
issuances pursuant to employee benefit plans or pursuant to outstanding
options, warrants or convertible securities in accordance with their terms,
in each case as in existence on the date
24
31
hereof, and shall not issue to holders of ▇▇▇▇▇ Hughes's capital stock any
rights to purchase any shares of ▇▇▇▇▇ Hughes's capital stock for less than
the fair market value thereof if the ex-dividend date for such distribution
would be during the period beginning five business days prior to the
Pricing Period and ending at the Effective Time; (ii) ▇▇▇▇▇ ▇▇▇▇▇▇ shall
not (and shall cause its Subsidiaries not to) engage in any substantial
repurchase at a material premium, recapitalization, restructuring or
reorganization with respect to the ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock; and (iii)
during the period beginning five business days prior to the mailing of the
Proxy Statement and ending at the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ shall not
(and shall cause its Subsidiaries not to) redeem, repurchase or otherwise
acquire any shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock (other than pursuant to
existing employee benefit plans).
(c) Dividends. ▇▇▇▇▇ ▇▇▇▇▇▇ shall not declare, set aside or pay any
dividend or make any other distribution or payment with respect to any
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock, or make any commitment for any such
action, except regular quarterly cash dividends in amounts consistent with
past practice.
(d) Other Action. ▇▇▇▇▇ ▇▇▇▇▇▇ shall not take any action, including
agreeing to or consummating any acquisition or business combination, that
is likely to delay materially or adversely affect the ability of any of the
parties hereto to obtain any consent, authorization, order or approval of
any governmental commission, board or other regulatory body or the
expiration of any applicable waiting period required to consummate the
transactions contemplated by this Agreement; and, subject to applicable
law, ▇▇▇▇▇ ▇▇▇▇▇▇ agrees to use its commercial reasonable efforts without
the incurrence of unreasonable expense (consistent with the other terms of
this Agreement) to assist Drilex, at Drilex's request, so that Drilex may
keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having
business dealings with Drilex to the end that Drilex's goodwill and ongoing
business shall not be impaired in any material respect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Proxy Statement. ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex
shall promptly prepare and file with the SEC the Proxy Statement and ▇▇▇▇▇
▇▇▇▇▇▇ shall prepare and file with the SEC the S-4, in which the Proxy Statement
will be included as a prospectus. Each of ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex shall use its
best efforts to have the S-4 declared effective under the Securities Act as
promptly as practicable after such filing. Each of Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ shall
use its best efforts to cause the Proxy Statement to be mailed to stockholders
of Drilex at the earliest practicable date. ▇▇▇▇▇ ▇▇▇▇▇▇ shall use its best
efforts to obtain all necessary state securities laws or "blue sky" permits,
approvals and registrations in connection with the issuance of ▇▇▇▇▇ ▇▇▇▇▇▇
Common Stock in the Merger and upon the exercise of Drilex Stock Options (as
defined in Section 5.10) and Drilex shall furnish all information concerning
Drilex and the holders of Drilex Common Stock as may be reasonably requested in
connection with obtaining such permits, approvals and registrations.
5.2 Letter of Drilex's Accountants. Drilex shall use its best efforts to
cause to be delivered to ▇▇▇▇▇ ▇▇▇▇▇▇ a letter of Deloitte & Touche LLP,
Drilex's independent public accountants, dated a date within two business days
before the date on which the S-4 shall become effective and addressed to ▇▇▇▇▇
▇▇▇▇▇▇ and Drilex, in form and substance reasonably satisfactory to ▇▇▇▇▇ ▇▇▇▇▇▇
and customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
5.3 Letter of ▇▇▇▇▇ Hughes's Accountants. ▇▇▇▇▇ ▇▇▇▇▇▇ shall use its best
efforts to cause to be delivered to Drilex a letter of Deloitte & Touche LLP,
▇▇▇▇▇ Hughes's independent public accountants, dated a date within two business
days before the date on which the S-4 shall become effective and addressed to
Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇, in form and substance reasonably satisfactory to Drilex
and customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
25
32
5.4 Access to Information. Upon reasonable notice, Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇
shall each (and shall cause each of their respective Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
(including reasonable environmental testing) and, during such period, each of
Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to SEC requirements and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Each of Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ agrees that it will not, and
will cause its respective representatives not to, use any information obtained
pursuant to this Section 5.4 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement. The Confidentiality Agreement
between ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex (the "Confidentiality Agreement") shall apply
with respect to information furnished thereunder or hereunder and any other
activities contemplated thereby.
5.5 Drilex Stockholders Meeting. Drilex shall call a meeting of its
stockholders to be held as promptly as practicable after the date hereof for the
purpose of voting upon this Agreement and the Merger. Subject only to the
proviso of the first sentence of Section 4.2, Drilex will, through its Board of
Directors, recommend to its stockholders approval of such matters and not
rescind such recommendation and shall use its best efforts to obtain approval
and adoption of this Agreement and the Merger by its stockholders. Drilex shall
use all reasonable efforts to hold such meeting as soon as practicable after the
date upon which the S-4 becomes effective.
5.6 Filings; Other Action. Subject to the terms and conditions herein
provided, ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex shall: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the Merger; (b) use their best efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Time from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the Merger and the transactions contemplated hereby and
(ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; (c) furnish the others with copies of all
correspondence, filings and communications (and memoranda setting forth the
substance thereof) between them and their affiliates and their respective
representatives, on the one hand, and any governmental or regulatory authority
or members or their respective staffs, on the other hand, with respect to this
Agreement and the transactions contemplated hereby; (d) furnish the others with
such necessary information and reasonable assistance as such other parties and
their respective affiliates may reasonably request in connection with their
preparation of necessary filings, registrations or submissions of information to
any governmental or regulatory authorities, including without limitation any
filings necessary under the provisions of the HSR Act; and (e) use their
commercially reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the Merger and the transactions contemplated by
this Agreement including, without limitation, the resolution of objections, if
any, as may be asserted by any governmental authority with respect to the Merger
and the transactions contemplated hereby under any antitrust or trade or
regulatory laws or regulations of any governmental authority; provided that
▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex shall not be required to take any action that could have
any adverse effect on the business, operations, prospects, assets, condition
(financial or otherwise) or results of operations of ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex
(including any Subsidiaries thereof).
5.7 Agreements of Others. Prior to the Effective Time, Drilex shall cause
to be prepared and delivered to ▇▇▇▇▇ ▇▇▇▇▇▇ a list identifying all persons who,
at the time of the Stockholder Meeting, may be deemed to be "affiliates" of
Drilex as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates"). Drilex shall use its best efforts to cause
each person who is identified as an Affiliate in such list to deliver to ▇▇▇▇▇
▇▇▇▇▇▇, at or prior to the Effective Time, a written agreement, in the form to
be approved by the parties hereto, that such Affiliate will not sell, pledge,
transfer or otherwise dispose of any shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock issued
to such Affiliate pursuant to the Merger, except pursuant to an
26
33
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act. Drilex shall use its
best efforts to cause each person who is identified as an Affiliate in such list
to sign on or prior to the thirtieth day prior to the Effective Time, a written
agreement, in the form to be approved by ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex, that such
party will not sell or in any other way reduce such party's risk relative to any
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock received in the Merger (within the meaning
of Section 201.01 of the SEC's Financial Reporting Release No. 1), until such
time as financial results (including combined sales and net income) covering at
least 30 days of post-merger operations have been published, except as permitted
by Staff Accounting Bulletin No. 76 (or any successor thereto) issued by the
SEC.
5.8 Authorization for Shares and Stock Exchange Listing. Prior to the
Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ shall have taken all action necessary to permit it
to issue the number of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock required to be issued
pursuant to Section 2.1. ▇▇▇▇▇ ▇▇▇▇▇▇ shall use all reasonable efforts to cause
the shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock to be issued in the Merger and the
shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock to be reserved for issuance upon exercise of
Drilex Stock Options and Drilex Warrants and issuances under the Drilex Stock
Plan to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date.
5.9 Employee Matters. ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex agree to the matters
described on Schedule 5.9. ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex agree that all employees of
Drilex immediately prior to the Effective Time shall be employed by the
Surviving Corporation immediately after the Effective Time, it being understood
that ▇▇▇▇▇ ▇▇▇▇▇▇ and the Surviving Corporation shall not have any obligations
to continue employing such employees for any length of time thereafter. Prior to
the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ agrees to make no representations or promises,
oral or written, to employees of Drilex concerning compensation payable after
the Closing Date without the prior consent of Drilex. ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex
further agree that the Drilex Employee Benefit Plans and Drilex Pension Plans in
effect at the date of this Agreement shall remain in effect until otherwise
determined by the Surviving Corporation or ▇▇▇▇▇ ▇▇▇▇▇▇. To the extent such
Drilex Employee Benefit Plans and Drilex Pension Plans are not continued, ▇▇▇▇▇
▇▇▇▇▇▇ will provide for a period of one year after the Effective Time aggregate
compensation (including benefits) that is not less favorable, in the aggregate,
to such employees as that applicable to similarly situated employees of ▇▇▇▇▇
▇▇▇▇▇▇. Service with Drilex and its Subsidiaries shall, to the extent permitted
by law, (i) constitute service for all purposes under the ▇▇▇▇▇ ▇▇▇▇▇▇ Employee
Benefit Plans, provided that such service does not result in a duplication of
benefits paid or payable under the ▇▇▇▇▇ ▇▇▇▇▇▇ Employee Benefit Plans, and (ii)
constitute service for participation and vesting purposes under the ▇▇▇▇▇ ▇▇▇▇▇▇
Pension Plans.
5.10 Stock Options. (a) At the Effective Time, each outstanding option to
purchase Drilex Common Stock that has been granted pursuant to the Drilex Stock
Plan ("Drilex Stock Option") shall be treated as set forth in this Section 5.10.
Drilex shall not grant any stock appreciation rights or limited stock
appreciation rights and shall not permit cash payments to holders of Drilex
Stock Options in lieu of the treatment thereof as provided in this Section 5.10.
(b) The portion, if any, of each Drilex Stock Option that is exercisable as
of the Effective Time in accordance with the terms thereof shall be assumed by
▇▇▇▇▇ ▇▇▇▇▇▇. As so assumed, such option shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Drilex Stock Option, a number of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock equal to
the number of shares of Drilex Common Stock purchasable pursuant to such
exercisable portion of such Drilex Stock Option multiplied by the Exchange
Ratio, at a price per share equal to the per-share exercise price for the shares
of Drilex Common Stock purchasable pursuant to such Drilex Stock Option divided
by the Exchange Ratio; provided, however, that in the case of any option to
which Section 421 of the Code applies by reason of its qualification under any
of sections 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code; and provided further, that the number of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common
Stock that may be purchased upon exercise of such Drilex Stock Option shall not
include any fractional share and, upon exercise of such Drilex Stock Option, a
cash payment shall be made for any fractional share based upon the closing price
of a share of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock on the NYSE on the
27
34
last trading day of the calendar month immediately preceding the date of
exercise. After the Effective Time, except as provided above in this Section
5.10(b), each assumed option shall be exercisable upon the same terms and
conditions as were applicable to the related Drilex Stock Option immediately
prior to the Effective Time.
(c) Drilex shall take all reasonable action as may be required such that
the portion, if any, of each Drilex Stock Option that is not exercisable as of
the Effective Time (an "Unexercisable Option") shall be canceled in exchange for
the number of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock, decreased to the nearest
whole share, having an aggregate market value at the Effective Time (based on
the Average Closing Price) equal to the number of shares of Drilex Common Stock
subject to such Unexercisable Option multiplied by the excess, if any, of the
Drilex Value over the per-share exercise price thereof. To the extent the terms
of an Unexercisable Option allow for withholding to satisfy tax obligations,
such rights shall apply to the consideration provided for by this Section
5.10(c).
(d) ▇▇▇▇▇ ▇▇▇▇▇▇ shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock for delivery
upon exercise of the Drilex Stock Options assumed in accordance with this
Section 5.10. As soon as practicable after the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇
shall file with the SEC a registration statement on Form S-8 (or any successor
form) or another appropriate form with respect to the shares of ▇▇▇▇▇ ▇▇▇▇▇▇
Common Stock subject to the Drilex Stock Options and shall use its best efforts
to maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as Drilex Stock Options remain outstanding.
5.11 Indemnification; Directors' and Officers' Insurance. (a) Drilex
shall, and from and after the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ and the Surviving
Corporation shall, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of Drilex or any of its Subsidiaries or
an employee of Drilex or any of its Subsidiaries who acts as a fiduciary under
any Drilex Employee Benefit Plans or Drilex Pension Plans (the "Indemnified
Parties") against all losses, claims, damages, costs, expenses (including
attorneys' fees), liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party (which approval shall not
be unreasonably withheld) of or in connection with any threatened or actual
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer, or such employee of Drilex or any Subsidiary whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transactions contemplated hereby, in each case to the full
extent permitted under applicable Delaware law (and ▇▇▇▇▇ ▇▇▇▇▇▇ and the
Surviving Corporation, as the case may be, will pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by law). Without limiting the foregoing, in the event
any such claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time), (i)
the Indemnified Parties may retain counsel satisfactory to them and Drilex (or
them and ▇▇▇▇▇ ▇▇▇▇▇▇ and the Surviving Corporation after the Effective Time)
and Drilex (or after the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ and the Surviving
Corporation) shall pay all fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; and (ii) Drilex (or after
the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ and the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither Drilex, ▇▇▇▇▇ ▇▇▇▇▇▇ nor the Surviving Corporation shall
be liable for any settlement effected without its written consent, which
consent, however, shall not be unreasonably withheld. Any Indemnified Party
wishing to claim indemnification under this Section 5.11, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify Drilex (or
after the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ and the Surviving Corporation), but the
failure so to notify shall not relieve a party from any liability that it may
have under this Section 5.11, except to the extent such failure materially
prejudices such party. The Indemnified Parties as a group may retain only one
law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the
28
35
positions of any two or more Indemnified Parties. Drilex, ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub
agree that all rights to indemnification, including provisions relating to
advances of expenses incurred in defense of any action or suit, existing in
favor of the Indemnified Parties (including in the Restated Certificate of
Incorporation or Bylaws or in the indemnification agreements previously provided
to ▇▇▇▇▇ ▇▇▇▇▇▇) with respect to matters occurring through the Effective Time,
shall survive the Merger and shall continue in full force and effect for a
period of six years from the Effective Time; provided, however, that all rights
to indemnification in respect of any Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such Indemnified
Liabilities.
(b) For a period of six years after the Effective Time, ▇▇▇▇▇ ▇▇▇▇▇▇ shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Drilex and its Subsidiaries
(provided that ▇▇▇▇▇ ▇▇▇▇▇▇ may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties) with respect to
matters arising before the Effective Time, provided that ▇▇▇▇▇ ▇▇▇▇▇▇ shall not
be required to pay an annual premium for such insurance in excess of two times
the current annual premium disclosed by Drilex to ▇▇▇▇▇ ▇▇▇▇▇▇ prior to the date
hereof, but in such case shall purchase as much coverage as possible for such
amount.
5.12 Drilex Credit Agreement. At or prior to the Closing, ▇▇▇▇▇ ▇▇▇▇▇▇
shall refinance (or arrange for the continuation of) or repay all Drilex's debt
under its bank credit facility with Texas Commerce Bank National Association and
the other lenders thereunder (the "Bank Credit Facility"). ▇▇▇▇▇ ▇▇▇▇▇▇
acknowledges that the Merger may constitute an "Event of Default" as a result of
a change of control under the Bank Credit Facility. Notwithstanding the
foregoing, ▇▇▇▇▇ ▇▇▇▇▇▇ acknowledges that the receipt of the consent or waiver
of the lenders under the Bank Credit Facility shall not be a condition to ▇▇▇▇▇
Hughes's obligation to effect the Merger.
5.13 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
5.14 Public Announcements. ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub, on the one hand, and
Drilex, on the other hand, will consult with each other before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange or transaction reporting system.
5.15 Other Actions. Except as contemplated by this Agreement, neither
▇▇▇▇▇ ▇▇▇▇▇▇ nor Drilex shall, and shall not permit any of its Subsidiaries to,
take or agree or commit to take any action that is reasonably likely to result
in any of its respective representations or warranties hereunder being untrue in
any material respect or in any of the conditions to the Merger set forth in
Article VI not being satisfied.
5.16 Advice of Changes; SEC Filings. ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex shall confer
on a regular basis with each other, report on operational matters and promptly
advise each other orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, could have, a Material Adverse Effect on
▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex, as the case may be. Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇ shall
promptly provide each other (or their respective counsel) copies of all filings
made by such party with the SEC or any other state or federal Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby.
5.17 Reorganization. It is the intention of ▇▇▇▇▇ ▇▇▇▇▇▇ and Drilex that
the Merger will qualify as a reorganization described in Section 368(a) of the
Code (and any comparable provisions of applicable state law). Neither ▇▇▇▇▇
▇▇▇▇▇▇ nor Drilex (nor any of their respective Subsidiaries) will take or omit
to take any action (whether before, on or after the Closing Date) that would
cause the Merger not to be so treated. The parties will characterize the Merger
as such a reorganization for purposes of all Returns and other filings.
29
36
5.18 Accounting Matters. During the period from the date of this Agreement
through the Effective Time, unless the parties shall otherwise agree in writing,
neither Drilex nor any Subsidiary of Drilex shall knowingly take or fail to take
any reasonable action requested by ▇▇▇▇▇ ▇▇▇▇▇▇ which action or failure to act
would jeopardize the treatment of Sub's combination with Drilex as a pooling of
interests for accounting purposes; provided, however, that pooling shall not be
a condition to Closing.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Drilex Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Drilex Common Stock entitled to vote
thereon.
(b) NYSE Listing. The shares of ▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock issuable to
Drilex stockholders pursuant to this Agreement and such other shares of
▇▇▇▇▇ ▇▇▇▇▇▇ Common Stock required to be reserved for issuance in
connection with the Merger shall have been authorized for listing on the
NYSE upon official notice of issuance.
(c) Other Approvals. The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated and
all filings required to be made prior to the Effective Time with, and all
consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from any Governmental Entity in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Drilex, ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub shall have
been made or obtained (as the case may be), except where the failure to
obtain such consents, approvals, permits, and authorizations would not be
reasonably likely to result in a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇ or
Drilex (assuming the Merger has taken place) or to materially adversely
affect the consummation of the Merger, and no such consent, approval,
permit or authorization shall impose terms or conditions that would have,
or would be reasonably likely to have, a Material Adverse Effect on ▇▇▇▇▇
▇▇▇▇▇▇ or Drilex (assuming the Merger has taken place). Unless otherwise
agreed to by ▇▇▇▇▇ ▇▇▇▇▇▇, no such consent, approval, permit or
authorization shall then be subject to appeal.
(d) S-4. The S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a
stop order.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall
have complied fully with its obligations under Section 5.6 hereof.
6.2 Conditions of Obligations of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub. The obligations of
▇▇▇▇▇ ▇▇▇▇▇▇ and Sub to effect the Merger are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
▇▇▇▇▇ ▇▇▇▇▇▇ and Sub:
(a) Representations and Warranties. Each of the representations and
warranties of Drilex set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date, except
where the failure to be so true and correct (without giving effect to the
individual materiality qualifications and thresholds otherwise contained in
Section 3.1 hereof) could not reasonably be expected to have a Material
Adverse Effect on Drilex or as otherwise contemplated by this Agreement.
30
37
(b) Performance of Obligations of Drilex. Drilex shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date.
(c) Letters from Drilex Affiliates. ▇▇▇▇▇ ▇▇▇▇▇▇ shall have received
from each person named in the letter referred to in Section 5.7 an executed
copy of an agreement as provided in Section 5.7.
(d) Absence of Certain Action. No Injunction shall be in effect (i)
imposing any limitation upon the ability of ▇▇▇▇▇ ▇▇▇▇▇▇ or any of its
Subsidiaries effectively to control the business or operations of ▇▇▇▇▇
▇▇▇▇▇▇, Drilex or any of their respective Subsidiaries or (ii) prohibiting
or imposing any limitation upon ▇▇▇▇▇ Hughes's or Drilex's or any of their
Subsidiaries' ownership or operation of all or any portion of the business
or assets or properties of ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex or any of their
respective Subsidiaries or compelling ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex or any of
their respective Subsidiaries to divest or hold separate all or any portion
of the business or assets or properties of ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex or any of
their respective Subsidiaries, or imposing any other limitation upon any of
them in the conduct of their businesses, and no suit or proceeding by a
governmental authority seeking such an Injunction or an Injunction
preventing or making illegal the consummation of any of the Mergers shall
be pending.
(e) Interim Results for April. If the Test Period is the period from
April 1, 1997 to April 30, 1997:
(i) Monthly Revenue shall be not less than $5,600,000 and Monthly
EBITDA shall be not less than $600,000, each as finally determined
pursuant to Section 2.1(e);
(ii) Drilex shall have delivered to ▇▇▇▇▇ ▇▇▇▇▇▇ a certificate of
the Chief Financial Officer and the Chief Executive Officer of Drilex
(x) containing Drilex's good faith estimate of Revenue for the period
from May 1, 1997 through a date within five business days of the Closing
Date (and, if the Closing Date is after June 6, 1997, through May 31,
1997) and (y) stating that, in their good faith belief, Revenue and
EBITDA for the period from April 1, 1997 through May 31, 1997
(calculated for purposes of Section 7.1(c)(v)) will exceed the
thresholds applicable to Section 7.1(c)(v);
(iii) if the Drilex Value would otherwise be $16.00, either (1) the
certificate referred to in clause (ii) shall also state that, in the
signers' good faith belief, Revenue and EBITDA for the period from April
1, 1997 through May 31, 1997 (calculated for purposes of Section
2.1(e)(vii)) will exceed the thresholds applicable to Section
2.1(e)(vii) or (2) Drilex shall have advised ▇▇▇▇▇ ▇▇▇▇▇▇ that the Board
of Directors of Drilex shall have elected not to delay the Closing Date
to determine the Monthly Statements for May 1997, in which case the
Drilex Value shall be $15.00 and the provisions of Section 2.1(e)(vii)
shall cease to apply; and
(iv) ▇▇▇▇▇ ▇▇▇▇▇▇ shall not have notified Drilex within five
business days of its receipt of the certificate referred to in clauses
(ii) and (iii) that, in its good faith belief, it disagrees with any of
Drilex's good faith beliefs contained in such certificate.
If this condition is not satisfied or waived, then the Closing Date shall
not occur until such time as the Test Period includes May 1997.
6.3 Conditions of Obligations of Drilex. The obligation of Drilex to
effect the Merger is subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by Drilex:
(a) Representations and Warranties. Each of the representations and
warranties of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of
an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except where the failure to be so true and correct (without
giving effect to the individual materiality qualifications and thresholds
otherwise contained in Section 3.2 hereof) could not reasonably be expected
to have a Material Adverse Effect on ▇▇▇▇▇ ▇▇▇▇▇▇ or as otherwise
contemplated by this Agreement.
(b) Performance of Obligations of ▇▇▇▇▇ ▇▇▇▇▇▇ and Sub. ▇▇▇▇▇ ▇▇▇▇▇▇
and Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date.
31
38
(c) Tax Opinion. Drilex shall have received an opinion, reasonably
satisfactory to Drilex, dated on or about the date that is two days prior
to the date the Proxy Statement is first mailed to stockholders of Drilex,
a copy of which will be furnished to ▇▇▇▇▇ ▇▇▇▇▇▇, of ▇▇▇▇▇▇ & ▇▇▇▇▇▇
L.L.P., counsel to Drilex, to the effect that, if the Merger is consummated
in accordance with the terms of this Agreement, the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, which opinion shall not have been withdrawn or
modified in any material respect. In rendering such opinion, such counsel
may receive and rely upon representations of fact substantially similar to
those referred to in the forms of certificates of Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇
included in Schedules 3.1(u) and 3.2(t), respectively.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of Drilex:
(a) by mutual written consent of Drilex and ▇▇▇▇▇ ▇▇▇▇▇▇, or by mutual
action of their respective Boards of Directors;
(b) by either Drilex or ▇▇▇▇▇ ▇▇▇▇▇▇ if (i) the Merger shall not have
been consummated by September 16, 1997 (provided that the right to
terminate this Agreement under this clause (i) shall not be available to
any party whose failure to fulfill any covenant or agreement under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date); (ii) any court of competent jurisdiction, or
some other governmental body or regulatory authority shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable; or (iii)
any required approval of the Drilex stockholders shall not have been
obtained by reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of stockholders or at any adjournment thereof;
(c) by ▇▇▇▇▇ ▇▇▇▇▇▇ if (i) for any reason Drilex fails to call and
hold a stockholders meeting for the purpose of voting upon this Agreement
and the Merger by September 1, 1997 (provided that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to ▇▇▇▇▇
▇▇▇▇▇▇ if Drilex would be entitled to terminate this Agreement under
Section 7.1(d) or if the S-4 did not become effective at least 45 days
prior to such date); (ii) Drilex shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by Drilex at or prior to such
date of termination (provided such breach has not been cured within 30 days
following receipt by Drilex of notice of such breach and is existing at the
time of termination of this Agreement); (iii) any representation or
warranty of Drilex contained in this Agreement shall not be true in all
material respects when made (provided such breach has not been cured within
30 days following receipt by Drilex of notice of such breach and is
existing at the time of termination of this Agreement) or on and as of the
time of such termination as if made on and as of such time (except to the
extent it relates to a particular date), except where the failure to be so
true and correct (without giving effect to the individual materiality
qualifications and thresholds otherwise contained in Section 3.1 hereof)
could not reasonably be expected to have a Material Adverse Effect; (iv)
after the date hereof there has been any Material Adverse Change with
respect to Drilex, except for general economic changes or changes that may
affect the industries of Drilex or any of its Subsidiaries generally
(provided that a decrease in Drilex's revenues or EBITDA shall not, without
any other facts that would constitute a Material Adverse Change, be deemed
a Material Adverse Change unless the next clause is applicable); (v) either
(x) Revenue for the period from April 1, 1997 to the end of the most recent
month for which the Monthly Statements have been finally determined
pursuant to Section 2.1 (other than April 1997) is less than $10,900,000
(if such month is May 1997) or $15,900,000 (if such month is June 1997) or
(y) EBITDA for the period from April 1, 1997 to the end of the most recent
32
39
month for which the Monthly Statements have been finally determined
pursuant to Section 2.1 (other than April 1997) is less than $1,200,000 (if
such month is May 1997) or $1,800,000 (if such month is June 1997); or (vi)
Drilex gives ▇▇▇▇▇ ▇▇▇▇▇▇ written notice (expressly referencing this
clause) stating that in Drilex's good faith belief, Drilex expects the
provisions of clause (v) to be applicable and stating good faith expected
amounts for Revenue and EBITDA for the periods from April 1, 1997 to May
31, 1997 and to June 30, 1997, in which case ▇▇▇▇▇ ▇▇▇▇▇▇ may terminate
this Agreement by giving written notice to Drilex within seven days of
receipt of such notice from Drilex; provided, however, that if ▇▇▇▇▇ ▇▇▇▇▇▇
does not so terminate this Agreement, then the referenced amounts in
Section 7.1(c)(v) shall be deemed amended to such lower amounts, the Drilex
Value shall be $15.00 and the provisions of Section 2.1(e)(vii) shall cease
to apply;
(d) by Drilex if (i) ▇▇▇▇▇ ▇▇▇▇▇▇ or Sub shall have failed to comply
in any material respect with any of the covenants or agreements contained
in this Agreement to be complied with or performed by it at or prior to
such date of termination (provided such breach has not been cured within 30
days following receipt by ▇▇▇▇▇ ▇▇▇▇▇▇ of notice of such breach and is
existing at the time of termination of this Agreement); (ii) any
representation or warranty of ▇▇▇▇▇ ▇▇▇▇▇▇ or Sub contained in this
Agreement shall not be true in all material respects when made (provided
such breach has not been cured within 30 days following receipt by ▇▇▇▇▇
▇▇▇▇▇▇ of notice of such breach and is existing at the time of termination
of this Agreement) or on and as of the time of such termination as if made
on and as of such time (except to the extent it relates to a particular
date), except where the failure to be so true and correct (without giving
effect to the individual materiality qualifications and thresholds
otherwise contained in Section 3.2 hereof) could not reasonably be expected
to have a Material Adverse Effect; or (iii) after the date hereof there has
been any Material Adverse Change with respect to ▇▇▇▇▇ ▇▇▇▇▇▇, except for
general economic changes or changes that may affect the industries of ▇▇▇▇▇
▇▇▇▇▇▇ or any of its Subsidiaries generally;
(e) by ▇▇▇▇▇ ▇▇▇▇▇▇ if (i) the Board of Directors of Drilex shall have
withdrawn or modified, in any manner which is adverse to ▇▇▇▇▇ ▇▇▇▇▇▇, its
recommendation or approval of the Merger or this Agreement and the
transactions contemplated hereby or shall have resolved to do so, or (ii)
the Board of Directors of Drilex shall have recommended to the stockholders
of Drilex any Acquisition Proposal or any transaction described in the
definition of Acquisition Proposal, or shall have resolved to do so;
(f) by Drilex if Drilex shall exercise the right specified in clause
(ii) of Section 4.2(a); provided that Drilex may not effect such
termination pursuant to this Section 7.1(f) unless and until (i) ▇▇▇▇▇
▇▇▇▇▇▇ receives at least three business days' prior written notice from
Drilex of its intention to effect such termination pursuant to this Section
7.1(f); (ii) during such period, Drilex shall, and shall cause its
respective financial and legal advisors to, consider any adjustment in the
terms and conditions of this Agreement that ▇▇▇▇▇ ▇▇▇▇▇▇ may propose; and
(iii) Drilex pays the amounts required by Section 7.2 concurrently with
such termination; or
(g) by ▇▇▇▇▇ ▇▇▇▇▇▇ if any Governmental Entity shall have issued any
Injunction or taken any other action permanently imposing, prohibiting or
compelling any of the limitations, prohibitions or compulsions set forth in
Section 6.2(d) and such Injunction or other action shall have become final
and nonappealable.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by any party hereto as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto except (i)
with respect to this Section 7.2, the second and third sentences of Section 5.4,
and Section 8.1, (ii) to the extent that such termination results from the
willful breach (except as provided in Section 8.8) by a party hereto of any of
its representations or warranties or of any of its covenants or agreements
contained in this Agreement and (iii) from the date hereof until the Termination
Date (as defined in the Stockholder Agreement), Drilex shall not participate in
any transaction or take any action to approve
33
40
any transaction that treats the Option Shares (as defined in the Stockholder
Agreement) less favorably than the outstanding shares of Drilex Common Stock
generally.
(b) If ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex terminates this Agreement pursuant to Section
7.1(e) or 7.1(f), Drilex shall, on the day of such termination, pay ▇▇▇▇▇ ▇▇▇▇▇▇
a fee of $4,000,000 in cash by wire transfer of immediately available funds to
an account designated by ▇▇▇▇▇ ▇▇▇▇▇▇.
(c) If this Agreement is terminated (A) by ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex pursuant
to Section 7.1(b)(ii) or Section 7.1(g) as a result of an Injunction or other
action relating to any antitrust, trade, or regulatory laws or regulations of
any governmental, regulatory or administrative authority, agency or commission
(U.S. or foreign) ("Antitrust Laws") or (B) by ▇▇▇▇▇ ▇▇▇▇▇▇ or Drilex pursuant
to Section 7.1(b)(i) at a time when the nonconsummation of the Mergers is a
result of the failure to satisfy the conditions set forth in Sections 6.1(c) or
(e) or Section 6.2(d) by reason, in any such case, of any Antitrust Law, and
Drilex shall not have failed to perform or observe in any material respect any
of its obligations under this Agreement (including, without limitation, Section
5.6), then ▇▇▇▇▇ ▇▇▇▇▇▇ shall, on the day of such termination, pay to the
Company a fee of $4,000,000 in cash by wire transfer of immediately available
funds to an account designated by Drilex.
(d) In the event ▇▇▇▇▇ ▇▇▇▇▇▇ receives any fee pursuant to Section 7.2(b),
▇▇▇▇▇ ▇▇▇▇▇▇ shall not assert or pursue in any manner, directly or indirectly,
any claim or cause of action against Drilex or any of its affiliates, officers
or directors based in whole or in part upon a breach of this Agreement by them
or their receipt, consideration, negotiation, recommendation, or approval of an
Acquisition Proposal or the exercise by Drilex of its right of termination under
Section 7.1(f).
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Drilex, but, after any such approval, no amendment shall
be made which by law requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses. Each party hereto shall pay its own expenses
incident to preparing for entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not the Merger
shall be consummated, except that the filing fees with respect to the Proxy
Statement and the S-4 shall be paid by ▇▇▇▇▇ ▇▇▇▇▇▇.
8.2 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective Time
and any liability for breach or violation thereof shall terminate absolutely and
be of no further force and effect at and as of the Effective Time, except for
the agreements contained in Sections 2.1, 2.2, 5.9 through 5.12 and 7.2 and
Article VIII, the agreements delivered pursuant to Section 5.7 and the
representations, covenants and agreements contained in Section 5.17. The
Confidentiality Agreement shall survive the execution and delivery of this
Agreement, and the provisions of the Confidentiality Agreement shall apply to
all information and material delivered hereunder.
34
41
8.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
(a) if to ▇▇▇▇▇ ▇▇▇▇▇▇ or Sub, to:
▇▇▇▇▇ ▇▇▇▇▇▇ Incorporated
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇, III
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Jr.
▇▇▇▇▇ & ▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(b) if to Drilex, to:
Drilex International Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P.
1001 ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
8.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. Unless the context otherwise requires, "or" is disjunctive
but not necessarily exclusive, and words in the singular include the plural and
in the plural include the singular. Any representations and warranties that are
qualified by the phrase "to the best knowledge" of a party or phrases with
similar wording shall be interpreted to refer to the knowledge, after reasonable
investigation, of (i) in the case of Drilex, Messrs. ▇▇▇▇▇▇▇, Broussard, Kerr,
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ and (ii) in the case of ▇▇▇▇▇ ▇▇▇▇▇▇, its executive
officers.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
35
42
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and any other documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereto and (b) except as provided
in Sections 5.7, 5.9, 5.11 and 5.17, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
8.8 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate
pursuant to Article VII hereof. Except as otherwise contemplated by this
Agreement, to the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or required hereby
pursuant to an order or judgment of a court or other competent authority, such
party shall not incur any liability or obligation unless such party breached its
obligations under Section 5.6 hereof or did not in good faith seek to resist or
object to the imposition or entering of such order or judgment.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to any newly formed direct wholly
owned Subsidiary of ▇▇▇▇▇ ▇▇▇▇▇▇. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
8.10 Schedules. For purposes of this Agreement, Schedules shall mean the
Schedules contained in the Confidential Disclosure Schedule, dated the date
hereof, delivered in connection with this Agreement and initialed by the parties
hereto.
36
43
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
▇▇▇▇▇ ▇▇▇▇▇▇ INCORPORATED
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President and
Chief Financial Officer
▇▇▇▇▇ ▇▇▇▇▇▇ MERGER, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
DRILEX INTERNATIONAL INC.
By: /s/ L. E. SIMMONS
----------------------------------
L. E. Simmons
Chairman of the Board
37