-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ejf1zWZUozDCq2T77GmJcG6yS7tRyh4Go3YUDcYXvtU2vf3ivNhSrmYIrIBJf32/ dOhU7Ae3mDHAgSvjx6NjtQ== 0000950129-99-004974.txt : 19991115 0000950129-99-004974.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950129-99-004974 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEATHERFORD INTERNATIONAL INC /NEW/ CENTRAL INDEX KEY: 0000032908 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 042515019 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13086 FILM NUMBER: 99750959 BUSINESS ADDRESS: STREET 1: 515 POST OAK BLVD STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77027-3415 BUSINESS PHONE: 7132978400 MAIL ADDRESS: STREET 1: 5 POST OAK PARK STREET 2: STE 1760 CITY: HOUSTON STATE: TX ZIP: 77027-3415 FORMER COMPANY: FORMER CONFORMED NAME: EVI WEATHERFORD INC DATE OF NAME CHANGE: 19980528 FORMER COMPANY: FORMER CONFORMED NAME: EVI INC DATE OF NAME CHANGE: 19980226 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY VENTURES INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 WEATHERFORD INTERNATIONAL, INC. - DATED 09/30/1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 1-13086 WEATHERFORD INTERNATIONAL, INC. (Exact name of Registrant as specified in its Charter) Delaware 04-2515019 - ------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 515 Post Oak Blvd., Suite 600, Houston, Texas 77027-3415 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (713) 693-4000 -------------------------------------------------- (Registrant's telephone number, include area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Title of Class Outstanding at November 9, 1999 - ----------------------------- ------------------------------- Common Stock, par value $1.00 108,088,398 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and Cash Equivalents........................................... $ 21,169 $ 34,131 Accounts Receivable, Net of Allowance for Uncollectible Accounts of $20,340 and $19,398, Respectively..................... 345,434 271,867 Inventories......................................................... 359,446 298,555 Other Current Assets................................................ 126,427 127,543 ------------- ------------- 852,476 732,096 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION..................................... 901,502 629,276 GOODWILL, NET.......................................................... 969,046 648,570 NET ASSETS OF DISCONTINUED OPERATIONS.................................. 571,625 545,211 OTHER ASSETS........................................................... 148,820 83,459 ============= ============= $ 3,443,469 $ 2,638,612 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-Term Borrowings............................................... $ 282,618 $ 137,279 Current Portion of Long-Term Debt................................... 11,392 14,915 Accounts Payable.................................................... 96,719 92,274 Other Accrued Liabilities........................................... 217,246 168,105 ------------- ------------- 607,975 412,573 ------------- ------------- LONG-TERM DEBT......................................................... 225,044 220,398 MINORITY INTERESTS..................................................... 195,209 2,888 DEFERRED INCOME TAXES AND OTHER........................................ 160,549 106,373 5% CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES............................................... 402,500 402,500 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common Stock, $1 Par Value, Authorized 250,000 Shares, Issued 119,999 and 103,513 Shares, Respectively................... 119,999 103,513 Capital in Excess of Par Value...................................... 1,525,946 1,052,899 Treasury Stock, at Cost............................................. (303,560) (193,328) Retained Earnings................................................... 596,610 607,185 Accumulated Other Comprehensive Loss................................ (86,803) (76,389) ------------- ------------- 1,852,192 1,493,880 ============= ============= $ 3,443,469 $ 2,638,612 ============= =============
The accompanying notes are an integral part of these consolidated condensed financial statements. 1 3 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- REVENUES: Products.............................................. $ 162,564 $ 140,874 $ 387,446 $ 454,076 Services and Rentals.................................. 161,068 181,384 480,115 607,820 ----------- ----------- ----------- ----------- 323,632 322,258 867,561 1,061,896 COSTS AND EXPENSES: Cost of Products...................................... 122,711 99,323 274,553 314,818 Cost of Services and Rentals.......................... 115,270 122,648 350,251 403,262 Selling, General and Administrative Attributable to Segments........................................ 63,125 52,021 182,840 163,325 Corporate General and Administrative.................. 5,585 5,197 18,150 20,102 Merger Costs and Other Charges........................ -- -- -- 103,197 Equity in Earnings of Unconsolidated Affiliates....... (688) (676) (1,578) (2,241) ----------- ----------- ----------- ----------- OPERATING INCOME........................................ 17,629 43,745 43,345 59,433 ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest Income....................................... 427 624 2,528 1,713 Interest Expense...................................... (11,019) (11,752) (31,917) (31,361) Other, Net............................................ (672) (5) 1,485 (2,533) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST..................................... 6,365 32,612 15,441 27,252 PROVISION FOR INCOME TAXES ............................. (1,848) (10,383) (3,903) (7,990) ----------- ----------- ----------- ----------- INCOME BEFORE MINORITY INTEREST......................... 4,517 22,229 11,538 19,262 MINORITY INTEREST (EXPENSE) INCOME, NET OF TAX............................................ (1,495) 10 (2,821) (99) ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS....................... 3,022 22,239 8,717 19,163 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX................................ (14,115) 20,515 (19,292) 69,843 ----------- ----------- ----------- ----------- NET INCOME (LOSS)....................................... $ (11,093) $ 42,754 $ (10,575) $ 89,006 =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER SHARE: Income From Continuing Operations..................... $ 0.03 $ 0.23 $ 0.09 $ 0.20 Income (Loss) From Discontinued Operations............ (0.14) 0.21 (0.20) 0.72 ----------- ----------- ----------- ----------- NET INCOME (LOSS) PER SHARE............................. $ (0.11) $ 0.44 $ (0.11) $ 0.92 =========== =========== =========== =========== DILUTED EARNINGS (LOSS) PER SHARE: Income From Continuing Operations..................... $ 0.03 $ 0.23 $ 0.09 $ 0.20 Income (Loss) From Discontinued Operations............ (0.14) 0.21 (0.19) 0.71 ----------- ----------- ----------- ----------- NET INCOME (LOSS) PER SHARE............................. $ (0.11) $ 0.44 $ (0.10) $ 0.91 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................................. 101,408 97,386 98,770 96,973 =========== =========== =========== =========== Diluted............................................... 103,481 97,819 100,306 97,684 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements. 2 4 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------ 1999 1998 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss)..................................................... $ (10,575) $ 89,006 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization...................................... 119,968 103,324 (Income) Loss from Discontinued Operations......................... 19,292 (69,843) Non-Cash Portion of Merger Costs and Other Charges................. -- 48,039 Minority Interest Expense, Net of Tax.............................. 2,821 99 Deferred Income Tax Provision ..................................... 3,903 9,881 Gain on Sales of Property, Plant and Equipment..................... (7,157) (8,324) Change in Operating Assets and Liabilities, Net of Effects of Businesses Acquired........................................... (103,766) (96,297) ------------ ------------- Net Cash Provided by Continuing Operations....................... 24,486 75,885 Net Cash Provided (Used) by Discontinued Operations.............. 55,176 (18,361) ------------ ------------- Net Cash Provided by Operating Activities........................ 79,662 57,524 ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Businesses, Net of Cash Acquired....................... (78,286) (99,461) Capital Expenditures for Property, Plant and Equipment................ (134,719) (126,216) Acquisitions and Capital Expenditures of Discontinued Operations............................................ (50,340) (35,357) Proceeds from Sales of Property, Plant and Equipment.................. 21,763 18,999 Proceeds from Sale and Leaseback of Equipment......................... 139,815 -- ------------ ------------- Net Cash Used by Investing Activities............................ (101,767) (242,035) ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on Short-Term Debt, Net.................................... 145,339 192,652 Borrowings (Repayments) of Long-Term Debt, Net........................ (17,598) 11,615 Repayments of Debt for Discontinued Operations........................ (52,316) (5,662) Distribution to Minority Interest Holder.............................. (65,350) -- Proceeds from Exercise of Stock Options............................... 1,329 3,595 Acquisition of Treasury Stock......................................... (2,762) (40,062) Other, Net............................................................ 501 -- ------------ ------------- Net Cash Provided by Financing Activities........................ 9,143 162,138 ------------ ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS............................... (12,962) (22,373) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................ 34,131 66,008 ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................. $ 21,169 $ 43,635 ============ ============= SUPPLEMENTAL CASH FLOW INFORMATION: Interest Paid......................................................... $ 32,802 $ 30,741 Income Taxes Paid, Net of Refunds..................................... 14,322 60,075
The accompanying notes are an integral part of these consolidated condensed financial statements. 3 5 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (IN THOUSANDS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net Income (Loss)...................................... $ (11,093) $ 42,754 $ (10,575) $ 89,006 Other Comprehensive Loss: Foreign Currency Translation Adjustment.............. (5,103) (18,948) (10,414) (33,270) ----------- ----------- ----------- ----------- Comprehensive Income (Loss)............................ $ (16,196) $ 23,806 $ (20,989) $ 55,736 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements. 4 6 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. GENERAL The unaudited consolidated condensed financial statements included herein have been prepared by Weatherford International, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements reflect all adjustments which the Company considers necessary for the fair presentation of such financial statements for the interim periods presented. Although the Company believes that the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to the Company's organization and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted in this Form 10-Q pursuant to such rules and regulations. These financial statements should be read in conjunction with the restated audited consolidated financial statements for the year ended December 31, 1998 and notes thereto included in the Company's Current Report on Form 8-K filed October 25, 1999. The results of operations for the nine month period ended September 30, 1999 are not necessarily indicative of the results expected for the full year. In October 1999, the Board of Directors of the Company approved a plan to distribute all of the outstanding shares of common stock of its wholly owned subsidiary, Grant Prideco, Inc. (the "Spinoff"), to holders of the Company's common stock, $1.00 par value ("Common Stock"). In connection with and prior to the Spinoff, the Company will transfer its drilling products businesses to Grant Prideco, Inc. ("Grant Prideco"). As a result, the accompanying financial statements reflect the operations of Grant Prideco as discontinued operations (See Note 4). Certain reclassifications of prior year balances have been made to conform such amounts to corresponding 1999 classifications. 2. INVENTORIES Inventories by category are as follows:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------- (in thousands) Raw materials, components and supplies............ $ 158,727 $ 86,304 Work in process................................... 50,517 25,590 Finished goods.................................... 150,202 186,661 ------------- ------------- $ 359,446 $ 298,555 ============= =============
Work in process and finished goods inventories include the cost of material, labor and plant overhead. 3. BUSINESS COMBINATIONS On September 2, 1999, the Company acquired Petroline Wellsystems Limited ("Petroline") for a total consideration of approximately $165.0 million, consisting of $32.2 million in cash and 3.8 million shares of Common Stock. The Company also agreed to pay to the sellers additional funds in the event they resell the shares of Common Stock received by them in the acquisition in certain market transactions at a price less than $35.175 per share. This obligation continues until October 2000. Petroline, based in Aberdeen, Scotland, is a provider of premium completion products and services to the international oil and gas industry. Petroline is the leading provider of flow control equipment in the North Sea and was the first company to successfully introduce completion products using new expandable tube technology. On September 15, 1999, the Company acquired Williams Tool Co. ("Williams") for 1.8 million shares of Common Stock. Williams, based in Fort Smith, Arkansas, offers a full range of rotating control heads for horizontal, underbalanced and low hydrostatic drilling operations. Williams products are used to control flow from the wellbore to reduce the risk of blowouts when oil, gas, geothermal and coal gas methane wells are being drilled with light fluids. 5 7 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) On August 31, 1999, the Company completed the acquisition of Dailey International Inc. ("Dailey") pursuant to a pre-negotiated plan of reorganization in bankruptcy. Under the terms of the acquisition, the Company issued a total of approximately 4.3 million shares of Common Stock to the Dailey noteholders and stockholders. Of the total number shares issued, the Company issued approximately 4.0 million shares to the Dailey noteholders and approximately 0.3 million shares to the Dailey common stockholders. At the time of the acquisition of Dailey, the Company held approximately 24% of Dailey's Senior Notes. In the reorganization, the Company contributed those notes to Dailey and received approximately 1.2 million shares of Common Stock which the Company holds as treasury shares. Because the Company held Senior Notes of Dailey, which the Company acquired prior to the bankruptcy at a discount, the total purchase price for Dailey, excluding assumed liabilities of Dailey that were not impaired in the bankruptcy, was approximately $185.0 million. Dailey is a leading provider of specialty drilling equipment and services to the oil and gas industry and designs, manufactures and rents proprietary downhole tools for oil and gas drilling and workover applications worldwide. On February 2, 1999, the Company completed a joint venture with GE Capital Corporation ("GE Capital") in which the Company's compression services operations were combined with GE Capital's Global Compression Services operations. The joint venture is known as Weatherford Global Compression Services. The Company owns 64% of the joint venture and GE Capital owns 36%. The Company has the right to acquire GE Capital's interest at anytime at a price equal to a third party market-determined value that is not less than book value. GE Capital also has the right to require the Company to purchase its interest at anytime after February 2001 at a market-determined third party valuation as well as request a public offering of its interest after that date, if the Company has not purchased its interest by that time. On February 8, 1999, the Company completed the acquisition of Christiana Companies, Inc. ("Christiana") for approximately 4.4 million shares of Common Stock and $20.6 million cash. In the acquisition, the Company acquired through Christiana (1) 4.4 million shares of the Company's Common Stock, (2) cash, after distribution to the Christiana shareholders, equal to the amount of Christiana's outstanding tax and other liabilities and (3) a one-third interest in Total Logistic Control, a refrigerated warehouse, trucking and logistics company. The 4.4 million shares of Common Stock acquired are classified as Treasury Stock, at cost on the accompanying Consolidated Condensed Balance Sheet. Because the number of shares of Common Stock issued in the Christiana acquisition approximated the number of shares of Common Stock held by Christiana prior to the acquisition, the Christiana acquisition had no material effect on the outstanding number of shares of Common Stock or net equity of the Company. The Company also effected various other acquisitions during the nine months ended September 30, 1999 for total consideration of approximately $56.0 million, of which $43.6 million was paid in cash and $12.4 million was paid in the form of shares of Common Stock. Through these acquisitions and the acquisitions of technology, the Company increased its intangible assets by $57.0 million in the nine months ended September 30, 1999. The acquisitions discussed above, were accounted for using the purchase method of accounting. Results of operations for acquisitions accounted for as purchases are included in the accompanying consolidated condensed financial statements since the date of acquisition. The following presents the consolidated financial information for the Company on a pro forma basis assuming the Dailey acquisition had occurred on January 1, 1998. All other 1998 and 1999 acquisitions are not material individually nor in the aggregate with same year acquisitions, therefore, pro forma information is not presented. The pro forma information set forth below is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of January 1, 1998, or that may be achieved in the future. 6 8 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ----------- ------------ ------------ (in thousands, except per share amounts) Revenues............................................ $ 340,199 $ 353,258 $ 934,804 $1,163,981 Income (loss) from continuing operations............ (714) 11,566 (14,665) 6,606 Net income (loss)................................... (14,829) 32,081 (33,957) 58,870 Basic earnings (loss) per common share from continuing operations.......................... (0.01) 0.11 (0.14) 0.07 Diluted earnings (loss) per common share from continuing operations.......................... (0.01) 0.11 (0.14) 0.06
Included in net income for the nine months ended September 30, 1998 is an extraordinary loss, net of taxes recorded by Dailey of $17.6 million. This extraordinary loss is the result of Dailey's repurchase of their 9 3/4% Senior Notes in the first quarter of 1998, and represents the excess of the purchase price for the notes over the carrying value on the date of repurchase. 4. DISCONTINUED OPERATIONS In October 1999, the Board of Directors of the Company approved a plan to spinoff Grant Prideco. The Spinoff is proposed to be effected through a distribution by the Company to its stockholders of one share of stock of Grant Prideco for each two shares of Common Stock held by the Company's stockholders. The Spinoff is subject to the receipt of a favorable private letter ruling from the Internal Revenue Service to the effect that receipt of shares of Grant Prideco common stock should be tax free for federal income tax purposes to the Company's stockholders and that the Company should not recognize a gain or loss as a result of the Spinoff. A request for the private letter ruling was filed with the Internal Revenue Service in July 1999 and that request is in the process of being reviewed by the Internal Revenue Service. The Company currently expects that the Spinoff will occur during the first quarter of 2000. Summary Financial Results The results of operations for Grant Prideco are reflected in the accompanying Consolidated Condensed Statements of Operations as discontinued operations, net of taxes. Condensed results of Grant Prideco were as follows:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------- ------------ ------------- (in thousands) Revenues....................................... $ 57,987 $ 160,196 $ 210,987 $ 521,911 ------------ ------------- ------------ ------------- Income (loss) before interest allocation and income taxes.................. (12,862) 34,967 (15,673) 119,113 Interest allocation............................ (1,813) (1,812) (5,438) (5,437) (Provision) benefit for income taxes........... 4,130 (12,640) 5,389 (43,833) ------------ ------------- ------------ ------------- Net income (loss) before Spinoff-related costs........................................ (10,545) 20,515 (15,722) 69,843 Spinoff-related costs, net of taxes............ (3,570) -- (3,570) -- ------------ ------------- ------------ ------------- Net income (loss).............................. $ (14,115) $ 20,515 $ (19,292) $ 69,843 ============ ============= ============ =============
7 9 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) In connection with the Spinoff, Grant Prideco will issue an unsecured subordinated note to the Company in the amount of $100.0 million. The $100.0 million obligation will bear interest at an annual rate equal to 10.0%. Interest payments will be due quarterly, and principal and all unpaid interest will be due no later than December 31, 2001. Under the terms of the note, Grant Prideco is required to repay this note with the proceeds of any debt or equity financing, excluding financing under a credit facility or any equity issued in connection with a business combination. The indebtedness of Grant Prideco to the Company will be subordinated to the working capital obligations of Grant Prideco to its banks. Grant Prideco currently intends to repay the obligation within 12 months from the completion of the Spinoff, pursuant to an anticipated public or private debt financing. Grant Prideco's ability to repay this indebtedness, however, will be dependent upon market conditions. The Company's historical practice has been to incur indebtedness for its consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating levels, and to centrally manage various cash functions. Consequently, a portion of the Company's historical interest expense has been allocated to discontinued operations. The amount allocated reflects interest expense associated with the Grant Prideco note calculated using the Company's average long-term debt interest rates for the applicable periods. The amount allocated using this methodology results in amounts consistent with the allocation of interest expense based on a ratio of the net assets of discontinued operations to the Company's consolidated net assets plus debt. The Completion and Oilfield Services Division and Artificial Lift Division of the Company purchase drill pipe and other related products from Grant Prideco. These purchases have been eliminated in the accompanying consolidated condensed financial statements. The amounts purchased for the three and nine months ended September 30, 1999 were $15.1 million and $22.7 million, respectively, and for the three and nine months ended September 30, 1998 were $1.5 million and $6.1 million, respectively. Such purchases represent Grant Prideco's cost. The results from discontinued operations include a management fee charged to Grant Prideco of $0.5 million and $1.0 million for the three and nine months ended September 30, 1999, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 1998, respectively. The fee is based on the time devoted to Grant Prideco for accounting, tax, treasury and risk management services. Grant Prideco was charged $1.4 million and $4.3 million of costs related to the Company's information systems function in the three and nine months ended September 30, 1999, respectively and $1.4 million and $4.2 million in the three and nine months ended September 30, 1998, respectively. Information systems charges were based on direct support provided, equipment usage and number of system users. Proposed Agreements Between The Company and Grant Prideco In connection with the Spinoff, Grant Prideco and the Company will enter into a tax allocation agreement (the "Tax Allocation Agreement"). Under the terms of the Tax Allocation Agreement, Grant Prideco, is responsible for all taxes and associated liabilities relating to the historical businesses of Grant Prideco. The Tax Allocation Agreement also provides that any tax liabilities associated with the Spinoff shall be assumed and paid by Grant Prideco subject to certain exceptions relating to changes in control of the Company. The Tax Allocation Agreement further provides that in the event there is a tax liability associated with the historical operations of Grant Prideco that is offset by a tax benefit of the Company, the Company will apply the tax benefit against such tax liability and will be reimbursed for the value of such tax benefit when and as the Company would have been able to otherwise utilize that tax benefit for its own businesses. The Company intends to enter into a transition services agreement with Grant Prideco for a period of one year from the Spinoff date. Under the agreement, the Company will provide certain services requested by Grant Prideco. The fee for these services will be based on a cost-plus 10% basis. The transition services to be provided under this agreement may include accounting, tax, finance services, employee benefit services, information services, management information systems and may include any other similar services. 8 10 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) The Company also intends to enter into a preferred customer agreement with Grant Prideco pursuant to which the Company will agree for at least a three year period to purchase at least 70% of its requirements of drill stem product from Grant Prideco. The price for those products will be at a price not greater than that which Grant Prideco sells to its best similarly situated customers. The Company will be entitled to apply against its purchases a drill stem credit granted to it in the amount of $15 million, subject to a limitation of the application of the credit to no more than 20% of any purchase. 5. SHORT-TERM DEBT The Company's unsecured credit agreement provides for borrowings of up to an aggregate of $250.0 million, consisting of a $200.0 million U.S. credit facility and a $50.0 million Canadian credit facility. Amounts outstanding under the facility accrue interest at the U.S. prime rate or a variable rate based on LIBOR. A commitment fee ranging from 0.09% to 0.20% per annum, depending on the senior unsecured credit ratings assigned by Standard and Poor's and Moody's Investor Service to the Company, is payable quarterly on the unused portion of the facility. The facility contains customary affirmative and negative covenants, including a maximum debt to capitalization ratio, a minimum interest coverage ratio, a limitation on liens, and a limitation on asset dispositions. 6. SALE AND LEASEBACK OF EQUIPMENT The Compression Services Division has entered into various sale and leaseback arrangements where it has sold $239.8 million of compression units and has a right to sell up to another $110.2 million of compression units. Under these arrangements, legal title to the compression units are sold to third parties and leased back to the division under a five year operating lease with a market-based purchase option. As of December 31, 1998, the Compression Services Division had sold compressors under these arrangements having appraised values of $119.6 million and had received cash in the amount of $100.0 million and a receivable of $19.6 million. During the nine months ended September 30, 1999, the Compression Services Division sold additional compressors having an appraised value of $120.2 million and received cash of $139.8 million. The sales resulted in an additional pretax deferred gain of approximately $37.3 million, classified as Deferred Income Taxes and Other on the accompanying Consolidated Condensed Balance Sheets, which may be deferred until the end of the lease. Of the proceeds received by the Compression Services Division from the sale and leaseback of the compressor units, $100.0 million was distributed to the Company by the division and $65.4 million was distributed to GE Capital as part of the joint venture. The remaining proceeds of these sales were utilized by the joint venture for internal corporate purposes and growth. The Company has guaranteed certain of the obligations of the joint venture with respect to the sale of $200.0 million of the compression units. The remaining sales by the joint venture were done on a non-recourse basis to the Company and are limited solely to the assets of the joint venture. The following table provides future minimum lease payments (in thousands) under the aforementioned lease as of September 30, 1999: Remainder of 1999....................................... $ 4,064 2000 ................................................... 16,256 2001 ................................................... 16,256 2002 ................................................... 16,256 2003 ................................................... 15,582 2004 ................................................... 4,047 -------------- $ 72,461 ============== 9 11 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) 7. CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT The functional currency for certain of the Company's international operations is the applicable local currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date and the resulting translation adjustments are included as accumulated other comprehensive loss, a separate component of stockholders' equity. Currency transaction gains and losses are reflected in income for the period. The net decline in the cumulative foreign currency translation adjustment from December 31, 1998 to September 30, 1999 was $10.4 million. This decline primarily reflects the financial impact of the devaluation of Latin American and European currencies, partially offset by the strengthening Canadian dollar, as compared to the U.S. dollar. 8. 1998 SPECIAL CHARGES In the second quarter of 1998, the Company incurred $113.0 million in merger and other charges relating to the merger between EVI, Inc. and Weatherford Enterra, Inc. and a reorganization and rationalization of the Company's businesses in light of the initial downturn in the industry. These charges had been fully realized as of December 31, 1998. The Company incurred a $47.0 million charge in the fourth quarter of 1998 related to the decline in our markets. As of December 31, 1998, $23.5 million of these charges had been utilized. The remaining $23.5 million of these charges were fully utilized in the first half of 1999 as follows: o The severance and related costs included in the fourth quarter charges were $7.6 million for the termination of approximately 940 employees during the first half of 1999, in accordance with the announced plan. These employees had all been terminated by June 30, 1999. o The facility and plant closures of $12.8 million were accrued in the fourth quarter of 1998 for the consolidation and closure of approximately 100 service, manufacturing and administrative facilities in response to declining market conditions in the fourth quarter. These facilities had all been closed as of June 30, 1999. o The corporate related expenses of $3.1 million recorded in the fourth quarter were primarily for the consolidation of technology centers, the relocation of corporate offices and the related lease obligations to align the corporate cost structure in light of current conditions. o In the first half of 1999, $7.7 million of the 1998 fourth quarter charge was utilized by the Completion and Oilfield Services Division, $12.1 million by the Artificial Lift Systems Division and $3.7 million by Corporate. 9. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year adjusted for the dilutive effect of the incremental shares that would have been outstanding under the Company's stock option and restricted stock plans. The effect of stock options and restricted stock are not included in the diluted computation for periods in which a loss from continuing operations occurs because to do so would have been anti-dilutive. The effect of the Company's 5% Convertible Subordinated Preferred Equivalent Debentures due 2027 (the "Debentures") on diluted earnings per share is anti-dilutive and thus is not included in the calculation. 10 12 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) The following reconciles basic and diluted weighted average shares outstanding:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ (in thousands) Basic weighted average shares outstanding............... 101,408 97,386 98,770 96,973 Dilutive effect of stock option and restricted stock plans................................................. 2,073 433 1,536 711 ------------ ------------ ------------ ------------ Dilutive weighted average shares outstanding............ 103,481 97,819 100,306 97,684 ============ ============ ============ ============
10. SUPPLEMENTAL CASH FLOW INFORMATION The following summarizes investing activities relating to acquisitions integrated into the Company's continuing operations and the GE joint venture for the periods shown:
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1999 1998 ---------- ---------- (in thousands) Fair value of assets, net of cash acquired................ $ 494,331 $ 73,862 Goodwill.................................................. 327,813 95,810 Total liabilities, including minority interest............ (380,280) (39,316) Common stock issued....................................... (363,578) (30,895) ---------- ---------- Cash consideration, net of cash acquired................... $ 78,286 $ 99,461 ========== ==========
11. SEGMENT INFORMATION Business Segments The Company is a diversified international energy service and manufacturing company that provides a variety of services and equipment to the exploration, production and transmission sectors of the oil and gas industry. The Company operates in virtually every oil and gas exploration and production region in the world. The Company currently divides its business segments into three separate groups: completion and oilfield services, artificial lift systems, and compression services. The Company's completion and oilfield services segment provides downhole services, well installation services, well completion systems, equipment rental and underbalanced drilling products and services. The Company's artificial lift systems segment designs, manufactures, sells and services a complete line of artificial lift equipment, including progressing cavity pumps, reciprocating rod lift equipment, gas lift equipment and hydraulic lift equipment. The Company has a long-term alliance with Electric Submersible Pumps, Inc. to supply a line of electrical submersible pumps and to distribute the line in selected markets. The Company's compression services segment manufactures, packages, rents and sells parts and services for gas compressor units over a broad horsepower range. 11 13 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) Financial information by industry segment for each of the three and nine months ended September 30, 1999 and 1998, is summarized below.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------- (in thousands) Revenues from unaffiliated customers Completion and Oilfield Services............... $ 176,961 $ 209,607 $ 502,659 $ 661,524 Artificial Lift Systems........................ 78,740 70,010 198,438 267,566 Compression Services........................... 67,931 42,641 166,464 132,806 ------------ ------------ ------------ ------------- $ 323,632 $ 322,258 $ 867,561 $ 1,061,896 ============ ============ ============ ============= EBITDA, before merger costs and other charges (a) Completion and Oilfield Services............... $ 36,632 $ 66,754 $ 115,489 $ 224,840 Artificial Lift Systems........................ 10,979 6,678 22,476 37,828 Compression Services........................... 15,581 10,291 41,987 31,694 Corporate...................................... (4,946) (4,977) (16,639) (18,555) ------------ ------------ ------------ ------------- $ 58,246 $ 78,746 $ 163,313 $ 275,807 ============ ============ ============ ============= Merger costs and other charges (b) Completion and Oilfield Services............... $ -- $ -- $ -- $ 26,805 Artificial Lift Systems........................ -- -- -- 18,570 Corporate...................................... -- -- -- 67,675 ------------ ------------ ------------ ------------- $ -- $ -- $ -- $ 113,050 ============ ============ ============ ============= Depreciation and amortization Completion and Oilfield Services............... $ 26,495 $ 24,041 $ 78,570 $ 69,374 Artificial Lift Systems........................ 5,024 4,623 14,694 14,311 Compression Services........................... 8,459 6,117 25,193 18,092 Corporate...................................... 639 220 1,511 1,547 ------------ ------------ ------------ ------------- $ 40,617 $ 35,001 $ 119,968 $ 103,324 ============ ============ ============ ============= Operating income (loss) Completion and Oilfield Services............... $ 10,137 $ 42,713 $ 36,919 $ 128,661 Artificial Lift Systems........................ 5,955 2,055 7,782 4,947 Compression Services........................... 7,122 4,174 16,794 13,602 Corporate...................................... (5,585) (5,197) (18,150) (87,777) ------------ ------------ ------------ ------------- $ 17,629 $ 43,745 $ 43,345 $ 59,433 ============ ============ ============ =============
(a) The Company evaluates performance and allocates resources based on EBITDA, which is calculated as operating income adding back depreciation and amortization, excluding the impact of merger costs and other charges. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular operating income, income from continuing operations and net income. In addition, EBITDA calculations by one company may not be comparable to another company. (b) Includes inventory write-downs of $9.9 million which have been classified as Cost of Products on the accompanying Consolidated Condensed Statements of Operations. 12 14 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) As of September 30, 1999, total assets, excluding net assets of discontinued operations, were $1,524.7 million for Completion and Oilfield Services, $604.4 million for Artificial Lift Systems, $661.3 million for Compression Services, and $81.4 million for Corporate. As of December 31, 1998, total assets, excluding net assets of discontinued operations, were $1,022.1 million for Completion and Oilfield Services, $592.4 million for Artificial Lift Systems, $388.2 million for Compression Services, and $90.7 million for Corporate. 12. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999 the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, amending the effective date of SFAS No. 133 to years beginning after June 15, 2000. The Company is currently evaluating the impact of SFAS No. 133 on its consolidated condensed financial statements. 13 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Our business is conducted through three business segments: (1) Completion and Oilfield Services, (2) Artificial Lift Systems and (3) Compression Services. We also historically operated a Drilling Products segment that manufactures and sells drill pipe and other drill stem products and premium tubulars and connections. In October 1999, our Board of Directors approved the spinoff by us of our Drilling Products segment. We have reclassified the operations of this segment as a discontinued operation in light of the anticipated spinoff of the segment. The spinoff of our Drilling Products segment is proposed to be effected through a distribution by us to our stockholders of one share of stock of our Grant Prideco, Inc. subsidiary for each two shares of our common stock held by our stockholders. The spinoff is subject to our receipt of a favorable private letter ruling from the Internal Revenue Service on certain aspects of the spinoff. A request for the private letter ruling was filed with the Internal Revenue Service in July 1999 and that request is in the process of being reviewed by the Internal Revenue Service. A registration statement on Form 10 and related preliminary information statement describing the business, assets and stock of Grant Prideco has been filed with the Securities and Exchange Commission. We currently expect that the spinoff of our Grant Prideco drilling products division will occur during the first quarter of 2000. The following is a discussion of our results of operations for the three and nine months ended September 30, 1999 and 1998. This discussion should be read in conjunction with our financial statements that are included with this report and our restated financial statements and related Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1998 included in our Current Report on Form 8-K filed October 25, 1999. Our discussion of our results and financial condition includes various forward-looking statements about our markets, the demand for our products and services and our future results. These statements are based on certain assumptions that we consider reasonable. For information about these assumptions, you should refer to our section entitled "Forward-Looking Statements." 14 16 MARKET TRENDS AND OUTLOOK Our businesses serve the oil and gas industry. Certain of our products and services, such as well installation services and our well completion services, are dependent on the North American and worldwide level of exploration and development activity. Other products and services, such as our artificial lift systems and compression services, are dependent on oil and gas production activity. We currently estimate that between 35% and 45% of our continuing operations are primarily reliant on drilling activity, with the remainder primarily related to production activity. All of our businesses, however, are affected by changes in the worldwide demand and the price of oil and natural gas. During 1998, the price of oil ranged from a high of $17.62 per barrel of West Texas Intermediate crude to a low of $10.44 per barrel of West Texas Intermediate crude. The North American rig count also fell from a high of 1,508 rigs to a low in 1998 of 854. The international rig count, which typically trails the domestic rig count by a number of months, fell in 1998 from a high of 819 to a low of 671. In 1999, the price of oil hit a low of $11.07 per barrel and the North American and international rig counts reached historical lows of 534 and 556, respectively. The downturn in the industry that began in 1998 led our customers to substantially curtail their exploration and drilling activity during the second half of 1998 and most of 1999. This reduction in activity resulted in substantially lower purchases and rentals of equipment manufactured and sold by us for the exploration and completion of wells. Our field services, such as fishing and rental, and our sales of artificial lift and other production equipment and services were also materially impacted by the fall in demand. We were also impacted by an unprecedented wave of mergers and consolidations among our customers due to the market conditions. Our customers also canceled, delayed and rebid many projects to reduce their costs in light of market conditions. In certain markets in the United States and Canada we believe activity fell by more than 70%. Although market conditions have adversely affected our businesses and their results in 1999, we made the strategic decision to add to our core competencies during this downturn and take advantage of desirable acquisitions in our markets. This decision was based on our belief that the downturn would create unique opportunities for us to acquire on desirable terms businesses and capabilities that could serve as the platform for growth in the future. We also believe that because of the consolidating nature of our industry, many of these opportunities would not be available again. The principal acquisitions completed by us in late 1998 and 1999 include: (1) Our acquisitions of Cardium Oil Tools and Petroline Wellsystems in the second and third quarters of 1999. These two acquisitions significantly increased the capabilities of our completion division in the areas of flow control, liner hangers and packers and added state of the art sand control technology to our completion product offering. We also acquired a 50% interest in SubTech, a company that provides products for intelligent completions and production automation. (2) Our acquisitions of Dailey International Inc. and Williams Tool Co. in the third quarter of 1999 and ECD in the second quarter of 1999. These three acquisitions have provided us with a complete integrated package for the provision of underbalanced drilling services. We now have the largest compression fleet in the industry used for underbalanced and air drilling, our own proprietary line of pressure control equipment, state of the art foam and chemical technology used for underbalanced drilling and the largest fleet of nitrogen membrane units. The Dailey acquisition also provided us with our own manufactured line of drilling and fishing jars for use in our rental and fishing operations. (3) Our joint venture with GE Capital which combined our Weatherford Compression business with GE's Global Compression business to create the second largest natural gas compression fleet in the industry. This joint venture has allowed us to expand our compression operations into the higher margin higher horsepower business as well as the growing international markets. (4) Our acquisition of various licenses, technologies and businesses in the multi-lateral and re-entry market. These transactions have provided us with key technologies and a platform for growth in the growing re-entry and multi-lateral markets. While we believe the steps we have taken over the last year to position us for growth in the future should benefit our results as our industry improves, the recent downturn in our industry has materially and adversely impacted our results over the last year and a half through substantially lower sales and margins. Our results have also been affected by higher average fixed and variable costs associated with the maintenance of our extensive worldwide manufacturing, sales and service infrastructure during a period of low activity. 15 17 Although we have sought over the past year to reduce our costs through reductions in headcount and locations in light of this most recent industry downturn, we believe that in order for us to effectively compete in our industry against much larger competitors we must continue to maintain our market shares and a strong presence in many of our markets, in particular the higher margin, long-term growth international markets, notwithstanding the recent downturn. In addition, we have incurred higher costs associated with our integration and assimilation of acquisitions and new businesses and products into our organization during the downturn. All of these circumstances, combined with record low levels of activity, have materially reduced our margins and operating profits since mid-1998. Recently, the price of oil has increased due to members of the Organization of Petroleum Exporting Countries reducing production in compliance with production quotas. Although oil prices have been higher for a number of months, the increased prices have not yet translated to materially higher overall activity in our business, in particular in the higher margin international and offshore markets and the market for higher cost deep and difficult wells. International activity outside North America is in fact still declining due to the larger and longer nature of international projects. The third quarter of 1999 also represented the first sequential quarterly improvement that we have seen in our businesses in over a year. This improvement was primarily due to higher oil prices and increased North American activity. Activity in the United States and Canada gradually improved during the quarter and is expected to continue to improve during the fourth quarter of 1999. Notwithstanding this improvement in North America, we do not expect to see any major improvements in business activity until 2000, in particular in the international markets outside North America. Further, the timing of improvements in our operations will be dependent upon the segment of the industry involved. Our artificial lift group was the first to benefit from the recent improvements as production projects were reinstated in light of the higher prices of oil, in particular heavy oil in Canada. Natural gas activity in Canada is also increasing. Our completion and downhole services group has recently begun to benefit from the improved activity in North America. The pickup in this group, however, is expected to be gradual and we expect that results in this group will be affected by pricing pressures through at least the remainder of the year, in particular in the international markets. Our compression business, which is less affected by day-to-day market factors, is expected to improve slightly as a result of recent improvements in domestic pricing. The following chart sets forth certain historical statistics that are reflective of the market conditions in which we operate:
HENRY HUB NORTH AMERICAN INTERNATIONAL WTI OIL (1) GAS (2) RIG COUNT (3) RIG COUNT (3) -------------- -------------- --------------- ---------------- September 30, 1999.............. $ 24.51 $ 2.560 966 557 December 31, 1998............... 11.28 1.945 895 671 September 30, 1998.............. 14.95 2.433 964 727
(1) Price per barrel of West Texas Intermediate crude oil as of September 30 and December 31 - Source: Applied Reasoning, Inc. (2) Price per MM/BTU as of September 30 and December 31 - Source: Oil World (3) Average rig count for the applicable month - Source: Baker Hughes Rig Count Looking forward into the fourth quarter of 1999 and next year, we are currently expecting improvements in most of our businesses as exploration and production activity increase. This improvement will likely be gradual and felt most strongly in North America. The level of market improvements for our businesses will be heavily dependent on whether oil and natural gas prices can remain at or about their present levels and the impact recent market improvements may have on customer spending. Improvements in North America may also be partially offset by a slower recovery in the international markets. Although we believe that the activity levels in our industry are at or near their bottom, the timing and extent of a recovery is difficult to predict and will be dependent on many external factors such as compliance with OPEC quotas, world economic conditions and weather conditions. The extreme volatility of our markets makes predictions regarding future results difficult. 16 18 RESULTS OF CONTINUING OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998 The following charts contain selected financial data comparing our results for 1999 and 1998:
COMPARATIVE FINANCIAL DATA THREE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues........................................... $ 323,632 $ 322,258 Gross Profit....................................... 85,651 100,287 Gross Profit %..................................... 26.5% 31.1% Selling, General and Administrative Attributable to Segments......................... $ 63,125 $ 52,021 Corporate General and Administrative............... 5,585 5,197 Operating Income................................... 17,629 43,745 Income from Continuing Operations.................. 3,022 22,239 EBITDA (a)......................................... 58,246 78,746
(a) EBITDA is calculated by taking operating income and adding back depreciation and amortization. We have included an EBITDA calculation here because when we look at the performance of our businesses, we give consideration to their EBITDA. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular cash flows from operations, operating income, income from continuing operations and net income. In addition, EBITDA calculations by one company may not be comparable to another company. SALES BY GEOGRAPHIC REGION THREE MONTHS ENDED SEPTEMBER 30, ------------ - ------------ 1999 1998 ------------ ------------ REGION: (a) U.S. .............................. 48% 47% Canada ............................ 19% 14% Europe ............................ 11% 13% Latin America....................... 9% 10% Africa ............................ 6% 7% Middle East......................... 3% 4% Other .............................. 4% 5% ============ ============ Total........................... 100% 100% ============ ============ (a) Sales are based on the region of origination and do not reflect sales by ultimate destination. Our results for the three months ended September 30, 1999 reflected the adverse market conditions described above in which we were operating. These conditions had the following effects on our results: o Third quarter 1999 consolidated revenues remained virtually unchanged from third quarter 1998 as improvements in North American revenues were offset by deterioration in international revenues. Our third quarter 1999 revenues in North America were $22.7 million higher than they were in the third quarter of 1998 due to recent improvements in the North American rig count, particularly Canada. International revenues decreased 16.8% from third quarter 1998 levels as activity has continued to decline due to the consolidations and internal restructurings at the major oil companies. 17 19 o The gross profit percentage decreased 4.6% from the third quarter of 1998 to the third quarter of 1999. This decline reflects the general effects of the downturn in the industry, in particular lower activity in the higher margin international markets and pricing pressures throughout. o Our selling, general and administrative expenses increased in 1999 due to the addition of various new businesses and costs associated with the introduction of new products and services. o Operating income declined 59.7% from the third quarter of 1998 due to lower pricing, higher operating and administrative costs and manufacturing and operational inefficiencies associated with the decline in activity. Although we have sought over the past year to reduce our costs through reductions in headcount and locations in light of the industry downturn, we have elected to maintain our market position and international infrastructure in order to capitalize on the market recovery when it occurs. o Our corporate expenses as a percentage of revenues increased slightly from 1.6% in the third quarter of 1998 to 1.7% in the third quarter of 1999. o Our effective tax rate for the third quarter of 1999 was 29.0%, as compared to 31.8% for the third quarter 1998, due to the mix between foreign and U.S. tax attributes for 1999. SEGMENT RESULTS COMPLETION AND OILFIELD SERVICES Our Completion and Oilfield Services Division experienced reductions in revenue, operating income and margins as the international rig count declined and the demand for its products and services dropped. In addition, although the North American rig count has recently improved, a large part of the improvement has been in the lower margin markets. Pricing pressures were also prevalent in most of our markets in the quarter. Our Completion and Oilfield Services Division was also materially affected by higher average fixed and variable costs associated with the maintenance of its extensive worldwide manufacturing, sales and service infrastructure during a period of low activity. In addition, costs associated with the integration and assimilation of recent acquisitions and new businesses and products into this division during the downturn for growth in the future have reduced its profitability. This division's North American completion and downhole services operations were the most adversely affected by the downturn and continued to experience pricing pressures throughout the quarter. In most of our international markets, we are seeing significantly reduced volumes and are experiencing continued pricing pressures due to soft demand. Although our completion and downhole services group has begun to benefit from the improved activity in North America, any improvements in operating results are expected to be gradual. Further, we expect that results in this division will be affected by lower international activity for the remainder of 1999 and pricing pressures through at least the remainder of the year, in particular in the international markets. The following chart sets forth additional data regarding the results of our Completion and Oilfield Services Division for the third quarters of 1999 and 1998: THREE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues................................... $ 176,961 $ 209,607 Gross Profit............................... 43,117 64,341 Gross Profit %............................. 24.4% 30.7% Selling, General and Administrative........ $ 33,528 $ 22,304 Operating Income........................... 10,137 42,713 EBITDA..................................... 36,632 66,754 Other material items affecting the results of our Completion and Oilfield Services Division for the third quarter of 1999 compared to 1998 were: o Our domestic revenues for the third quarter of 1999 declined by 16.9% as compared to the third quarter of 1998 due to an average rig count reduction of 20.8%. Our international revenues, excluding Canada, decreased by 18.3% from the third quarter of 1998 due to a rig count reduction of 22.9%. The most 18 20 significant revenue decreases occurred in Europe, Africa, and the Middle East where revenues declined 14.4%, 21.5%, and 28.6%, respectively from prior year levels. o Gross profit percentage declined in the third quarter of 1999 by 6.3% as compared to the third quarter of 1998, due to revenue and pricing declines and factory underutilization. The gross profit was further reduced by the decline in higher margin international revenues. o Selling, general and administrative expenses increased as a percentage of revenues from 10.6% in the third quarter of 1998 to 18.9% in the third quarter of 1999. The increase primarily reflects a lower revenue base, start up costs for new product lines and businesses, costs associated with the integration and introduction of newly acquired businesses and goodwill amortization associated with 1999 acquisitions. Selling, general and administrative costs were negatively impacted by certain acquisitions completed in 1999, in particular Dailey International Inc. and Williams Tool Co., which had historically high selling, general and administrative costs as a percentage of revenues. Because most of these businesses have just recently been acquired, we have not yet been able to eliminate redundant costs and expenses. o Operating income declined $32.6 million in the third quarter of 1999 from the third quarter of 1998 primarily due to reduced revenues associated with industry conditions and higher average costs due to manufacturing and operational inefficiencies attributable to lower operating levels. ARTIFICIAL LIFT SYSTEMS Operating results from our Artificial Lift Systems Division are heavily dependent on oil production activity. Revenues for this division increased approximately 12% from third quarter 1998 levels, primarily in response to improved activity levels in North American markets, in particular Canada. This division has also seen increased sales in the Latin American markets from second quarter 1999 levels as its artificial lift products have begun to penetrate those markets utilizing our worldwide infrastructure. We expect the results from this division to continue to improve during the year. The level of improvement in this division will depend on our customer's reaction to higher oil prices and the strength of the recovery. The following chart sets forth additional data regarding the results of our Artificial Lift Systems Division for the third quarters of 1999 and 1998: THREE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues.................................. $ 78,740 $ 70,010 Gross Profit.............................. 26,660 26,341 Gross Profit %............................ 33.9% 37.6% Selling, General and Administrative....... $ 20,845 $ 24,286 Operating Income.......................... 5,955 2,055 EBITDA.................................... 10,979 6,678 Other material items affecting the results of our Artificial Lift Systems Division as reflected above for the third quarter of 1999 compared to the third quarter of 1998 were: o The third quarter of 1999 experienced an increase in revenues of 12.5% compared to the third quarter of 1998 primarily as a result of recent improvements in North American markets. The most significant improvement was in Canada where revenues were up 53.5% from third quarter 1998 levels as the Canadian rig count increased 19.8% period over period. o Gross profit as a percentage of revenues decreased from 37.6% in the third quarter of 1998 to 33.9% in the third quarter of 1999 due to pricing pressures associated with depressed market conditions that occurred during the earlier part of the year. We have recently begun to see improvements in pricing as the market for artificial lift products has begun its recovery. o Selling, general and administrative expenses decreased as a percentage of revenues from 34.7% in the third quarter of 1998 to 26.5% in the third quarter of 1999 due to cost reductions previously implemented. o Operating income as a percentage of revenues improved to 7.6% for the third quarter of 1999 as compared to 2.9% for the third quarter of 1998 due to cost reductions. 19 21 COMPRESSION SERVICES Our Compression Services Division's results for the third quarter of 1999 reflected increased revenues compared to the third quarter of 1998 as well as sequential improvement over the second quarter of 1999. Contributing to the increase in revenues was the February 1999 joint venture with GE Capital and continued expansion into high value added, long-term contracts. Our Compression Services Division recently expanded its international presence through the award of a seven year contract with YPF S.A. in Argentina to provide full compression rental, maintenance and service for approximately $95.0 million over the term of the contract. This project became fully operational in the third quarter of 1999 and contributed $3.0 million in revenues. The following chart sets forth additional data regarding the results of our Compression Services Division for the third quarters of 1999 and 1998: THREE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues................................... $ 67,931 $ 42,641 Gross Profit............................... 15,874 9,605 Gross Profit %............................. 23.4% 22.5% Selling, General and Administrative........ $ 8,752 $ 5,431 Operating Income........................... 7,122 4,174 EBITDA..................................... 15,581 10,291 Minority Interest Expense, Net of Taxes.... 1,671 -- Other material items affecting the results of our Compression Services Division for 1999 compared to 1998 were: o The increase in revenues primarily reflects the impact of the joint venture, higher equipment sales, and the YPF contract. o Gross profit as a percentage of revenues increased slightly due to a better product sales mix. Compressor rental revenues, which generally have higher margins than equipment sales, increased as a percentage of total revenues from the three months ended September 30, 1998 to the three months ended September 30, 1999 due to the joint venture and the YPF contract. This improvement was offset, in part, by the increase in lower margin equipment sales. o The increase in selling, general and administrative expenses reflects costs associated with the additional operations acquired in the joint venture with GE. 20 22 NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 The following charts contain selected financial data comparing our results for 1999 and 1998: COMPARATIVE FINANCIAL DATA NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues................................. $ 867,561 $ 1,061,896 Gross Profit............................. 242,757 343,816 (a) Gross Profit %........................... 28.0% 32.4% Selling, General and Administrative Attributable to Segments............... $ 182,840 $ 163,325 Corporate General and Administrative..... 18,150 20,102 Operating Income......................... 43,345 59,433 (a) Income from Continuing Operations........ 8,717 19,163 (a) EBITDA (b)............................... 163,313 162,757 (a) (a) Includes $113.0 million, $73.5 million net of tax, of merger and other charges relating to the merger between EVI and Weatherford Enterra and a reorganization and rationalization of our business in light of industry conditions. Of these charges, $9.9 million related to the write-off of inventory has been classified as cost of products. (b) EBITDA is calculated by taking operating income and adding back depreciation and amortization. We have included an EBITDA calculation here because when we look at the performance of our businesses, we give consideration to their EBITDA. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular cash flows from operations, operating income, income from continuing operations and net income. In addition, EBITDA calculations by one company may not be comparable to another company. SALES BY GEOGRAPHIC REGION NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1999 1998 ------------ ------------ Region: (a) U.S. ............................ 46% 47% Canada .......................... 17% 18% Europe .......................... 12% 12% Latin America..................... 9% 9% Africa .......................... 7% 6% Middle East....................... 4% 3% Other ............................ 5% 5% ------------ ------------ Total......................... 100% 100% ============ ============ (a) Sales are based on the region of origination and do not reflect sales by ultimate destination. Our results for the nine months ended September 30, 1999 reflected the depressed market conditions discussed above. These conditions had the following effects on our results: o Revenues for the nine months ended September 30, 1999 declined 18.3% compared to the same period in 1998. Of the $194.3 million decline in revenues from 1998 to 1999, $136.7 million, or 70.4%, was attributable to sales in North America. o Selling, general and administrative expenses attributable to the segments increased as a percent of revenue due primarily to a lower revenue base and startup costs for new product lines and businesses, costs associated with 21 23 the integration and introduction of newly acquired businesses and goodwill amortization associated with 1999 acquisitions. Selling, general and administrative costs were negatively impacted by certain acquisitions completed in 1999, in particular Dailey International Inc. and Williams Tool Co., which had historically high selling, general and administrative costs as a percentage of revenues. Because most of these businesses have just recently been completed, we have not yet been able to eliminate redundant costs and expenses. o Operating income declined $129.1 million to $43.3 million for the nine months ended September 30, 1999 as compared to $172.4 million, excluding the effect of merger and other charges, for the same period in 1998. This resulted from lower revenues, lower margins, and increased selling, general and administrative expenses attributable to segments. The reduction in margins reflected pricing pressures throughout our markets and higher average fixed and variable costs associated with the maintenance of our extensive worldwide manufacturing, sales and service infrastructure during a period of low activity. o The decrease in corporate expenses from 1998 was primarily attributable to consolidation savings. SEGMENT RESULTS COMPLETION AND OILFIELD SERVICES Our Completion and Oilfield Services Division experienced reductions in revenue, operating income and margins as the rig count declined and demand for this division's products and services dropped. This division's North American operations were the most adversely affected by the downturn during the first half of 1999. International activity outside of North America has also declined significantly during the year. All our markets in this division experienced pricing pressures associated with the drop in activity and demand. The on-going cost of maintaining this division's international infrastructure, which is necessary for long-term success, and the cost of the integration and assimilation of acquisitions completed in 1999 and new businesses and products during the downtown have further eroded its profitability. The following chart sets forth additional data regarding the results of our Completion and Oilfield Services Division: Nine Months Ended September 30, ------------------------------- 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues.............................. $ 502,659 $ 661,524 Gross Profit.......................... 131,142 225,200 (a) Gross Profit %........................ 26.1% 34.0% Selling, General and Administrative... $ 95,661 $ 72,505 Operating Income...................... 36,919 128,661 (a) EBITDA................................ 115,489 198,035 (a) (a) Includes merger and other charges of $26.8 million, which consists of $3.2 million for facility closures, $23.1 million for write-down of assets and $0.5 million for write-off of inventory. The write-off of inventory has been classified as cost of products. Other material items affecting the results of our Completion and Oilfield Services Division were: o Our North American revenues for the nine months ended September 30, 1999 declined by 33.6% as compared to 1998 due to an average rig count reduction of 32.7%. o Our international revenues, excluding Canada, decreased by 14.1% in the nine months ended September 30, 1999 to $279.5 million, as compared to the nine months ended September 30, 1998. The most significant revenue decrease occurred in Europe, Africa, and the Middle East where revenues decreased 12.6%, 10.9%, and 15.7%, respectively. o Our gross profit percentage, excluding the effect of the merger and other charges, declined in the nine months ended September 30, 1999 by 7.9%, from the same period in 1998 due to revenue and pricing declines and plant under absorption. The gross profit percentage was further reduced by the loss of international sales which tend to have higher profit margins. 22 24 o Selling, general and administrative expenses increased as a percentage of revenues from 11.0% in nine months ended September 30, 1998 to 19.0% in 1999. The increase primarily reflects a lower revenue base and start up costs relating to new product lines and businesses, costs associated with the integration and introduction of newly acquired businesses and goodwill amortization associated with 1999 acquisitions. Selling, general and administrative costs were negatively impacted by certain acquisitions completed in 1999, in particular Dailey International Inc. and Williams Tool Co., which had historically high selling, general and administrative costs as a percentage of revenues. o Operating income, excluding the effect of merger and other charges, declined in the nine months ended September 30, 1999 to $36.9 million from $155.5 million in 1998 primarily due to reduced revenues associated with industry conditions, higher costs and resulting operational inefficiencies attributable to lower operating levels. ARTIFICIAL LIFT SYSTEMS Our Artificial Lift Systems Division's results for the nine months ended September 30, 1999 compared to the same period in 1998, were down significantly due to a substantial reduction in demand during the first half of 1999 for our artificial lift products following the downturn in the industry. This decline was most pronounced in North America where our sales for the nine months ended September 30, 1998, represented approximately 82.7% of the division's total revenue. The following chart sets forth additional data regarding the results of our Artificial Lift Systems Division: NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues................................ $ 198,438 $ 267,566 Gross Profit............................ 71,812 89,225 (a) Gross Profit %.......................... 36.2% 33.3% Selling, General and Administrative..... $ 64,170 $ 75,031 Operating Income........................ 7,782 4,947 (a) EBITDA.................................. 22,476 19,258 (a) (a) Includes merger and other charges of $18.6 million, which consists of $7.7 million for facility closures, $9.3 million for the write-off of inventory and $1.6 million related to the write-down of assets. The write-off of inventory has been classified as cost of products. Other material items affecting the results of our Artificial Lift Systems Division as reflected above were: o The nine months ended September 30, 1999 experienced a decline in revenues of 25.8% compared to the same period in 1998 due to the industry downturn which began to impact this division in the second quarter of 1998. Revenues in North America decreased $49.3 million or 22.3%, from the nine months ended September 30, 1998 to the same period in the current year. o Gross profit, excluding the effect of merger and other charges, declined to $71.8 million in the nine months ended September 30, 1999 from $107.8 million in the nine months ended September 30, 1998 due primarily to a lower revenue base and pricing declines. Gross profit, excluding the effect of the merger and other charges, as a percent of revenue remained constant period over period at approximately 36.0%. o Selling, general and administrative expenses declined due to the cost reductions implemented in response to the depressed industry conditions. Selling, general and administrative expenses increased 4.3% as a percent of revenue due to lower revenue levels. o The decline in operating income, excluding the effect of the merger and other charges, of $15.8 million for the first nine months of 1999, as compared to the same period in 1998 is a result of the sharp decline in revenues and pricing pressures. 23 25 COMPRESSION SERVICES Our Compression Services Division's results for the nine months ended September 30, 1999 reflected improved revenues, margins, and operating income as compared to the same period in 1998. The improvements were primarily attributable to a better revenue mix and the impact of the joint venture entered into with GE Capital in February 1999. The following chart sets forth additional data regarding the results of our Compression Services Division: NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 1998 ------------- ------------- (in thousands, except percentages) Revenues................................... $ 166,464 $ 132,806 Gross Profit............................... 39,803 29,391 Gross Profit %............................. 23.9% 22.1% Selling, General and Administrative........ $ 23,009 $ 15,789 Operating Income........................... 16,794 13,602 EBITDA..................................... 41,987 31,694 Minority Interest Expense, Net of Taxes.... 3,557 -- Other material items affecting the results of our Compression Services Division as reflected above were: o Revenues increased 25.3% from the nine months ended September 30, 1998 to the nine months ended September 30, 1999 due to the joint venture with GE and an increase in equipment sales. o Gross profit as a percentage of revenues increased due to improved product and sales mix, offset by pricing pressures in the United States rental market. o The increase in selling, general and administrative expenses reflects costs associated with the additional operations acquired in the joint venture with GE. 1998 SPECIAL CHARGES In the second quarter of 1998, we incurred $113.0 million in merger and other charges relating to the merger between EVI and Weatherford Enterra and a reorganization and rationalization of our businesses in light of the initial downturn in the industry. These charges had been fully realized as of December 31, 1998. We incurred a $47.0 million charge in the fourth quarter of 1998 related to the significant decline that occurred in our markets at the end of 1998. As of December 31, 1998, $23.5 million of these charges had been utilized. The remaining $23.5 million of these charges were fully realized in the first half of 1999 as follows: o The severance and related costs included in the fourth quarter charges were $7.6 million for the termination of approximately 940 employees during the first half of 1999, in accordance with the announced plan. These employees had all been terminated by June 30, 1999. o The facility and plant closures of $12.8 million were accrued in the fourth quarter of 1998 for the consolidation and closure of approximately 100 service, manufacturing and administrative facilities in response to declining market conditions in the fourth quarter. These facilities had all been closed as of June 30, 1999. o The corporate related expenses of $3.1 million recorded in the fourth quarter were primarily for the consolidation of technology centers, the relocation of corporate offices and the related lease obligations to align the corporate cost structure in light of current conditions. o In the first half of 1999, $7.7 million of the 1998 fourth quarter charge was utilized by the Completion and Oilfield Services Division, $12.1 million by the Artificial Lift Systems Division and $3.7 million by Corporate. 24 26 DISCONTINUED OPERATIONS Our discontinued operations consist of our Grant Prideco drilling products division. Results from discontinued operations were as follows: o We had a loss from discontinued operations, net of taxes, for the three months ended September 30, 1999, of $14.1 million and income from discontinued operations, net of taxes, for the three months ended September 30, 1998 of $20.5 million. o We had a loss from discontinued operations, net of taxes, for the nine months ended September 30, 1999 of $19.3 million and income from discontinued operations, net of taxes, for the nine months ended September 30, 1998, of $69.8 million. o Included in the loss from discontinued operations for the three and nine months ended September 30, 1999 are $3.5 million, net of taxes, of estimated transaction costs which were accrued in the third quarter. Our discontinued operations results reflect the extreme adverse market conditions that have existed in the oilfield equipment market since 1998. These conditions have resulted in substantially lower purchases of drill pipe and other drill stem products as well as sharply lower purchases of premium tubulars and connections. Although oil prices have been higher for a number of months, the increased prices have not yet translated to materially higher drilling activity. However, orders for drill stem products and other premium tubular products are increasing, and we expect that demand will continue to improve absent another material decline in oil prices. We currently expect that demand for Grant Prideco's drill pipe and other drill stem products will slowly improve during 2000, with most of the improvement occurring in the second half of 2000. We expect that results will be significantly better in 2000 than they were in 1999. Nevertheless, demand for these products continues to be highly dependent upon drilling activity and the price of oil and natural gas and any material decline in the price of oil and natural gas or drilling activity could result in further delay in the recovery. LIQUIDITY AND CAPITAL RESOURCES Our current sources of capital are current cash, cash generated from operations and borrowings under bank lines of credit. We believe that the current reserves of cash and short-term investments, access to our existing credit lines and internally generated cash from operations are sufficient to finance the projected cash requirements of our current and future operations. We are continually reviewing acquisitions in our markets. Depending upon the size, nature and timing of an acquisition, we may require additional capital in the form of either debt, equity or a combination of both. The following chart contains information regarding our capital resources and borrowings and exposures as of September 30, 1999 and December 31, 1998: SEPTEMBER 30, DECEMBER 31, 1999 1998 ---------------- ------------- (in thousands) Cash and Cash Equivalents................. $ 21,169 $ 34,131 Short-Term Borrowings..................... 282,618 137,279 Letters of Credit Outstanding............. 26,837 23,222 Cumulative Foreign Currency Translation Adjustment.............................. (86,803) (76,389) International Assets Hedged (U.S. Dollar Equivalent)............................. 41,638 33,365 The reduction in our cash and cash equivalents since December 31, 1998, was primarily attributable to the following: o Borrowings, net of repayments, on term debt and other short-term facilities of $127.7 million. 25 27 o Proceeds from the sale and leaseback of compression units of $139.8 million. Of these proceeds, $65.4 million were subsequently paid to GE Capital under terms of the joint venture agreement. o Capital expenditures of property, plant and equipment from continuing operations of $134.7 million, including $79.7 million for the purchase of compression equipment and related assets for our Compression Services Division for use in North America and Argentina. o Capital expenditures of property, plant and equipment from discontinued operations of $14.8 million. o Acquisition of new businesses for continuing operations of approximately $78.3 million in cash, net of cash acquired. o Acquisition of new businesses for discontinued operations of approximately $35.5 million in cash, net of cash acquired, and the repayment of approximately $48.0 million in indebtedness incurred for Grant Prideco's acquisition of substantially all the outstanding shares of the company that owns its Veracruz, Mexico manufacturing facility. o Cash inflow from operating activities associated with our continuing operations of $24.5 million. o Cash inflow from operating activities of discontinued operations of $55.2 million. BANKING FACILITIES In May 1998, we put in place a five-year unsecured revolving credit facility that allows us to borrow up to $250.0 million at any time. The facility consists of a $200.0 million U.S. credit facility and a $50.0 million Canadian credit facility. As of September 30, 1999, $66.6 million was available under the credit facility. Borrowings under this facility bear interest at the U.S. prime rate or a variable rate based on the LIBOR. Our credit facility contains customary affirmative and negative covenants, including a maximum debt to capitalization ratio, a minimum interest coverage ratio, a limitation on liens and a limitation on asset dispositions. CONVERTIBLE SUBORDINATED DEBENTURES In November 1997, we completed a private placement of $402.5 million principal amount of our 5% Convertible Subordinated Preferred Equivalent Debentures due 2027. The Debentures bear interest at an annual rate of 5% and are convertible into Common Stock at a price of $80 per share. We have the right to redeem the Debentures at any time on or after November 4, 2000, at redemption prices provided for in the indenture agreement, and are subordinated in right of payment of principal and interest to the prior payment in full of certain existing and future senior indebtedness. We also have the right to defer payments of interest on the Debentures by extending the quarterly interest payment period on the Debentures for up to 20 consecutive quarters at any time when we are not in default in the payment of interest. Under the terms of the Debentures, the conversion rate for the Debentures will be adjusted following our spinoff of Grant Prideco. The following sets forth the formula for the adjustment to the conversion rights of the Debentures for the proposed spinoff. Conversion Price x A - B ($80 per share) ----- A A = The current market price per share of our common stock on the payment date for the distribution. The current market price of our common stock for purposes of the adjustment is defined in Section 6.3(g) of the First Supplemental Indenture and is generally defined as the average of the daily closing price of our common stock for the ten trading days ending on the day of the distribution of the Grant Prideco common stock to our stockholders. B = Fair market value of the Grant Prideco common stock to be distributed as determined by our Board of Directors. 7 1/4% SENIOR NOTES DUE 2006 We have outstanding $200.0 million of publicly-traded 7 1/4% Senior Notes due May 15, 2006. Interest on the 7 1/4% Senior Notes is payable semi-annually on May 15 and November 15 of each year. 26 28 COMPRESSION FINANCING Our Compression Services Division has entered into various sale and leaseback arrangements where it has sold $239.8 million of compression units and has a right to sell up to another $110.2 million of compression units. Under these arrangements, legal title to the compression units are sold to third parties and leased back to the division under a five year operating lease with a market based purchase option. As of December 31, 1998, our Compression Services Division had sold compressors under these arrangements having appraised values of $119.6 million and had received cash in the amount of $100.0 million and a receivable of $19.6 million. During the nine months ended September 30, 1999, our Compression Services Division sold additional compressors having an appraised value of $120.2 million and received cash of $139.8 million. Of the proceeds received by our Compression Services Division from the sale and leaseback of the compressor units, $100.0 million was distributed to us by the division and $65.4 million was distributed to GE Capital as part of the joint venture. The remaining proceeds of these sales were utilized by the joint venture for internal corporate purposes and growth. We have guaranteed certain of the obligations of the joint venture with respect to the sale of $200.0 million of the compression units. The remaining sales by the joint venture were done on a non-recourse basis to us and are limited solely to the assets of the joint venture. Our Compression Services Division continues to review potential projects for expansion of its operations both domestically and internationally. Depending on the size of these projects, we expect that the financing of the projects will be funded with the joint venture's cash flow from operations, proceeds from its sale and leaseback arrangements or new project or similar type financings. GRANT PRIDECO NOTE In connection with our proposed spinoff of Grant Prideco, we expect to receive from Grant Prideco an unsecured subordinated note to us in the amount of $100.0 million. The $100.0 million obligation to us will bear interest at an annual rate equal to 10.0%. Interest payments will be due quarterly, and principal and all unpaid interest will be due no later than December 31, 2001. Under the terms of the note, Grant Prideco will be required to repay this note with the proceeds of any debt or equity financing, excluding financing under a credit facility or any equity issued in connection with a business combination. The indebtedness of Grant Prideco to us will be subordinated to the working capital obligations of Grant Prideco to its banks. Grant Prideco currently intends to repay the obligations within 12 months from the completion of the spinoff, pursuant to an anticipated public or private debt financing. Grant Prideco's ability to repay this indebtedness, however, will be dependent upon market conditions. CAPITAL EXPENDITURES Our capital expenditures for property, plant and equipment for our continuing operations during the nine months ended September 30, 1999 were $134.7 million and primarily related to compression and other rental equipment, fishing tools and tubular service equipment. Included within our capital expenditures for the nine months ended September 30, 1999 was $79.7 million for our Compression Services Division which primarily related to U.S. assets and our long term contract with YPF. A portion of the 1999 capital expenditures related to projects initiated at the end of 1998. Capital expenditures for the fourth quarter of 1999 are expected to be approximately $15.0 million to $20.0 million and will be primarily maintenance related, excluding our compression operations. Capital expenditures for our compression operations will be based on contract needs and the timing of new projects entered into by our compression joint venture. 27 29 Our compression operations are, by their nature, capital intensive and require substantial investments in compressor units. These capital investments have historically been financed through existing cash and internally generated cash flow. We expect that future capital investments by our compression division will be financed by our compression joint venture through debt, sale and leaseback arrangements and other similar financing structures that are repaid from the cash flows generated from the compressor units over the projected term of rental of the equipment. ACQUISITIONS AND JOINT VENTURES In February 1999, we completed a joint venture with GE Capital Corporation in which we combined our compression services operations with GE Capital's Global Compression's services operations. The joint venture, which is known as Weatherford Global Compression Services, is the world's second largest provider of natural gas contract compression services and owns or manages over 4,500 compression units worldwide having approximately 1.1 million horsepower. We own 64% of the joint venture and GE Capital owns 36%. We have the right to acquire GE Capital's interest at anytime at a price equal to a third party market determined value that is not less than book value. GE Capital also has the right to require us to purchase its interest at any time after February 2001 at a third party market determined value as well as request a public offering of its interest after that date if we have not purchased its interest by that time. In February 1999, we acquired Christiana Companies, Inc. for approximately 4.4 million shares of our common stock and $20.6 million cash. In the acquisition we acquired through Christiana (i) 4.4 million shares of our common stock, (ii) cash, after distribution to the Christiana shareholders, equal to the amount of Christiana's outstanding tax and other liabilities and (iii) a one-third interest in Total Logistic Control, a refrigerated warehouse, trucking and logistics company. We acquired Christiana because it gave us a unique opportunity to own an interest in Total Logistic Control for essentially no consideration other than our agreement to pursue the acquisition. On August 31, 1999, we completed our acquisition of Dailey International Inc. pursuant to a pre-negotiated plan of reorganization in bankruptcy. Under the terms of the acquisition, we issued a total of approximately 4.3 million shares of our common stock to the Dailey noteholders and stockholders. Of the total number shares issued, we issued approximately 4.0 million shares to the Dailey noteholders and approximately 0.3 million shares to the Dailey common stockholders. At the time of our acquisition of Dailey, we held approximately 24% of Dailey's Senior Notes. In the reorganization, we contributed those notes to Dailey and received approximately 1.2 million shares of our own common stock which we hold as treasury shares. Because we held Senior Notes of Dailey, which we acquired prior to the bankruptcy at a discount, the total purchase price for Dailey, excluding assumed liabilities of Dailey that were not impaired in the bankruptcy, was approximately $185.0 million. Dailey International is a leading provider of specialty drilling equipment and services to the oil and gas industry and designs, manufactures and rents proprietary downhole tools for oil and gas drilling and workover applications worldwide. In September 1999, we acquired Petroline Wellsystems Limited for a total consideration of approximately $165.0 million, consisting of $32.2 million in cash and 3.8 million shares of our common stock. We also agreed to pay to the sellers additional funds in the event they resell the shares of our stock received by them in the acquisition in certain market transactions at a price less than $35.175 per share. This obligation continues until October 2000. Petroline, based in Aberdeen, Scotland, is a provider of premium completion products and services to the international oil and gas industry. Petroline is the leading provider of flow control equipment in the North Sea and was the first company to successfully introduce completion products using new expandable tube technology. On September 15, 1999, we acquired Williams Tool Co. for 1.8 million shares of our common stock. Williams, based in Fort Smith, Arkansas, offers a full range of rotating control heads for horizontal, underbalanced and low hydrostatic drilling operations. Williams products are used to control flow from the wellbore to reduce the risk of blowouts when oil, gas, geothermal and coal gas methane wells are being drilled with light fluids. In the nine months ended September 30, 1999, we also completed eight acquisitions for our Completion and Oilfield Services Division for consideration of cash plus assumed debt of $42.6 million and shares of our common stock having a value of $12.4 million. 28 30 We also completed acquisitions during the nine months ended September 30, 1999 that will be integrated into Grant Prideco for total consideration of $36.6 million in cash and assumed debt and shares of our common stock having a value of $17.3 million. Some of our acquisitions have resulted in substantial goodwill associated with their operations, including goodwill of approximately $327.8 million relating to our 1999 acquisitions. Through these acquisitions and acquisitions of technology, we have increased our intangible assets by $57.0 million in 1999. The amortization expense for goodwill and other intangibles during the nine months ended September 30, 1999 was $17.0 million. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, amending the effective date of SFAS No. 133 to years beginning after June 15, 2000. We are currently evaluating the impact of SFAS No. 133 on our consolidated financial statements. YEAR 2000 MATTERS The Year 2000 issue is the risk that information systems, computers, equipment and products using date-sensitive software or containing computer chips with two-digit date fields will be unable to correctly process the Year 2000 date change. If not identified and corrected prior to the Year 2000, failures could occur in our software, hardware, equipment and products and those of our suppliers, vendors and customers that could result in interruptions in our business. Any failure could have a material impact on us. In response to the Year 2000 issue, we have prepared and implemented a plan ("Year 2000 Plan") to assess and remediate significant Year 2000 issues in our: o Information technology systems ("IT"), including computer software and hardware. o Non-information technology systems utilizing date-sensitive software or computer chips ("Non-IT"), including products, facilities, equipment and other infrastructures. Our management information systems department ("MIS Department"), together with our technical and engineering employees and outside consultants, are responsible for the implementation and execution of the Year 2000 Plan. Our Year 2000 Plan is a comprehensive, multi-step process covering our IT and Non-IT systems. The primary phases of the Year 2000 Plan are: (1) Assessing and analyzing our systems to identify those that are not Year 2000 ready. (2) Preparing cost and resource estimates to repair, remediate or replace all systems that are not Year 2000 ready. (3) Developing a Company-wide, detailed strategy to coordinate the repair or replacement of all systems that are not Year 2000 ready. (4) Implementing the strategy to make all systems Year 2000 ready. (5) Verifying, testing and auditing the Year 2000 readiness of all systems. As of September 30, 1999, the first, second, third and fourth phases of the Year 2000 Plan had been completed. The fifth phase will be completed by the end of the fourth quarter of 1999. Any unexpected delays or problems that prevent us from completing the final phase of the Year 2000 Plan in a timely manner could have a material adverse impact on us. In addition to our assessment and review of our own systems, we are communicating with our third-party contractors, such as vendors, service providers and customers, for the purpose of evaluating their readiness for the Year 2000 and determining the extent to which we may be affected by the remediation of their systems, software, applications and products. We continue to review and evaluate the Year 2000 programs of our significant third-party contractors. However, there can be no guarantee that our IT and Non-IT systems of third-party contractors 29 31 will be Year 2000 ready or that the failure of any such party to have Year 2000 ready systems would not result in interruptions in our business which could have a material adverse impact on us. In connection with the implementation and completion of the Year 2000 Plan, we currently expect to incur pretax expenditures of approximately $9.5 million. We have incurred approximately $9.2 million of such expenditures from January 1998 through September 30, 1999, of which, approximately $7.6 million has been incurred in connection with the replacement of our business application software and approximately $1.6 million has been incurred in connection with the replacement of certain IT hardware systems. We intend to continue to fund the Year 2000 Plan expenditures with working capital and third-party lease financing. Based upon information currently available, we believe that expenditures associated with achieving Year 2000 compliance will not have a material impact on operating results. However, any unanticipated problems relating to the Year 2000 issue that result in materially increased expenditures could have a material adverse impact on us. The 1999 expenditures associated with the Year 2000 Plan represent approximately 15% of our 1999 MIS Department's budget. Various other IT projects that are not related to the Year 2000 issue have been deferred due to the Year 2000 efforts. The effects of these delays are not expected to have a material impact on us. We are unable to predict the most likely worst case Year 2000 scenario. We are preparing a contingency plan in response to Year 2000 worst case scenario and we estimate no lost revenues due to Year 2000 issues. However, there can be no assurance that any contingency plan developed by us will be sufficient to alleviate or remediate any significant Year 2000 problems that we may experience. The above discussion of our efforts and expectations relating to the risks and uncertainties associated with the Year 2000 issues and our Year 2000 Plan contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements involve predictions and expectations concerning our ability to achieve Year 2000 compliance, the amount of costs and expenses related to the Year 2000 issue and the effect the Year 2000 issue may have on business and results of operations. Certain risks and uncertainties may cause actual results to be materially different from the projected or expected results, the overall effect of which may have a materially adverse impact on us. These risks and uncertainties include, but are not limited to, unanticipated problems and costs identified in all phases of the Year 2000 Plan, our ability to successfully implement the Year 2000 Plan in a timely manner and the ability of our suppliers, vendors and customers to make their systems and products Year 2000 compliant. EXPOSURES INDUSTRY EXPOSURE Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. Many of our customers have slowed the payment of their accounts in light of current industry conditions and others have experienced greater financial difficulties in meeting their payment terms. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. We maintain reserves for potential credit losses, and, generally, actual losses have historically been within our expectations. LITIGATION AND ENVIRONMENTAL EXPOSURE In the ordinary course of business, we become the subject of various claims and litigation. We maintain insurance to cover many of our potential losses and we are subject to various self-retentions and deductibles with respect to our insurance. Although we are subject to various ongoing items of litigation, we do not believe that any of the items of litigation that we are currently subject to will result in any material uninsured losses to us. It is, however, possible that an unexpected judgment could be rendered against us in cases in which we could be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for that matter. 30 32 We are also subject to various federal, state and local laws and regulations relating to the energy industry in general and the environment in particular. Environmental laws have in recent years become more stringent and have generally sought to impose greater liability on a larger number of potentially responsible parties. While we are not currently aware of any situation involving an environmental claim that would likely have a material adverse effect on our business, it is always possible that an environmental claim with respect to one or more of our current businesses or a business or property that one of our predecessors owned or used could arise that could involve the expenditure of a material amount of funds. INTERNATIONAL EXPOSURE Like most multinational oilfield service companies, we have operations in certain international areas, including parts of the Middle East, North and West Africa, Latin America, the Asia-Pacific region and the Commonwealth of Independent States, that are inherently subject to risks of war, political disruption, civil disturbance and policies that may: o disrupt oil and gas exploration and production activities; o restrict the movement of funds; o lead to U.S. government or international sanctions; and o limit access to markets for periods of time. Historically, the economic impact of such disruptions has been temporary, and oil and gas exploration and production activities have resumed eventually in relation to market forces. Certain areas, including the CIS, Algeria, Nigeria, parts of the Middle East, the Asia-Pacific region and Latin America, have been subjected to political disruption which has negatively impacted results of operations following such events. CURRENCY EXPOSURE A single European currency ("the Euro") was introduced on January 1, 1999, at which time the conversion rates between legacy currencies and the Euro were set for 11 participating member countries. However, the legacy currencies in those countries will continue to be used as legal tender through January 1, 2002. Thereafter, the legacy currencies will be canceled, and the Euro bills and coins will be used in the 11 participating countries. We are currently evaluating the effect of the Euro on our consolidated financial statements and our business operations; however, we do not foresee that the transition to the Euro will have a significant impact. Approximately 69.3% of our net assets from continuing operations are located outside the United States and are carried on our books in local currencies. Changes in those currencies in relation to the U.S. dollar result in translation adjustments which are reflected as accumulated other comprehensive loss in the stockholders' equity on our balance sheet. We recorded a $10.4 million adjustment to our equity account for the nine months ended September 30, 1999 to reflect the net impact of the decline in Latin American and European currencies, partially offset by the strengthening Canadian dollar, against the U.S. dollar. FORWARD-LOOKING STATEMENTS This report and our other filings with the Securities and Exchange Commission and public releases contain statements relating to our future results, including certain projections and business trends. We believe these statements constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties may cause actual results to be materially different from projected results contained in forward-looking statements in this report and in our other disclosures. These risks and uncertainties include, but are not limited to, the following: A Further Downturn in Market Conditions Could Affect Projected Results. Any unexpected material changes in oil and gas prices or other market trends would likely affect the forward-looking information contained in this report. Our estimates as to future results and industry trends make assumptions regarding the future prices of oil and gas and their effect on the demand and pricing of our products and services. In analyzing the market and its impact on us for the remainder of 1999 and into 2000, we have made the following assumptions: 31 33 o The recent increase in the price of oil will result in modest improvements on our businesses in the fourth quarter of 1999 and continue to improve through 2000, with the strongest improvements expected to incur in the second half of 2000. o Oil prices will average around $20 per barrel for 2000. o Average natural gas prices for 2000 will remain at or near their current levels. o World demand for oil will be up only marginally or flat. o Drilling activity will increase slightly beyond normal demand as oil companies seek to replace and produce reserves that were not replaced or produced in 1999. o North American and international rig counts will improve, with increases in the international rig count following the North American rig count increase by around six months. In 2000, we expect the average rig count for North America to be around 1,040 and the international rig count to average around 629. o Pricing for many of our products and services will continue to be subject to pricing pressures due to industry consolidations and competition as the industry recovers. o Our completion and downhole services business will begin to experience slight improvements in the fourth quarter. o Demand for compression services will remain relatively flat for the remainder of the year with some pricing pressure. o Future growth in the industry will be dependent on technological advances that can reduce the costs of exploration and production, and technological improvements in tools used for re-entry, thru-tubing and extended reach drilling as well as artificial lift technologies will be important to our future. These assumptions are based on various macroeconomic factors, and actual market conditions could vary materially from those assumed. A Continuation of the Low Rig Count Could Adversely Affect the Demand for Our Products and Services. Our operations were materially affected by the decline in the rig count during 1998 and 1999 to date. Although the North American rig count has improved slightly from its historical low earlier this year, a further decline in the North American and international rig counts would adversely affect our results. Our forward-looking statements regarding our drilling products assume an improvement in the rig count in 2000 and that there will not be any further material declines in the worldwide rig count, in particular the domestic rig count. Projected Cost Savings Could Be Insufficient. During 1998 and 1999 to date, we implemented a number of programs intended to reduce costs and align our cost structure with the current market environment. Our forward-looking statements regarding cost savings and their impact on our business assume these measures will generate the savings expected. However, if the markets continue to decline, additional actions may be necessary to achieve the desired savings. Grant Spinoff. We are currently proposing a spinoff of our Grant Prideco drilling products business. The spinoff of this business is subject to the receipt of a favorable private letter ruling from the Internal Revenue Service confirming that the spinoff will be generally tax free to us and our shareholders. There can be no assurance that a spinoff of the business will occur or the specific timing thereof. Integration of Acquisitions. During the last year, we have consummated various acquisitions of product lines and businesses. The success of these acquisitions will be dependent on our ability to integrate these product lines and businesses with our existing businesses and eliminate duplicative costs. We have incurred various duplicative costs with respect to the operations of companies and businesses acquired by us during 1999 pending the integration of the acquired businesses with our businesses. Revenue and income benefits from the acquisitions have also been delayed due to the current adverse market conditions. Our forward-looking statements assume the successful integration of the acquired businesses and their contribution to our income during 2000. Integration of acquisitions is something that cannot occur overnight and is something that requires constant effort at the local level to be successful. Accordingly, there can be no assurance as to the ultimate success of our integration efforts. Weatherford's Success is Dependent upon Technological Advances. Our ability to succeed with our long-term growth strategy is dependent on the technological competitiveness of our product and service offerings. A central aspect of our growth strategy is to enhance the technology of our products and services, to expand the markets for many of our products through the leverage of our worldwide infrastructure and to enter new 32 34 markets and expand in existing markets with technologically advanced value-added products. Our forward-looking statements have assumed gradual growth from these new products and services during 2000. Unexpected Year 2000 Problems Could Have an Adverse Financial Impact. We have not fully determined the impact of Year 2000 on our systems and products. It is possible that unexpected problems associated with the Year 2000 could arise during the implementation of our Year 2000 program that could have a material adverse effect on our business, financial condition and results of operations. We are currently in the testing phase of our Year 2000 program and expect it to be completed by the end of November 1999. Economic Downturn Could Adversely Affect Demand for Products and Services. The economic downturn that began in Asia in 1997 affected the economies in other regions of the world, including South America and the former Soviet Union, and contributed to the decline in the price of oil and the level of drilling activity. Although the economy in the United States also has experienced one of its longest periods of growth in recent history, the continued strength of the United States economy cannot be assured. If the United States or European economies were to begin to decline or if the economies of South America or Asia were to experience further material problems, the demand and price for oil and gas and our products and services could again adversely affect our revenues and income. We have assumed that a worldwide recession or a material downturn in the United States economy will not occur. Currency Fluctuations Could Have a Material Adverse Financial Impact. A material decline in currency rates in our markets could affect our future results as well as affect the carrying values of our assets. World currencies have been subject to much volatility. Our forward-looking statements assume no material impact from changes in currencies because our financial position is generally dollar based or hedged. For those revenues denominated in local currency the effect of foreign currency fluctuations is largely mitigated because local expenses are denominated in the same currency. Changes in Global Trade Policies Could Adversely Impact Operations. Changes in global trade policies in our markets could impact our operations in these markets. We have assumed that there will be no material changes in global trading policies. Unexpected Litigation and Legal Disputes Could Have a Material Adverse Financial Impact. If we experience unexpected litigation or unexpected results in our existing litigation having a material effect on results, the accuracy of the forward-looking statements would be affected. Our forward-looking statements assume that there will be no such unexpected litigation or results. Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our other filings with the Securities and Exchange Commission. For additional information regarding risks and uncertainties, see our other current year filings with the Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended. We will generally update our assumptions in our filings as circumstances require. 33 35 PART II. OTHER INFORMATION ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS During the quarter ended September 30, 1999, we issued an aggregate of 11,540,002 shares of our common stock as follows: o On July 7, 1999, we issued 105,000 shares of our common stock to Texas Pup, Inc. in consideration for the purchase of certain of Texas Pup's assets by our Drilling Products Division. o On August 25, 1999, we issued 328,767 shares of our common stock to the shareholders of Petro-Drive, Inc. in consideration for the purchase of all of the issued capital stock of Petro-Drive, Inc. by our Drilling Products Division. o On August 31, 1999, we issued 3,985,900 shares of our common stock to the noteholders of Dailey International Inc. and 281,692 shares of common stock to the shareholders of Dailey International Inc. We also retained 1,226,285 shares of our common stock that would have otherwise been issued to Dailey's noteholders as treasury shares (in respect of our holdings of Dailey International notes) in consideration for the purchase of all of the issued capital stock of Dailey International Inc. In addition, we issued 28,726 shares of our common stock to a creditor of Dailey International Inc. for modifications of certain leases. These issuances of stock were effected pursuant to a plan of reorganization of Dailey that was confirmed by the United States Bankruptcy Court in Delaware. o On September 2, 1999, we issued 3,830,209 shares of our common stock to the shareholders of Petroline Wellsystems Limited in consideration for the purchase of all of the issued capital stock of Petroline Wellsystems Limited. o On September 15, 1999, we issued 1,753,423 shares of our common stock to the shareholders of Williams Tool Co. and Williams Tool Co. (Canada) Inc. in consideration for the purchase of all of the issued capital stock of Williams Tool Co. and Williams Tool Co. (Canada) Inc. With the exception of the shares that were issued to persons other than us in connection with our acquisition of Dailey International, all of the shares issued by us in the above transactions were issued in transactions not involving a public offering and were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The issuance by us of our shares in the Dailey International bankruptcy was exempt from registration under the Securities Act of 1933 pursuant to Section 1145 of the United States Bankruptcy Code. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: *10.1 Stock Purchase Agreement dated August 25, 1999, among the shareholders of Petro-Drive, Inc., Grant Prideco, Inc. and Weatherford International, Inc. 10.2 Share Sale Agreement dated September 2, 1999, between the shareholders of Petroline Wellsystems Limited and Weatherford Eurasia Limited and Weatherford International, Inc. (including Registration Rights Undertaking attached as Annex A) (incorporated by reference to Exhibit 10.1 to Form 8-K (File 1-13086) filed September 7, 1999). 10.3 Agreement and Plan of Reorganization dated September 14, 1999, among Williams Tool Co., the shareholders of Williams Tool Co., the shareholders of Williams Tool Co. (Canada) Inc. (formerly 598148 Alberta Ltd.), Weatherford International, Inc. and Weatherford Acquisition, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K (File 1-13086) filed September 24, 1999). *27.1 Financial Data Schedule * Filed herewith 34 36 (b) Reports on Form 8-K: 1) Current Report on Form 8-K dated July 21, 1999, announcing the Company's earnings for the quarter ended June 30, 1999 and a possible spin-off of the Company's Grant Prideco drilling products business to its shareholders. 2) Current Report on Form 8-K dated August 16, 1999, containing pro forma financial information of the Company and Dailey International Inc. 3) Current Report on Form 8-K dated August 31, 1999, announcing the completion of the acquisitions of Dailey International Inc. and Petroline Wellsystems Limited and containing certain financial statements of Dailey International Inc. 4) Current Report on Form 8-K dated September 15, 1999, announcing the completion of the acquisition of Williams Tool Co. 35 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Weatherford International, Inc. By: /s/ Bruce F. Longaker, Jr. ----------------------------------------- Bruce F. Longaker, Jr. Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 12, 1999 36 38 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- *10.1 Stock Purchase Agreement dated August 25, 1999, among the shareholders of Petro-Drive, Inc., Grant Prideco, Inc. and Weatherford International, Inc. 10.2 Share Sale Agreement dated September 2, 1999, between the shareholders of Petroline Wellsystems Limited and Weatherford Eurasia Limited and Weatherford International, Inc. (including Registration Rights Undertaking attached as Annex A) (incorporated by reference to Exhibit 10.1 to Form 8-K (File 1-13086) filed September 7, 1999). 10.3 Agreement and Plan of Reorganization dated September 14, 1999, among Williams Tool Co., the shareholders of Williams Tool Co., the shareholders of Williams Tool Co. (Canada) Inc. (formerly 598148 Alberta Ltd.), Weatherford International, Inc. and Weatherford Acquisition, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K (File 1-13086) filed September 24, 1999). *27.1 Financial Data Schedule * Filed herewith EX-10.1 2 STOCK PURCHASE AGREEMENT - DATED AUGUST 25, 1999 1 EXHIBIT 10.1 ================================================================================ STOCK PURCHASE AGREEMENT AMONG THE SHAREHOLDERS OF PETRO-DRIVE INC., GRANT PRIDECO, INC. AND WEATHERFORD INTERNATIONAL, INC. AUGUST 25, 1999 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE 1.........................................................................................................1 PURCHASE AND SALE........................................................................................1 1.1 Sale of Shares........................................................................1 1.2 Closing...............................................................................1 1.3 Purchase Price........................................................................1 1.4 Purchase Price Adjustment.............................................................1 1.5 Liabilities Assumed by the Shareholders...............................................3 1.6 Weatherford Share Adjustments.........................................................3 1.7 Adjustments for Changes in Capitalization.............................................3 1.8 Escrowed Shares.......................................................................4 ARTICLE 2.........................................................................................................4 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.......................................................4 2.1 Organizational Matters................................................................4 2.2 Validity of Agreement and Conflict with Other Instruments.............................5 2.3 Approvals, Licenses and Authorizations................................................6 2.4 Title to and Condition of Properties..................................................6 2.5 Contracts and Commitments.............................................................7 2.6 Financial Statements..................................................................8 2.7 No Litigation.........................................................................8 2.8 No Adverse Changes or Events..........................................................8 2.9 Environmental Matters.................................................................9 2.10 Warranties and Product Liability.....................................................10 2.11 Employee Matters.....................................................................10 2.12 Taxes and Governmental Returns and Reports...........................................13 2.13 Finder's Fees........................................................................15 2.14 Insurance............................................................................15 2.15 Securities Law Matters...............................................................15 ARTICLE 3........................................................................................................17 REPRESENTATIONS AND WARRANTIES OF THE BUYER AND WEATHERFORD.............................................17 3.1 Corporate Matters....................................................................17 3.2 Approvals, Licenses and Authorizations...............................................17 3.3 Finder's Fees........................................................................17 3.4 Authorization for the Weatherford Shares.............................................17 3.5 SEC Documents........................................................................18 ARTICLE 4........................................................................................................18 ADDITIONAL AGREEMENTS...................................................................................18 4.1 Access to Information................................................................18 4.2 Conduct of the Business..............................................................19 4.3 Negotiation with Others..............................................................21 4.4 Information..........................................................................21 4.5 Delivery of Documents................................................................21 4.6 Further Assurances...................................................................21 4.7 Nondisclosure of Proprietary Information.............................................21 4.8 Covenant Not to Compete With the Business............................................22 4.9 Use of Corporate Name................................................................22 4.10 Release..............................................................................23
i 3 4.11 Continuation of Business by the Buyer................................................23 4.12 Payment of Obligations...............................................................23 4.13 Company Cars.........................................................................24 4.14 Certain Licenses and Agreements......................................................24 4.15 Certain Receivables..................................................................24 ARTICLE 5........................................................................................................24 BUYER'S AND WEATHERFORD'S CONDITIONS....................................................................24 5.1 Representations, Warranties and Covenants............................................24 5.2 Good Standing........................................................................25 5.3 Certificates and Instruments of Transfer.............................................25 5.4 No Litigation........................................................................25 5.5 No Material Adverse Event............................................................25 5.6 Other Legal Matters..................................................................25 5.7 Licenses, Consents and Approvals.....................................................25 5.8 Consents of Third Persons............................................................25 5.9 Legal Opinion........................................................................25 5.10 Shareholder and Other Payment Obligations............................................26 5.11 Liabilities..........................................................................26 5.12 Employment Agreement.................................................................26 5.13 Stock Exchange Approval..............................................................26 5.14 Approvals for Issuance of Weatherford Shares.........................................26 5.15 Resolutions..........................................................................26 5.16 Broussard Facilities.................................................................26 5.17 Cayman Islands Name Change...........................................................26 5.18 Certain Licenses and Agreements......................................................26 ARTICLE 6........................................................................................................26 SHAREHOLDERS' CONDITIONS................................................................................26 6.1 Representations, Warranties and Covenants............................................26 6.2 Purchase Price.......................................................................27 6.3 Licenses, Consents and Approvals.....................................................27 6.4 No Litigation........................................................................27 6.5 Other Legal Matters..................................................................27 6.6 Legal Opinion........................................................................27 6.7 Company Obligations..................................................................27 6.8 Employment Agreement.................................................................27 6.9 Resolutions..........................................................................27 6.10 Consulting Agreements................................................................27 6.11 Broussard Facilities.................................................................28 ARTICLE 7........................................................................................................28 INDEMNIFICATION.........................................................................................28 7.1 Indemnification by the Shareholders..................................................28 7.2 Indemnification by the Buyer and Weatherford.........................................28 7.3 Procedure............................................................................28 7.4 Payment..............................................................................29 7.5 Failure to Pay Indemnification.......................................................29 7.6 Express Negligence...................................................................29 7.7 Indemnification Limitations..........................................................29
ii 4 7.8 Liability Adjustment.................................................................30 ARTICLE 8........................................................................................................30 NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS......................................................30 ARTICLE 9........................................................................................................30 TERMINATION.............................................................................................30 9.1 Termination..........................................................................30 9.2 Liability Upon Termination...........................................................31 9.3 Notice of Termination................................................................31 ARTICLE 10.......................................................................................................31 DEFINITIONS OF CERTAIN TERMS............................................................................31 ARTICLE 11.......................................................................................................37 MISCELLANEOUS...........................................................................................37 11.1 Shareholder Representative...........................................................37 11.2 Spousal Consent......................................................................37 11.3 Expenses.............................................................................37 11.4 Notices..............................................................................37 11.5 Specific Performance.................................................................38 11.6 Assignment and Successors............................................................38 11.7 Entire Agreement.....................................................................38 11.8 Governing Law........................................................................39 11.9 Waiver...............................................................................39 11.10 Severability.........................................................................39 11.11 No Third Party Beneficiaries.........................................................39 11.12 Counterparts.........................................................................39 11.13 Headings.............................................................................39 11.14 Arbitration..........................................................................39 11.15 Negotiated Transaction...............................................................40
iii 5 LIST OF DISCLOSURE SCHEDULE SECTIONS Section 1.3 - Purchase Price Section 2.1(a) - Jurisdictions in Which the Company Does Business Section 2.1(b) - Charter and By-laws of the Company; Shareholders Section 2.2(c) - Loss of Licenses, Permits etc. Section 2.3 - Licenses, Permits etc. Section 2.4(a) - Title to Property Section 2.4(b) - Real Property Section 2.4(c) - Intellectual Property Section 2.4(d) - Use of Others' Property Section 2.5(a) - Contracts and Commitments Section 2.6 - Financial Statements Section 2.7 - Litigation Section 2.8(c) - Bonuses Section 2.8(h) - Material Transactions Section 2.9 - Environmental Matters Section 2.10 - Product Warranties Section 2.11 - Employee Benefits and Matters Section 2.12 - Tax Groups Section 2.14 - Insurance Section 4.15 - Accounts Receivable LIST OF EXHIBITS Exhibit A - Form of Employment Agreement Exhibit B - Form of Broussard Facilities Lease Exhibit C - Form of Consulting Agreement iv 6 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of August 25, 1999, among the shareholders of Petro-Drive Inc., a Louisiana corporation (the "Company"), listed on the signature pages hereto (collectively, the "Shareholders"), Grant Prideco, Inc., a Delaware corporation (the "Buyer"), and Weatherford International, Inc., a Delaware corporation ("Weatherford"). W I T N E S S E T H : WHEREAS, the Shareholders desire to transfer to the Buyer all of the outstanding shares of capital stock (the "Shares") of the Company and the Buyer desires to acquire the Shares, all upon the terms and subject to the conditions set forth herein; and WHEREAS, the parties hereto desire to set forth certain representations, warranties and agreements, all as more fully set forth below; NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Sale of Shares. On the Closing Date, upon the terms and subject to the conditions contained herein, the Shareholders shall transfer, sell, assign and convey to the Buyer, and the Buyer shall purchase from the Shareholders, the Shares free and clear of all Liens (as defined in Section 10.32). 1.2 Closing. Subject to the conditions set forth in this Agreement, the Closing shall take place at the offices of Weatherford, located at 515 Post Oak Blvd., Suite 600, Houston, Texas, at 9:00 a.m. on August 25, 1999, or at such other time, date and place as the parties hereto shall mutually agree upon in writing (the "Closing Date"). Failure to consummate the transactions contemplated hereby on such date shall not result in a termination of this Agreement or relieve any party hereto of any obligation hereunder. Title to, ownership of and control over the Shares shall pass to the Buyer at the Closing. 1.3 Purchase Price. On the Closing Date, in consideration of the transfer to Buyer of the Shares, Weatherford shall issue to the Shareholders (in the amounts set forth on Section 1.3 of the Disclosure Schedule) the Weatherford Shares (as defined in Section 10.56) in payment of the purchase price (the "Purchase Price"); provided, however, that an aggregate of 82,189 of the Weatherford Shares (the "Escrowed Shares") shall be held in escrow by Weatherford in accordance with Section 1.8. 1.4 Purchase Price Adjustment. (a) The Buyer shall, within 60 calendar days after the Closing Date, prepare or cause to be prepared a balance sheet of the Company as of the Closing Date (the "Closing Date Balance Sheet") and shall deliver such Closing Date Balance Sheet to the Shareholder Representative (as defined in Section 11.1). The Buyer shall provide the Shareholder Representative with access to copies of all work papers and other relevant documents to verify the entries contained in the Closing Date Balance Sheet. The Closing Date Balance Sheet shall be prepared in accordance with GAAP (as defined in Section 10.26). The Shareholder 7 Representative shall have a period of 15 calendar days after delivery to him of the Closing Date Balance Sheet to review it and make any objections in writing to the Buyer. If written objections to the Closing Date Balance Sheet are delivered to the Buyer within such 15-day period, then the Buyer and the Shareholder Representative shall attempt to resolve the matter or matters in dispute. If no written objections are made within the time period provided above, the Closing Date Balance Sheet shall become final and binding on the parties hereto and the Purchase Price shall be adjusted as described in clause (c) below. (b) If disputes with respect to the Closing Date Balance Sheet cannot be resolved by the Buyer and the Shareholder Representative within 15 calendar days after the delivery of the objections to the Closing Date Balance Sheet, then either party, with notice to the other party, may submit the specific matters in dispute to Ernst & Young LLP or such other recognized independent accounting firm as may be approved by the Buyer and the Shareholder Representative, which firm shall render its opinion as to such matters. Based on such opinion, such accounting firm will then send to the Buyer and the Shareholder Representative its determination in writing on the specific matters in dispute, including any resulting revisions to the Closing Date Balance Sheet. The Closing Date Balance Sheet, including revisions, if any, made by such accounting firm, shall then become final and binding on the parties hereto and the Purchase Price shall be adjusted as described in clause (c) below. The fees and other costs charged by the independent accounting firm shall be borne by the Buyer, on the one hand, and the Shareholders (in proportion of their Share ownership), on the other hand, equally. (c) At the time the Closing Date Balance Sheet becomes final and binding on the parties hereto, the Purchase Price will be: (i) reduced by the amount, if any, by which the Target Working Capital (as defined in Section 10.51) exceeds the Closing Date Working Capital (as defined in Section 10.11); (ii) increased by the amount, if any, by which the Closing Date Working Capital exceeds the Target Working Capital; (iii) reduced by the amount, if any, by which the Closing Date Debt (as defined in Section 10.10) exceeds the Target Debt (as defined in Section 10.50); (iv) increased by the amount, if any, by which the Target Debt exceeds the Closing Date Debt; and (v) reduced by $122,000, which represents the amount to replace or repair the 18-ton stiff leg crane. If the foregoing adjustments result in a net decrease in the Purchase Price, the Shareholders shall, within five days of the date that the Closing Date Balance Sheet becomes final and binding on the parties hereto, transfer to the Buyer, in the same proportions as the Shareholders received the Weatherford Shares, the number of shares of Common Stock equal to the amount of such difference, as determined in clause (d) below. If the foregoing adjustments result in a net increase in the Purchase Price, the Buyer shall, within five days of the date that the Closing Date Balance Sheet becomes final and binding on the parties hereto, cause Weatherford to issue to the Shareholders, in the same proportions as the Shareholders received the Weatherford Shares, the number of shares of Common Stock equal to the amount of such difference, as determined in clause (d) below. (d) Any adjustments made pursuant to this Section 1.4 shall be made in shares of Common Stock or cash, at the option of the payor. The number of shares of Common Stock that may be issued 2 8 by Weatherford or transferred by the Shareholders, as the case may be, shall be equal to the amount of the adjustment, divided by the Average Closing Price (as defined in Section 10.3). If the Shareholders decide to use shares of Common Stock to pay any adjustment under this Section 1.4, such payment shall be made first from the Escrowed Shares and then, as necessary, from the other Weatherford Shares issued to the Shareholders at Closing. Any payments made pursuant to this Section 1.4 shall be deemed to be adjustments to the Purchase Price. (e) For purposes of preparing the Closing Date Balance Sheet, there shall be no (i) increases in the carrying value of any assets of the Company by virtue of any adjustments made after March 31, 1999, or (ii) increases in assets of the Company due to the recognition of any non-cash increase after March 31, 1999, other than in connection with sales and dispositions of inventory in the ordinary course of business. 1.5 Liabilities Assumed by the Shareholders. Effective immediately prior to the Closing, the Shareholders shall assume all of the Retained Liabilities (as defined in Section 10.41). 1.6 Weatherford Share Adjustments. If any of the Shareholders sells any Weatherford Shares during the period commencing on the first anniversary of the Closing Date and ending on the second anniversary of the Closing Date in a bona fide open market transaction to a non-Affiliate of any of the Shareholders (a "Resale") at a gross sales price per share that is less than $36.50 (the "Target Price"), Weatherford and the Buyer agree to issue to such Shareholder the number of shares of Common Stock equal to (i) the number of Weatherford Shares sold in the Resale multiplied by the difference between the Target Price and the gross sales price per share received in the Resale, divided by (ii) the gross sales price per share at Resale (such issuance referred to as an "Additional Payment"); provided, however, that Weatherford may, in its sole discretion, elect to make any Additional Payment in cash. On the third Business Day following the receipt by Weatherford of adequate documentation of a Resale, including a copy of the broker's transaction report for the Resale, which shall include the gross sales price per Weatherford Share sold in the Resale, an Additional Payment shall be made by the Buyer or Weatherford to such Shareholder. Notwithstanding the foregoing, if for any period of 10 consecutive trading days subsequent to the first anniversary of the Closing Date, the closing sales price of the Common Stock, as reported by the New York Stock Exchange, is greater than the Target Price, Weatherford's and the Buyer's obligations under this Section 1.6 shall terminate. 1.7 Adjustments for Changes in Capitalization. For purposes of this Article 1, references to the Common Stock, Escrowed Shares and Weatherford Shares shall include any stock, securities, cash or other property that may be received by a stockholder who is issued a share of Common Stock on the Closing Date in respect of such share and all references to the market value of the Common Stock as of any date shall mean the sum of the market value of Common Stock and such other stock, securities, cash or other property that may be received by a holder of Common Stock in respect of a share of Common Stock. In the event a change in capitalization in accordance with the immediately preceding sentence includes the issuance or distribution by Weatherford of stock, securities, cash or other property, then for purposes of determining whether a Resale is for an amount less than the Target Price, the "gross sales price per share" shall be calculated by adding the sales price received for the portion of the Weatherford Shares actually sold to the value of the portion of the Weatherford Shares retained. The determination of the value of any security shall be based on the closing sale price of that security on the principal stock exchange on which it is listed if that security is traded on a national securities exchange. If the principal market in which a security is traded is an automated trading system, such as NASDAQ, the market value on any day shall be the average of the high and low bid price for that security on that day. If any other security or property is received, its value shall be determined by agreement by a nationally recognized investment banking firm selected in good faith by Weatherford. In the event of a reclassification of the Common Stock into a greater or lesser number of shares of Common Stock, all 3 9 references to numbers of shares of Common Stock and all market prices (including Target Price) for the Common Stock shall be appropriately adjusted to reflect such reclassification. 1.8 Escrowed Shares. Subject to Section 1.4 and Article 7, the Escrowed Shares shall be issued and outstanding for all purposes and held in escrow by Weatherford until the later to occur of (i) three years after the date of the filing of the Company's 1999 Tax returns and (ii) the completion and resolution of any Tax audits involving the Company (the "Termination Date"); provided, however, that if on the Termination Date any claims for indemnification for Buyer Losses have not been resolved or paid in full, such Termination Date shall be extended and any or all of the Escrowed Shares may be held in escrow by Weatherford for so long as any of such claims for indemnification for Buyer Losses have not been resolved or paid in full. Any dividends or distributions paid or payable with respect to the Escrowed Shares shall also be deemed to constitute Escrowed Shares and shall be subject to the terms of this Section 1.8. Following one year after the date hereof, if any Shareholder desires to sell any of such Shareholder's Escrowed Shares, Weatherford will release such shares provided that the Shareholder deposits with Weatherford or the Buyer an aggregate amount in cash equal to the number of Escrowed Shares withdrawn multiplied by $36.50 per share. To the extent the Escrowed Shares consist of cash, the Buyer or Weatherford can satisfy their rights to receive payments under Section 7.4 by withdrawing cash or shares or any combination thereof. Such cash deposited with Weatherford or the Buyer, including any interest earned thereon, shall be held in escrow and be deemed to constitute Escrowed Shares for purposes of this Agreement. All cash deposited with Weatherford or the Buyer shall earn interest at the same interest rate that Weatherford or the Buyer earns on its money investment account. Subject to the foregoing, Weatherford shall deliver to the Shareholders (in such proportions as the Shareholders received the Weatherford Shares) the Escrowed Shares, if any, remaining on the Termination Date. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS The Shareholders hereby represent and warrant to the Buyer and Weatherford as follows: 2.1 Organizational Matters. (a) The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Louisiana. The Company is duly authorized, qualified and licensed and has all requisite power and authority under all applicable laws, ordinances and orders of public authorities to own, operate and lease its properties and assets and to carry on its business in the places and in the manner currently conducted. The Company is duly qualified to transact business as a foreign corporation and is in good standing in the jurisdictions specified in Section 2.1(a) of the Disclosure Schedule and there is no other jurisdiction in which the nature and extent of the business conducted by the Company or the character of its assets makes such qualification necessary. The Company does not do business in any state, country or commonwealth under any name other than "Petro-Drive". The Company does not have any Subsidiaries. (b) The items set forth in Section 2.1(b) of the Disclosure Schedule are true, correct and complete copies of the Articles of Incorporation and Bylaws of the Company, as amended and in full force and effect. The authorized capital of the Company consists of 5,000,000 shares of common stock, no par value, of which 206,888 shares are issued and outstanding. All issued and outstanding shares of capital stock of the Company are owned of record by the Shareholders, free and clear of all Liens, in the amounts set forth in Section 2.1(b) of the Disclosure Schedule. The Shares have been duly authorized and validly issued and are fully paid and non-assessable and were not issued in violation of any preemptive, preferential purchase or other 4 10 similar rights of any Person. There are no outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights, agreements, arrangements or understandings of any character obligating the Company (i) to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares in the capital of the Company or any securities or obligations convertible into or exchangeable for such shares or (ii) to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right, agreement, arrangement or understanding. The Shareholders have the absolute right to transfer the Shares to the Buyer. Upon the purchase of the Shares as contemplated by this Agreement, the Buyer will obtain good and valid title to the Shares, free and clear of all Liens. 2.2 Validity of Agreement and Conflict with Other Instruments. (a) Each of the Shareholders has the requisite legal capacity, power and authority to enter into this Agreement, to consummate the transactions contemplated hereunder and to perform his or its obligations under this Agreement. This Agreement has been duly authorized, executed and delivered by each of the Shareholders and is a legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors' rights generally and by legal and equitable limitations on the availability of specific remedies. The Shareholders have not entered into any other agreement whereby the Shares will be sold, assigned or otherwise transferred to another Person. (b) The execution, delivery and performance of this Agreement by the Shareholders and the consummation of the transactions contemplated hereby (i) do not violate any provision of the Articles of Incorporation or Bylaws of the Company, or any law, statute, ordinance, regulation, judgment, writ, injunction, rule, decree, order or any other restriction of any kind or character applicable to the Shareholders or the Company or any of their respective properties or assets, (ii) do not conflict with, or result in any breach of, or default or loss of any right under (or an event or circumstance that, with notice or the lapse of time, or both, may result in a default), or the creation of a Lien pursuant to, or cause or permit the acceleration prior to maturity of any amounts owing under, any indenture, mortgage, deed of trust, lease or other agreement to which any of the Shareholders or the Company is a party or to which any of their respective assets are subject, (iii) do not require the consent, approval, clearance, waiver, order or authorization of any Person (as defined in Section 10.37) or Governmental Entity (as defined in Section 10.27) that has not been obtained and (iv) conflict with, constitute a breach, violation or termination of any provision of any agreement or contract, whether written or otherwise, to which the Company is a party or by which it is bound. (c) Except as set forth in Section 2.2(c) of the Disclosure Schedule, the execution, delivery and performance of this Agreement by the Shareholders will not result in the loss of any license, franchise or permit possessed by the Company or give a right of acceleration or termination to any party to any agreement or other instrument to which the Company is a party or by which any of its assets are bound, or the loss of any right or benefit under such agreement or instrument. 2.3 Approvals, Licenses and Authorizations. (i) No order, license, consent, waiver, authorization or approval of, or exemption by, or the giving of notice to, or the registration with, or the taking of any other action in respect of, any Person not a party to this Agreement, including any Governmental Entity, and no filing, recording, publication or registration in any public office or any other place is now, or under existing law in the future will be, necessary on behalf of any of the Shareholders or the Company to authorize the execution, delivery and performance of this Agreement or any other agreement contemplated hereby to be executed and delivered by the Shareholders 5 11 and the consummation of the transactions contemplated hereby or thereby (including, but not limited to, assignment of the Shares), or to effect the legality, validity, binding effect or enforceability thereof. (a) All licenses, permits, concessions, warrants, franchises and other governmental authorizations and approvals of all Governmental Entities required or necessary for the Company to carry on its business in the places and in the manner currently conducted have been duly obtained and are in full force and effect and are set forth in Section 2.3 of the Disclosure Schedule. No violations are in existence or, except as set forth in Section 2.3 of the Disclosure Schedule, have been recorded with respect to such licenses, permits or other authorizations and no proceeding is pending or, to the best knowledge of the Shareholders, threatened with respect to the revocation or limitation of any of such licenses, permits or other authorizations. The Company has complied with all laws, statutes, ordinances, rules, regulations and orders of any Governmental Entity, applicable to its business, and all rules, regulations and orders respecting the provision of services by it. 2.4 Title to and Condition of Properties. (a) The Company has good and marketable title to, or valid and subsisting leasehold interests in, all of the personal property reflected on the Financial Statements or used or useful in its business, free and clear of all Liens, except as set forth in Section 2.4(a) of the Disclosure Schedule. All of such personal property is in good working order and condition, subject to routine maintenance requirements. Routine maintenance as used in this Section 2.4(c) shall mean lubricating, painting and cleaning and any supplies or parts use in connection therewith. Since December 31, 1998, the Company has not sold, transferred or otherwise conveyed any personal property reflected in the Financial Statements (as defined in Section 2.6), except for inventory sold, consumed or otherwise disposed of in the ordinary course of business. (b) Each parcel of real estate owned or leased by the Company is set forth on Section 2.4(b) of the Disclosure Schedule and, except as set forth in Section 2.4(b) of the Disclosure Schedule, (i) is free and clear of any Liens, (ii) is not subject to any governmental decree, (iii) is not being sold and (iv) is not being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor has any such condemnation, expropriation or taking been proposed. All leases of real property leased for the use or benefit of the Company to which it is a party, and all amendments and modifications thereof, are in full force and effect and there exists no default under the leases by it, nor any event that with notice or lapse of time or both would constitute a default thereunder by it. (c) The Company owns and has good and marketable title to, or is licensed or otherwise has the right to use, all Proprietary Information (as defined in Section 10.38), including, patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights, applications for any of the foregoing and other proprietary intellectual property rights and computer programs, that are used in or useful for the conduct of its business (collectively "Intellectual Property"). The consummation of the transactions contemplated by this Agreement will not result in the loss of any Intellectual Property. Section 2.4(c) of the Disclosure Schedule sets forth all Intellectual Property and other rights for any of the same owned or held by the Company, together with all registrations and recordings applicable to Intellectual Property. No claims are pending or, to the best knowledge of the Shareholders, threatened that the Company is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. To the best knowledge of the Shareholders, no Person is infringing the rights of the Company with respect to any Intellectual Property. The Company owns or licenses all of the Intellectual Property, free and clear of all Liens. 6 12 (d) All of the assets used or useful for the conduct of the business currently conducted by the Company are, or will by the Closing be, owned by it or leased by it under valid leases. Except as set forth in Section 2.4(d) of the Disclosure Schedule, the conduct of the business currently conducted by the Company in the ordinary course is not dependent on the right to use the property of others. 2.5 Contracts and Commitments. (a) Except as set forth in Section 2.5(a) of the Disclosure Schedule, the Company is not a party to nor is it bound by: (i) any agreement, contract or commitment requiring the expenditure or series of related expenditures of funds in excess of $10,000 (other than purchase orders in the ordinary course of business for materials necessary for the Company); (ii) any agreement, contract or commitment requiring the payment for goods or services whether or not such goods or services are actually provided or the provision of goods or services at a price less than cost to the Company of producing such goods or providing such services; (iii) any loan or advance to, or investment in, any Person or any agreement, contract, commitment or understanding relating to the making of any such loan, advance or investment; (iv) any agreement or obligation with the Shareholders or any Affiliate (as defined in Section 10.1) of the Company; (v) any Debt Obligations (as defined in Section 10.15); (vi) any labor union, management service, employment, consulting or other similar type contract or agreement; (vii) any agreement, contract or commitment that would limit the freedom of the Buyer or any Affiliate thereof following the Closing Date to engage in any line of business, to own, operate, sell, transfer, pledge or otherwise dispose of or encumber any of the assets of the Company or to compete with any Person or to engage in any business or activity in any geographic area; (viii) any agreement, lease, contract or commitment or series of related agreements, leases, contracts or commitments not entered into in the ordinary course of business or, except for agreements to purchase or sell goods and services entered into in the ordinary course of business of the Company, not cancelable by the Company, without penalty to the Company, within 30 calendar days; (ix) any agreement or contract obligating the Company or that would obligate or require any subsequent owner of the Company to provide for indemnification or contribution with respect to any matter; (x) any sales, distributorship, agency or similar agreement relating to the products sold or services provided by the Company; (xi) any license, royalty or similar agreement; or (xii) any other agreement, contract or commitment that might reasonably be expected to be material to the Company or its business. (b) The Company is not in breach of any provision of, or in default (and the Shareholders have no knowledge of any event or circumstance that with notice, or lapse of time or both, would constitute an event of default) under, the terms of any of the contracts or agreements listed in Section 2.5(a) of the Disclosure Schedule. All of the contracts and agreements listed in Section 2.5(a) of the Disclosure Schedule are in full force and effect. The Shareholders are not aware of any pending or threatened disputes with respect to any of the contracts or agreements listed on Section 2.5(a) of the Disclosure Schedule. (c) The enforceability of the contracts and agreements set forth in Section 2.5(a) of the Disclosure Schedule will not be affected in any manner by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 2.6 Financial Statements. Attached as Section 2.6 of the Disclosure Schedule are true, correct and complete copies of (a) the audited balance sheet, statement of income and statement of cash flows of the Company as of and for the years ended December 31, 1998 and December 31, 1997 and (b) the compiled balance sheet and statement of income of the Company as of and for the three-month period ended March 31, 1999 (collectively, the "Financial Statements"). The Financial Statements (i) fairly present the financial position of the Company as of their respective dates and the results of operations of the Company for the periods indicated therein, (ii) have been prepared in accordance with GAAP and (iii) have not been rendered 7 13 untrue, incomplete or unfair as representations of the financial condition of the Company by events subsequent to the date of the Financial Statements. As of the date of this Agreement, the Company has no liability of any kind or matter, either direct, accrued, absolute or otherwise, that is not reflected or disclosed in the Financial Statements. All accounts receivable represented in the Financial Statements were generated in the ordinary course of business and, to the best knowledge of the Shareholders, are fully collectible net of reserves for doubtful accounts. 2.7 No Litigation. Except as set forth in Section 2.7 of the Disclosure Schedule, there is no action, suit, claim, judgment, investigation or legal, administrative, arbitration or other proceeding, or governmental investigation or examination, or any change in any zoning or building ordinance pending or, to the best knowledge of the Shareholders, threatened against or affecting the Shareholders or the Company, at law or in equity, before or by any Governmental Entity and, to the best knowledge of the Shareholders, no basis exists for any such action, suit, claim, investigation or proceeding. 2.8 No Adverse Changes or Events. Since December 31, 1998, the Company has been consistently operated only in the ordinary course, and there has not been: (a) any adverse change in the financial condition, assets, liabilities (contingent or otherwise), results of operations, business or prospects of the Company or any occurrence, circumstance or combination thereof that might reasonably be expected to have an adverse effect before or after the Closing; (b) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the Company; (c) any increase in the compensation or rate of compensation or commissions or, except as set forth in Section 2.8(c) of the Disclosure Schedule, bonuses payable or to become payable by the Company to any of its employees that is not consistent with past practice, any payment or accrual of, or commitment with respect to, any bonus plan or severance arrangement that is not consistent with past practice or any change or modification to any severance arrangement; (d) any sale, assignment, transfer or other disposition or lapse of any Intellectual Property or disclosure to any Person (other than employees of the Company in the scope of their employment) of any Intellectual Property; (e) any cancellation or compromise of any claims, or any waiver of any other rights relating to the Company, or any sale, transfer or other disposition of any properties or assets, real, personal or mixed, tangible or intangible, of the Company (other than sales of inventory in the ordinary course of business); (f) any change in the Company's method of accounting for financial, Tax (as defined in Section 10.52) or other purposes or any increase in the carrying value of the assets; (g) any revaluation by the Company of any of its assets, including, without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business consistent with past practice; (h) except as set forth in Section 2.8(h) of the Disclosure Schedule, any entry by the Company into any commitment or transaction that would be material to the Company; (i) any declaration, setting aside or payment of any dividends or distributions in respect of the Shares or any redemption, purchase or other acquisition of any of its securities; (j) any increase in indebtedness of borrowed money other than borrowing under any existing credit facilities; (k) any granting of a security interest or Lien on any property or assets of the Company other than (A) Liens for taxes not due and payable and (B) inchoate mechanics, warehousemen's and other statutory Liens incurred in the ordinary course of business; or (l) any action taken or omitted to be taken that would have been prohibited under Section 4.2 had such action been taken or omitted to be taken after the date hereof. 2.9 Environmental Matters. (a) Except as set forth in Section 2.9 of the Disclosure Schedule, the Company has at all times operated in compliance with all applicable limitations, restrictions, conditions, standards, prohibitions, requirements and obligations of Environmental Laws (as defined in Section 10.19) and related orders of any court or other Governmental Entity, except where the failure to so operate in compliance would not result in any liability, contingent or otherwise, to the Buyer or its Affiliates. 8 14 (b) Except as set forth in Section 2.7 of the Disclosure Schedule, there are no existing, pending or, to the best knowledge of the Shareholders, threatened actions, suits, claims, investigations, inquiries or proceedings by or before any court or any other Governmental Entity directed against the Company or any of its assets that pertain or relate to (i) any obligations or liabilities, contingent or otherwise, under any applicable Environmental Law, (ii) violations of any Environmental Law or (iii) personal injury or property damage claims relating to the use, release or disposal of Hazardous Materials (as defined in Section 10.28). (c) All Environmental Permits (as defined in Section 10.22) required to be obtained or filed by the Company under all applicable Environmental Laws in connection with its operation or use of the assets or properties or the conduct of its business have been duly obtained or filed and are in full force and effect and will remain in full force and effect following the transfer of the Shares to the Buyer, except where the failure to do so would not result in any liability, contingent or otherwise, to the Company, the Buyer or its Affiliates. (d) Neither the Company nor any of its Affiliates has received notice that any Environmental Permit is to be revoked or suspended by any Governmental Entity and the Company is not currently operating or required to be operating under any compliance order, schedule, decree or agreement, any consent decree, order or agreement, or corrective action decree, order or agreement issued or entered into under, or pertaining to matters regulated by, any Environmental Law. (e) Except as set forth in Section 2.9 of the Disclosure Schedule, the Company does not own or operate any underground storage tanks and has not polluted with any Hazardous Materials the soil or groundwater of any past or present owned or leased premises of the Company. (f) No portion of the assets or properties currently or previously leased or owned by the Company is part of any type of site designated as an environmental site under applicable law nor is part of a decontamination schedule or plan of any Governmental Authority. (g) Except as set forth in Section 2.9 of the Disclosure Schedule, all Waste Materials (as defined in Section 10.55) generated by the Company have been transported, stored, treated and disposed of in compliance with all applicable Environmental Laws, except for such matters that would not result in any liability, contingent or otherwise, to the Company, the Buyer or its Affiliates. (h) Except as set forth in Section 2.9 of the Disclosure Schedule, no Person has disposed or released any Hazardous Materials on or under any asset or property currently or, to the best knowledge of the Shareholders, previously leased or owned by the Company, and the Company has not disposed or released Hazardous Materials on or under the assets or properties currently or previously leased or owned by it. (i) None of the assets or properties of the Company is encumbered by a lien arising or imposed under Environmental Laws. (j) There are no existing or, to the best knowledge of the Shareholders, proposed requirements under Environmental Laws that will require the Company to make capital improvements to its assets or properties or make other expenditures subsequent to the Closing to remain in compliance with Environmental Laws. (k) To the best knowledge of the Shareholders, no notice or other filing, consent or approval is required under any Environmental Law as a prerequisite to the transfer of the Shares to the Buyer. 9 15 (l) The Shareholders have provided the Buyer copies of all environmental audits, assessments or other evaluations of the Company or any of its assets or properties. (m) Except as set forth in Section 2.9 of the Disclosure Schedule, no facts or circumstances exist that could reasonably be expected to result in any liability to any Person with respect to the current or past business and operations of the Company or the assets or properties currently or previously leased or owned by the Company in connection with (i) any release, transportation or disposal of any Hazardous Materials or (ii) action taken or omitted that was not in full compliance with or was in violation of any applicable Environmental Law, except for such matters that would not result in any liability, contingent or otherwise, to the Buyer or its Affiliates. 2.10 Warranties and Product Liability. Except for (a) warranties implied by or arising by operation of law and (b) warranties disclosed in Section 2.10 of the Disclosure Schedule, the Company has not given or made any warranties in connection with the sale or rental of goods or services on or prior to the Closing, including, without limitation, warranties covering the customer's consequential damages. The Shareholders are not aware of any state of facts or the occurrence of any event forming the basis of any present claim against the Company with respect to warranties relating to products manufactured, sold, rented or distributed by it, or services performed by or on behalf of it on or prior to the Closing. The Shareholders have provided to the Buyer all information relating to any known or alleged design or other defect with respect to the products manufactured, sold or rented by the Company, and set forth in Section 2.10 of the Disclosure Schedule is a list and brief description of each such design or other defect. 2.11 Employee Matters. (a) Section 2.11 of the Disclosure Schedule contains a true, complete and accurate list of each director and each person employed by the Company, together with such individual's title or job description and date of hire by the Company, and, for each Company employee who is compensated on a salaried basis, such individual's salary, the last date of increase of his salary, and his incentive compensation arrangements with the Company. Except as and to the extent set forth on Section 2.11 of the Disclosure Schedule, as of the date immediately prior to the date hereof, neither the Company nor the Shareholders have received notification that any of the current employees of the Company presently plans to terminate his employment during the 1999 calendar year, whether by reason of the transactions contemplated by this Agreement or otherwise. (b) Except as and to the extent set forth on Section 2.11 of the Disclosure Schedule, (i) there is no labor strike, work stoppage, lockout or material dispute or material slowdown pending or, to the knowledge of the Shareholders, threatened against the Company, and there has not been any such action during the last three years; (ii) the Company is not a party to or bound by any (A) collective bargaining or similar agreement with any labor organization or (B) written work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company; (iii) no employee of the Company is represented by any labor organization and, to the knowledge of the Shareholders, there are no current union organizing activities among the employees of the Company; and (iv) there are no material written personnel policies, rules or procedures applicable to employees of the Company. (c) Except as and to the extent set forth on Section 2.11 of the Disclosure Schedule (i) the Company is, and during the last three years has been, in material compliance with all applicable laws in respect of employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and has not engaged in any unfair labor practices as defined in the National Labor Relations Act; (ii) there is no unfair labor practice charge or complaint against the Company 10 16 pending or, to the knowledge of the Shareholders, threatened before the National Labor Relations Board or any similar state or foreign agency; (iii) no charges with respect to or relating to the Company are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices; (iv) none of the Company and the Shareholders has received notice of the intent of any Governmental Entity responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to the Company and no such investigation is in progress; and (v) there are no complaints, lawsuits or other proceedings pending or, to the knowledge of the Shareholders, threatened in any forum against the Company by or on behalf of any present or former employee of the Company, any applicant for employment or classes of the foregoing, alleging breach of any express or implied contract of employment, any law governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship. (d) During the last four years, the Company has not effectuated (i) a "plant closing" (as defined in the Worker Adjustment Retraining Notification Act of 1988 (the "WARN Act")) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company; or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company; and the Company has not been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. Except as and to the extent set forth on Section 2.11 of the Disclosure Schedule, none of the Company's employees has suffered an "employment loss" (as defined in the WARN Act) during the past six months. (e) Section 2.11 of the Disclosure Schedule contains a true, complete and accurate list and brief description of all Company Benefit Plans (as defined in Section 10.13). The Shareholders shall have made available to the Buyer prior to Closing, as applicable, true, complete and correct copies of all plan documents, summary plan descriptions, financial statements, funding vehicles, agreements pursuant to which the Company may be obligated to indemnify any Person, determination letters issued by the Service and filings with all applicable governmental agencies for the past three years relating to the foregoing Company Benefit Plans. (f) Neither the Company nor any Person, whether or not incorporated, that was at any time during the past six years treated as a single employer together with the Company has ever maintained, contributed to, had an obligation to contribute to, or incurred any liability with respect to, any employee benefit plan (within the meaning of Section 3(2) of ERISA) that is or was subject to Title IV of ERISA. (g) Each Company Benefit Plan (i) has been operated and administered in all respects in accordance with its terms and applicable laws, including but not limited to ERISA and the Code, (ii) is in compliance with all registration, reporting and disclosure requirements of all applicable laws, (iii) has had all appropriate filings filed timely for each year of its existence, if required, (iv) has at all times complied with any bonding requirements of ERISA or other applicable law, (iv) has been properly funded and (v) to the best knowledge of the Shareholders, has no controversy pending with any Governmental Entity, nor any controversy resolved adversely to the Company or any of its Affiliates, that may subject the Buyer or the Company to the payment of any penalty, interest, tax or other obligation. (h) Neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement, either alone or in conjunction with another event (such as termination of employment) will (i) entitle any current or former employee of the Company, to severance pay from the Company, or any other payment under a Company Benefit Plan, (ii) accelerate the time of payment or vesting of benefits under an Company Benefit Plan, or (iii) increase the amount of compensation due any such employee by the Company. 11 17 (i) Neither the Company nor any of its Affiliates provides employee post-retirement medical or health coverage for any employee of the Company or contributes to or maintains any employee welfare benefit plan that provides for health benefit coverage following termination of employment of any employee of the Company, except as required by the Consolidated Omnibus Reconciliation Act of 1985, as amended, or a similar state law, nor has it made any representations, agreements, covenants or commitments to provide that coverage. (j) Neither the Company nor any of its Affiliates, any officer or partner of the Company or any of its Affiliates or any of the Company Benefit Plans, including the Pension Plans (as defined in Section 10.36), or any trusts created thereunder, or any trustee or administrator thereof, has engaged in any prohibited transaction or act or any other breach of fiduciary responsibility that could subject the Company or the Buyer as the successor to the Company to any Tax or penalty or to any liability under any applicable law or regulation. (k) Each Company Benefit Plan may be unilaterally amended or terminated by the Company or the Buyer without liability to the Company or the Buyer on or at any time after the Closing. (l) With respect to each Company Benefit Plan that is a welfare benefit plan (as defined in Section 3(1) of ERISA), all claims incurred (including claims incurred but not reported) by employees thereunder as of the Closing for which the Company is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims; (ii) covered under a contract with a health maintenance organization pursuant to which such organization bears the liability for such claims or (iii) are reflected as a liability or accrued for on the Financial Statements. (m) Any liabilities of the Company with respect to future obligations related to pension liabilities have been reflected in the Financial Statements. (n) All contributions required to have been made as of the Closing to the Company Benefit Plans pursuant to their terms and applicable law have been timely made. (o) The terms of all Company Benefit Plans that are intended to qualify under Section 401(a) of the Code (i) have been determined by the Service to qualify under Section 401(a) of the Code or (ii) the applicable remedial amendment periods under Section 401(b) of the Code will not have expired prior to the Closing. No event or circumstance has occurred that could cause the Service (as defined in Section 10.44) to disqualify any Company Benefit Plan that is intended to qualify under Section 401(a) of the Code. (p) There is no litigation, action, proceeding, audit, examination or claim pending, or to the Shareholder's knowledge, threatened or contemplated relating to any Company Benefit Plan (other than routine claims for benefits). (q) There has been no partial termination of any Company Benefit Plan within the meaning of Section 411(d)(3) of the Code. (r) No Person has engaged in a transaction that could result in the imposition upon the Company of a civil penalty under Sections 409 or 502(i) of ERISA (as defined in Section 10.23) or a Tax under Sections 4971, 4972, 4975, 4976, 4980, 4980B or 6652 of the Code, and no fact or event exists that could give rise to any such liability. 12 18 (s) No employee pension benefit plan as defined in Section 3(2) of ERISA that is maintained or contributed to by the Company or any ERISA Affiliate had an accumulated funding deficiency as defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, as of the last day of the most recent fiscal year of the plan ending on or prior to the Closing. (t) Neither the Company nor any Person that was at any time during the six-year period ending on the date of this Agreement an ERISA Affiliate has ever maintained, had an obligation to contribute to, contributed to, or incurred any liability with respect to a multiemployer plan, as defined in Section 3(37) of ERISA, or a plan described in Section 4063(a) of ERISA. (u) Neither the Company nor any ERISA Affiliate has incurred any liability under Title IV of ERISA that has not been satisfied (other than liability to the PBGC (as defined in Section 10.35) for the payment of premiums pursuant to Section 4007 of ERISA). No condition exists for which the PBGC is authorized to seek from the Company or an ERISA Affiliate (as defined in Section 10.24) a late payment charge under Section 4007(b) of ERISA. No condition exists that presents a risk that the Company or an ERISA Affiliate will incur any liability under Title IV of ERISA (other than liability to the PBGC for the payment of premiums pursuant to Section 4007 of ERISA). 2.12 Taxes and Governmental Returns and Reports. (a) All Tax Returns (as defined in Section 10.53) of or relating to any Tax that are required to be filed on or before the Closing Date for, by, on behalf of or with respect to the Company, including, but not limited to, those relating to the income, business, operations or property of the Company and those which include or should include the Company (whether on a separate, consolidated, affiliated, combined, unitary or any other basis), have been or will be timely filed with the appropriate foreign, federal, provincial, state and local authorities on or before the Closing Date, and all Taxes shown to be due and payable on such Tax Returns or related to such Tax Returns have been or will be paid in full on or before the Closing Date. (b) All such Tax Returns and the information and data contained therein have been or will be properly and accurately compiled and completed, fairly present or will fairly present the information purported to be shown therein, and reflect or will reflect all liabilities for Taxes for the periods covered by such Tax Returns. (c) None of such Tax Returns are under audit or examination by any foreign, federal, provincial, state or local authority and there are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment or collection of any Tax or deficiency of any nature against the Company or with respect to any such Tax Return, or any suits or other actions, proceedings, investigations or claims now pending or threatened against the Company with respect to any Tax, or any matters under discussion with any foreign, federal, state or local authority relating to any Tax, or any claims for any additional Tax asserted by any such authority. (d) All Taxes assessed and due and owing from or against the Company on or before the Closing Date (including, but not limited to, ad valorem Taxes relating to any property of the Company) have been or will be timely paid in full on or before the Closing Date. (e) All withholding Tax and Tax deposit requirements imposed on the Company for any and all periods ending on or before the Closing Date, or through and including the Closing Date for periods 13 19 that have not ended on or before the Closing Date, have been or will be timely satisfied in full on or before the Closing Date. (f) The Financial Statements reflect and include adequate charges, accruals, reserves and provisions for the payment in full of any and all Taxes payable with respect to any and all periods ending on or before the respective dates thereof. (g) There is no basis known to the Shareholders for any reassessment of Tax and there have been no special assessments on any assets of the Company. (h) The Company is not a party to any Tax allocation or Tax sharing agreement. (i) The Company is not and, except as set forth in Section 2.12 of the Disclosure Schedule, has not been a member of any affiliated, consolidated, combined, unitary or similar group for Tax purposes. (j) All consolidated groups or fiscal unities of which the Company is or has been a party have duly fulfilled, in a timely and accurate manner, all obligations to any foreign, federal, provincial, state or local authority for the period up to the Closing Date. Adequate provisions for payment of all Taxes, including all obligations regarding the termination of any consolidated groups or fiscal unities of which the Company is or has been a party, have been made. (k) During the current fiscal year and for the five previous fiscal years, the Company has not claimed or been granted exemptions from Taxes in connection with any reorganization or merger. Any reorganizations or mergers involving the Company that were consummated before the Closing Date will not give rise to the assessment or payment of Taxes after the Closing Date. (l) No special agreements, rulings or compromises have been entered into between the Company and any foreign, federal, provincial, state or local authority regarding the assessment or payment of Taxes. 2.13 Finder's Fees. Neither the Company nor any of its Affiliates has employed or retained any investment banker, broker, agent, finder or other party, or incurred any obligation for brokerage fees, finder's fees or commissions, with respect to the sale by the Shareholders of the Shares or with respect to the transactions contemplated by this Agreement, or otherwise dealt with anyone purporting to act in the capacity of a finder or broker with respect thereto whereby any party hereto may be obligated to pay such a fee or commission. Charles Milam, Wesley B. Manuel and Thomas Mautner agree to indemnify and hold the Buyer and its Affiliates harmless from and against any and all claims, liabilities or obligations with respect to all fees, commissions or expenses asserted by any Person on the basis of any act, statement, agreement or commitment alleged to have been made by the Shareholders or any of the Affiliates of the Shareholders with respect to any such fee, commission or expense. The indemnity obligations of Charles Milam, Wesley B. Manuel and Thomas Mautner will be borne 80% by Mr. Milam, 10% by Mr. Manuel and 10% by Mr. Mautner. 2.14 Insurance. Section 2.14 of the Disclosure Schedule sets forth all existing insurance policies held by the Company relating to the business, assets, employees or agents of the Company. Each such policy is in full force and effect and is with responsible insurance carriers. There is no dispute with respect to such policies and all claims arising from events or circumstances occurring prior to the date hereof have been paid in full or adequate reserves therefor are recorded in the Financial Statements. All retroactive premium adjustments for any period ended on or before March 31, 1999, under any worker's compensation policy or 14 20 any other insurance policies of the Company, for which the Company has received notice, have been recorded in accordance with GAAP and are reflected in the Financial Statements. None of such policies will terminate as a result of the transactions contemplated by this Agreement. 2.15 Securities Law Matters. (a) Each of the Shareholders recognizes and understands that the Weatherford Shares to be issued to the Shareholders (the "securities") will not, except as expressly provided in Article 4, be registered under the Securities Act (as defined in Section 10.43), or under the securities laws of any state (the "securities laws"). The securities are not being so registered in reliance upon exemptions from the Securities Act and the securities laws which are predicated, in part, on the representations, warranties and agreements of the Shareholders contained herein. (b) Each of the Shareholders represents and warrants that (i) such Shareholder has business knowledge and experience, such experience being based on actual participation therein, (ii) such Shareholder is capable of evaluating the merits and risks of an investment in the Weatherford Shares and the suitability thereof as an investment therefor, (iii) the Weatherford Shares to be acquired by the Shareholders will be acquired solely for investment and not with a view toward resale or redistribution in violation of the securities laws, (iv) such Shareholder is a natural person, or a trust for the benefit of the children of a natural person, whose residence and domicile are in the State of Louisiana, (v) in connection with the transactions contemplated hereby, no assurances have been made concerning the future results of the Buyer or Weatherford or as to the value of the Weatherford Shares and (vi) each of the Shareholders is an "accredited investor" within the meaning of Regulation D promulgated by the Commission pursuant to the Securities Act. Each of the Shareholders understands that neither Weatherford nor the Buyer is under any obligation to file a registration statement or to take any other action under the securities laws with respect to any such securities. (c) Each of the Shareholders have consulted with his or her own counsel in regard to the securities laws and are fully aware (i) of the circumstances under which such Shareholder is required to hold the securities, (ii) of the limitations on the transfer or disposition of the securities, (iii) that the securities must be held indefinitely unless the transfer thereof is registered under the securities laws or an exemption from registration is available and (iv) that no exemption from registration is likely to become available for at least one year from the date of acquisition of the securities. Each of the Shareholders have been advised by his or her counsel as to the provisions of Rules 144 and 145 as promulgated by the Commission under the Securities Act and have been advised of the applicable limitations thereof. Each of the Shareholders acknowledge that Weatherford and the Buyer are relying upon the truth and accuracy of the representations and warranties in this Section 2.15 by each of the Shareholders in consummating the transactions contemplated by this Agreement without registering the securities under the securities laws. (d) Each of the Shareholders has been furnished with the SEC Documents. Each of the Shareholders has been furnished with a summary description of the terms of this Agreement, the Weatherford Shares and Weatherford, and the Buyer and Weatherford have made available to each of the Shareholders the opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain any additional information which they possess or could reasonably acquire for the purpose of verifying the accuracy of information furnished to the Shareholders as set forth herein or for the purpose of considering the transactions contemplated hereby. Weatherford has offered to make available to each of the Shareholders upon request at any time all exhibits filed by Weatherford with the Commission as part of any of the reports filed therewith. 15 21 (e) Each of the Shareholders agree that the certificates representing the Weatherford Shares will be imprinted with the following legend, the terms of which are specifically agreed to: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR THE SECURITIES LAWS OF ANY STATE, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION REQUIREMENTS. WITHOUT SUCH REGISTRATION, SUCH SHARES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER. Each of the Shareholders understands and agrees that appropriate stop transfer notations will be placed in the records of Weatherford and with its transfer agents in respect of the securities which are to be issued to the Shareholders. Weatherford agrees that any Weatherford Shares sold pursuant to an effective registration statement shall have the above legend removed to permit the closing of the sale within three Business Days of written notice of the sale and certification by the selling Shareholder that the sale was made pursuant to the plan of distribution described in the registration statement and the prospectus delivery requirements under the Securities Act were fully complied with in connection with the sale. 16 22 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BUYER AND WEATHERFORD The Buyer and Weatherford jointly and severally represent and warrant to the Shareholders as follows: 3.1 Corporate Matters. Each of the Buyer and Weatherford is a corporation validly existing and in good standing under the laws of Delaware. Each of Weatherford and the Buyer has all requisite power and authority to enter into this Agreement and to perform its obligations under this Agreement. This Agreement has been duly authorized, executed and delivered by each of Weatherford and the Buyer and is a legal, valid and binding obligation of each of Weatherford and the Buyer, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors' rights generally and by legal and equitable limitations on the availability of specific remedies. The execution and delivery of this Agreement by each of Weatherford and the Buyer have been duly authorized by all necessary corporate action and the consummation of the transactions contemplated hereby by Weatherford and the Buyer will not violate any provision of, or constitute a default under, any contract or other agreement to which either of Weatherford or the Buyer is a party or by which it is bound, or conflict with its organizational documents, other than violations, defaults or conflicts that would not materially and adversely affect the ability of Weatherford or the Buyer to consummate the transactions provided for in this Agreement. 3.2 Approvals, Licenses and Authorizations. Except as otherwise provided in this Agreement, no order, license, consent, waiver, authorization or approval of, or exemption by, or the giving of notice to, or the registration with, or the taking of any other action in respect of, any Person not a party to this Agreement, including any Governmental Entity, and no filing, recording, publication or registration in any public office or any other place is now, or under existing law in the future will be, necessary on behalf of the Buyer or Weatherford to authorize its execution, delivery and performance of this Agreement or any other agreement contemplated hereby to be executed and delivered by the Buyer or Weatherford and the consummation by the Buyer and Weatherford of the transactions contemplated hereby or thereby, or to effect the legality, validity, binding effect or enforceability thereof. 3.3 Finder's Fees. Neither the Buyer, Weatherford nor any of their respective Affiliates has employed or retained any investment banker, broker, agent, finder or other party, or incurred any obligation for brokerage fees, finder's fees or commissions, with respect to the transactions contemplated by this Agreement, or otherwise dealt with anyone purporting to act in the capacity of a finder or broker with respect thereto whereby any party hereto may be obligated to pay such a fee or a commission. The Buyer and Weatherford, jointly and severally, agree to indemnify and hold the Shareholders and their Affiliates harmless from and against any and all claims, liabilities or obligations with respect to all fees, commissions or expenses asserted by any Person on the basis of any act, statement, agreement or commitment alleged to have been made by the Buyer or any Affiliate of the Buyer with respect to any such fee, commission or expense. 3.4 Authorization for the Weatherford Shares. Weatherford has taken, or will have taken prior to Closing, all necessary action to permit it to issue the Weatherford Shares. The Weatherford Shares issued pursuant to the terms of this Agreement will be validly issued, fully paid and nonassessable and not subject to preemptive rights. The Weatherford Shares will be listed on the New York Stock Exchange. 3.5 SEC Documents. Weatherford has made available to the Shareholders all of the SEC Documents (as defined in Section 10.42). The SEC Documents represent each report filed by Weatherford with the Commission since March 30, 1999. As of their respective dates, the SEC Documents (i) were 17 23 prepared in all material respects in accordance with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder applicable to such documents and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading except for such statements, if any, as have been modified by subsequent filing with the Commission prior to the date hereof. The consolidated financial statements of Weatherford included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Weatherford and its consolidated Subsidiaries (as defined in Section 10.49) as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Since December 31, 1998, other than as discussed in the SEC Documents, there has been no material adverse change in the business of Weatherford and its Subsidiaries, taken as a whole. ARTICLE 4 ADDITIONAL AGREEMENTS 4.1 Access to Information. (a) Until the Closing, the Shareholders will furnish, and will cause the Company to furnish, the Buyer and its employees, officers, accountants, attorneys, agents, investment bankers and other authorized representatives with all financial, operating and other data and information concerning the assets, commitments and properties of the Company as the Buyer shall from time to time reasonably request and will afford the Buyer and its employees, officers, accountants, attorneys, agents, investment bankers and other authorized representatives access to the offices, properties, books, records, contracts and documents of the Company and will be given the opportunity to ask questions of, and receive answers from, representatives of the Company. As part of its investigation, the Buyer shall have the right to conduct, at Buyer's expense, environmental assessments of the Company's properties, including soil and groundwater sampling, as it deems appropriate. No investigations by the Buyer or its employees, representatives or agents shall reduce or otherwise affect the obligation or liability of the Shareholders with respect to any representations, warranties, covenants or agreements made herein or in any exhibit, schedule or other certificate, instrument, agreement or document, including the Disclosure Schedule, delivered in connection with this Agreement. The Shareholders will cooperate with the Buyer and its employees, officers, accountants, attorneys, agents and other authorized representatives in the preparation of any documents or other materials that may be required by any Governmental Entity. (b) Each party hereto agrees to hold in confidence all, and not to disclose to others for any reason whatsoever any, non-public information received by it or its representatives from the other party hereto in connection with the transactions contemplated by this Agreement except (i) as required by law; (ii) for disclosure to officers, directors, employees and representatives of such party as necessary in connection with the transactions contemplated hereby or as necessary to the operation of such party's business; and (iii) for information that becomes publicly available other than through such party. If the transactions contemplated by this Agreement are not consummated, each party hereto (i) will return to the other party hereto all non-public documents and other material obtained from such other party, and all copies, summaries and extracts thereof, or certify to such other party that such information has been destroyed and (ii) agrees not to use for its own benefit or for the benefit of any other Person any non-public information received by it or its 18 24 representatives or Affiliates from the other party in connection with the transactions contemplated by this Agreement. 4.2 Conduct of the Business. The Shareholders covenant and agree with the Buyer and Weatherford that from and after the date hereof until the Closing, except as expressly authorized by this Agreement or as expressly consented to in writing by the Buyer, the Shareholders shall, and shall cause the Company to: (a) operate the Company only in the usual, regular and ordinary manner with a view to maintaining the goodwill that the Company now enjoys and, to the extent consistent with such operation, will use all reasonable efforts to preserve intact its present business organization, keep available the services of its employees and preserve its relationship with its customers, suppliers, jobbers, distributors and other Persons having business relations with it; (b) use all reasonable efforts to maintain the assets of the Company in a state of repair, order and condition consistent with its usual practice; (c) maintain the books of account and records relating to the Company in the usual, regular and ordinary manner, in accordance with the usual accounting practices of the Company applied on a consistent basis and not increase the carrying value of any assets above their historical costs; (d) comply in all respects with all statutes, laws, orders and regulations applicable to the Company and to the conduct of the Company; (e) not sell, assign, transfer, lease or otherwise dispose of any assets of the Company except for dispositions of the inventories of the Company for value in the usual and ordinary course of business; (f) not enter into any new agreements, commitments, or contracts concerning the Company's assets other than in the usual and ordinary course of business; (g) not move Company assets to a new geographic location other than in the usual and ordinary course of business; (h) preserve and maintain all rights that the Company now enjoys in and to the Intellectual Property and not sell, assign, transfer, lease or otherwise dispose of any Intellectual Property other than to the Buyer pursuant to the terms of this Agreement; (i) not mortgage, pledge or otherwise create a security interest or permit there to be created or exist any Liens on the assets of the Company; (j) not incur any obligation for borrowed money or purchase money indebtedness whether or not evidenced by a note, bond, debenture or similar instrument, except in the ordinary course of business; (k) not enter into any contract, commitment or lease in relation to the Company that is out of the ordinary course of the Company or that is with an Affiliate of the Company or that would bind the Buyer under a contract or other obligation with the Company or any of its Affiliates; 19 25 (l) not amend or modify any of the contracts or agreements disclosed in Section 2.5(a) of the Disclosure Schedule; (m) not consent to the termination of any of the contracts and agreements disclosed in Section 2.5(a) of the Disclosure Schedule or waive any of the rights of the Company with respect thereto; (n) not permit any insurance policy naming any of the Shareholders or the Company as a beneficiary or a loss payee relating to the Company to be canceled or terminated or any of the coverage thereunder to lapse unless simultaneously with such termination or cancellation replacement policies providing substantially the same coverage are in full force and effect; (o) pay when due all accounts payable, all payments required by any of the contracts and agreements set forth in Section 2.5(a) of the Disclosure Schedule, and all Taxes other than Taxes that are being contested in good faith and for which adequate reserves exist in the Financial Statements and that would not result in a Lien being imposed on any assets of the Company; (p) not make any Tax elections that would affect the Company or change any method of accounting or application of any principles under GAAP; (q) except as set forth in Section 2.8(c) of the Disclosure Schedule, not change the terms of employment of any officer or senior employee or increase the compensation or rate of compensation or commissions or bonuses payable by the Company to any of its employees that is not consistent with past practice; (r) not declare or pay any dividend on or make any other distribution in respect of any shares of capital stock of the Company or purchase, redeem or otherwise acquire any of such shares; (s) not authorize or issue, sell, pledge, dispose of or encumber any shares of capital stock of the Company; (t) not grant any stock options or rights to acquire capital stock of the Company; (u) not amend or otherwise modify the Articles of Incorporation or by-laws of the Company; (v) not amend any Company Benefit Plan except as required by law or this Agreement; and (w) promptly notify the Buyer in writing if the Shareholders become aware of any change that shall have occurred or that to the best knowledge of the Shareholders shall have been threatened (or any development that shall have occurred or that shall have been threatened involving a prospective change) in the Company that would reasonably be expected to have an adverse effect whether or not occurring in the ordinary course of business. 4.3 Negotiation with Others. The Shareholders agree that from the date hereof until the Closing Date or the termination of this Agreement pursuant to Article 9, none of the Shareholders or any of their respective Affiliates, including the Company, will, directly or indirectly, through any representative or otherwise, solicit or entertain offers from, negotiate with or in any manner encourage, discuss or accept or consider any proposal or offer from any Person not a party hereto or not affiliated with a party hereto with 20 26 respect to a merger, consolidation, asset purchase, stock purchase or any similar transaction involving the Company or any material portion of its assets or property with any such Person. During such period, the Shareholders will immediately notify the Buyer regarding any such contact between the Shareholders, any Affiliate or any of their representatives and any Person regarding any such offer or proposal or any related inquiry and shall return without discussion all offers or proposals regarding any such transaction involving the Company. 4.4 Information. During the period from the date of this Agreement to the Closing Date, the Buyer, Weatherford and the Shareholders will promptly inform each other in writing of any claim, action or proceeding commenced against such party with respect to the transactions contemplated by this Agreement or any assets or property of the Company. 4.5 Delivery of Documents. The Shareholders shall deliver to the Buyer at or before the Closing all Documents and Other Papers (as defined in Section 10.17) relating to the Company that are in the Shareholders' possession or control, including, without limitation, all files relating to the Financial Statements, computer disks reflecting any books or records, documents or other papers, or other information or data relating to the operation of the Company stored on any electronic media, including computers. For a period of three years after the Closing Date, the Buyer agrees to provide the Shareholders with access to such Documents and Other Papers to the extent required for tax, financial accounting or legal purposes on a reasonable basis during normal business hours and to permit copies to be made of such Documents and Other Papers as may be reasonably needed. All such Documents and Other Papers shall be maintained by the Shareholders in confidence except to the extent required to be disclosed under law or in furtherance of any defense by the Shareholders or any Affiliate of the Shareholders to any action, suit or proceeding against the Shareholders or any Affiliate of the Shareholders; provided, however, the Buyer shall be advised of any such proposed disclosure in advance and be entitled to seek a limitation on the use of such information and scope of such disclosure. 4.6 Further Assurances. Each of the Shareholders shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, to the Buyer such bills of sale, assignments (including but not limited to assignments of leases) and other instruments of transfer, assignment and conveyance, in form and substance satisfactory to counsel for the Buyer, as shall be necessary to vest in the Buyer all the right, title and interest in and to the Shares free and clear of all Liens (other than those Liens created or suffered by the Buyer and restrictions on sales of Shares under applicable securities laws) and shall use his or its best efforts to cause to be taken such other action as the Buyer reasonably may require to more effectively implement and carry into effect the transactions contemplated by this Agreement. For the assignment of the Shares from the Shareholders to the Buyer, each of the Shareholders is obligated at all times without delay in the legal or contractual required form to carry out all necessary acts and to deliver all legally required declarations. Weatherford shall take all action necessary to perform, and shall cause the Buyer to perform, their respective obligations under this Agreement. 4.7 Nondisclosure of Proprietary Information. (a) Each of the Shareholders agrees that, from and after the Closing, such Shareholder and such Shareholder's Affiliates shall (i) hold in confidence and will not directly or indirectly at any time reveal, report, publish, disclose or transfer to any Person other than the Buyer any of the Proprietary Information that is not generally known to the public or utilize any of the Proprietary Information for any purpose and (ii) not for a period of five years solicit or hire any employees of the Company who are currently employed or may be employed as of the Closing by the Company. 21 27 (b) The Shareholders acknowledge that all documents and objects containing or reflecting any Proprietary Information, whether developed by the Company, or by someone else for the Company or any of its Affiliates, will after the Closing become the exclusive property of the Buyer and be delivered to the Buyer. (c) Because of the unique nature of the Proprietary Information, the Shareholders understand and agree that the breach or anticipated breach of the obligations under this Section 4.7 will result in immediate and irreparable harm and injury to the Buyer and its Affiliates, for which it will not have an adequate remedy at law, and that the Buyer and its Affiliates and their successors and assigns shall be entitled to relief in equity to enjoin such breach or anticipated breach and to seek any and all other legal and equitable remedies to which they may be entitled. 4.8 Covenant Not to Compete With the Business. Each Shareholder agrees that, effective as of the Closing Date and for a period of five years thereafter, neither such Shareholder nor any of its Affiliates thereof shall, without the consent of the Buyer, directly or indirectly, design, develop, market, produce, manufacture, rent, distribute, repair, provide or sell any hammer (hydraulic, diesel, steam or otherwise), welding, crane or tubular products or related services in any geographic location in the world or, except for the benefit of the Buyer and its Affiliates, assist any Person to do the same. Each Shareholder acknowledges that a remedy at law for any breach or attempted breach of this Section 4.8 will be inadequate and further agrees that any breach of this Section 4.8 will result in irreparable harm to the Company and the Buyer, and, accordingly, the Buyer, shall, in addition to any other remedy that may be available to it, be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach. Each of Shareholders acknowledges that this covenant not to compete is being provided as an inducement to the Buyer to acquire the Shares and that this Section 4.8 contains reasonable limitations as to time, geographical area and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the Buyer. Whenever possible, each provision of this Section 4.8 shall be interpreted in such a manner as to be effective and valid under applicable law but if any provision of this Section 4.8 shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Section 4.8. If any provision of this Section 4.8 shall, for any reason, be judged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Section 4.8 but shall be confined in its operation to the provision of this Section 4.8 directly involved in the controversy in which such judgment shall have been rendered. In the event that the provisions of this Section 4.8 should ever be deemed to exceed the time or geographic limitations permitted by applicable laws, then such provision shall be reformed to the maximum time or geographic limitations permitted by applicable law. 4.9 Use of Corporate Name. All uses of the corporate names "Petro-Drive" and "Hydrodrive" or any derivations thereof are being transferred to the Buyer hereunder. Each of the Shareholders agrees not to take any action that could reasonably be expected to adversely affect the Buyer's right to the names "Petro-Drive" and "Hydrodrive" or cause confusion with respect to the Buyer's use of such names. All goodwill with respect to the use of the names "Petro-Drive" or "Hydrodrive" will inure to the benefit of the Buyer, and none of the Shareholders will have any rights to sue or recover against any Person with respect to the use of such names. 4.10 Release. (a) AS OF THE CLOSING DATE AND, EXCEPT AS MAY BE SET FORTH IN SECTION 7.2 OF THIS AGREEMENT, EACH OF THE SHAREHOLDERS DOES HEREBY FOR ITSELF, HIMSELF OR HERSELF AND ITS, HIS OR HER SUCCESSORS AND ASSIGNS REMISE, RELEASE, ACQUIT AND FOREVER DISCHARGE THE BUYER, THE COMPANY, 22 28 WEATHERFORD AND THEIR RESPECTIVE AFFILIATES, AND THEIR SUCCESSORS AND ASSIGNS, OF AND FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, RESPONSIBILITIES, DISPUTES, CAUSES OF ACTION AND OBLIGATIONS OF EVERY NATURE WHATSOEVER, LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, MATURED OR UNMATURED, FIXED OR CONTINGENT, THAT SUCH SHAREHOLDER OR ITS AFFILIATES NOW HAS, OWNS OR HOLDS OR HAS AT ANY TIME PREVIOUSLY HAD, OWNED OR HELD AGAINST SUCH PARTIES, INCLUDING WITHOUT LIMITATION ALL LIABILITIES CREATED AS A RESULT OF THE NEGLIGENCE, GROSS NEGLIGENCE AND WILLFUL ACTS OF THE COMPANY AND ITS EMPLOYEES AND AGENTS, OR UNDER A THEORY OF STRICT LIABILITY, EXISTING AS OF THE CLOSING DATE OR RELATING TO ANY ACTION, OMISSION OR EVENT OCCURRING ON OR PRIOR TO THE CLOSING DATE; PROVIDED, HOWEVER, THAT ANY CLAIMS, LIABILITIES, DEBTS OR CAUSES OF ACTION THAT MAY ARISE IN CONNECTION WITH THE FAILURE OF ANY OF THE PARTIES HERETO TO PERFORM ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER AGREEMENT RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR FROM ANY BREACHES BY ANY OF THEM OF ANY REPRESENTATIONS OR WARRANTIES HEREIN OR IN CONNECTION WITH ANY OF SUCH OTHER AGREEMENTS SHALL NOT BE RELEASED OR DISCHARGED PURSUANT TO THIS AGREEMENT. (b) Each of the Shareholders represents and warrants that it, he or she has not previously assigned or transferred, or purported to assign or transfer, to any Person or entity whatsoever all or any part of the claims, demands, liabilities, responsibilities, disputes, causes of action or obligations released herein. Each of the Shareholders covenants and agrees that such Shareholder will not assign or transfer to any Person or entity whatsoever all or any part of the claims, demands, liabilities, responsibilities, disputes, causes of action or obligations to be released herein. Each of the Shareholders represents and warrants that such Shareholder has read and understands all of the provisions of this Section 4.10 and that he or she has been represented by legal counsel of his or her own choosing in connection with the negotiation, execution and delivery of this Agreement. (c) THE RELEASE PROVIDED BY THE SHAREHOLDERS PURSUANT TO THIS SECTION 4.10 SHALL APPLY NOTWITHSTANDING THAT THE MATTER FOR WHICH RELEASE IS PROVIDED MAY RELATE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR VIOLATION OF LAW BY A RELEASED PARTY, INCLUDING THE BUYER, THE COMPANY AND WEATHERFORD AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, AND FOR LIABILITIES BASED ON THEORIES OF STRICT LIABILITY, AND SHALL BE APPLICABLE WHETHER OR NOT NEGLIGENCE OF THE RELEASED PARTY IS ALLEGED OR PROVEN, IT BEING THE INTENTION OF THE PARTIES TO RELEASE THE RELEASED PARTY FROM AND AGAINST ITS ORDINARY, SOLE AND CONTRIBUTORY NEGLIGENCE AND GROSS NEGLIGENCE AS WELL AS LIABILITIES BASED ON THE WILLFUL ACTIONS OR OMISSIONS OF THE RELEASED PARTY AND LIABILITIES BASED ON THEORIES OF STRICT LIABILITY. 4.11 Continuation of Business by the Buyer. Nothing in this Agreement, in any exhibit or schedule hereto or in any agreement, instrument or other document executed or delivered in connection with this Agreement shall require the Buyer to continue the business or operations of the Company or, to manage and operate the business conducted by the Company with any duty or standard of care to the Shareholders. The Shareholders acknowledge and agree that the Buyer in its sole discretion may continue, manage, modify or discontinue its operations, liquidate or otherwise change or cease its operations. 4.12 Payment of Obligations. Immediately prior to the Closing, all indebtedness and other obligations that each of the Shareholders and their respective Affiliates owe to the Company or that the Company owes to each of the Shareholders and their respective Affiliates, respectively, shall be extinguished or canceled. Except for any Debt Obligations that constitute Retained Liabilities, Weatherford shall repay all Debt Obligations of the Company on the Closing Date. Further, a total of $300,000 shall have been paid to the Company by or on behalf of Wesley B. Manuel to satisfy his tax withholding obligations relating to the shares of Company common stock granted to him and such amount shall have been remitted by the Company to the appropriate Tax authorities. If the Buyer receives any identifiable Tax refund or reduction in Taxes 23 29 owed by the Company as a direct result of the issuance of the Company's stock to Wesley B. Manuel, the Buyer agrees that such refund or reduction in Taxes will be used by the Buyer to reduce any Buyer Losses resulting hereunder; provided, however, that such reduction in Buyer Losses shall not exceed $285,000. 4.13 Company Cars. At or prior to the Closing, Charles Milam shall have the right to purchase the automobile owned by the Company that he is presently driving by paying $20,000 to the Company. Thomas Mautner shall continue to have the use of the automobile leased by the Company that he is presently driving until the expiration of the present lease for that automobile on March 31, 2000. 4.14 Certain Licenses and Agreements. Each of the Shareholders and the Company agree to obtain amendments or waivers to each of the licenses and agreements listed in Section 2.4(c) of the Disclosure Schedule and such amendments and waivers shall be approved in advance by Buyer and Weatherford. 4.15 Certain Receivables. Buyer agrees that if the certain account receivables identified in Section 4.15 of the Disclosure Schedule are collected by the Company in cash, including insurance proceeds, Buyer will pay to the Shareholders the amount actually collected minus (i) any Buyer Losses resulting from any Damages relating to matters involving the parties identified in Section 4.15 of the Disclosure Schedule and (ii) the amount of the receivable on the Financial Statements in excess of the accrual or allowance established for such receivable on the Financial Statements; provided that no amounts will be paid until all matters involving the parties identified in Section 4.15 of the Disclosure Schedule have been fully and finally resolved; provided further, however, that no amounts paid by Buyer will exceed the accrual or allowance established for such receivable on the Financial Statements. ARTICLE 5 BUYER'S AND WEATHERFORD'S CONDITIONS The obligation of the Buyer to purchase the Shares as contemplated hereby is, at the option of the Buyer and Weatherford, subject to the satisfaction on or before the Closing Date of the conditions set forth below, any of which may be waived by the Buyer or Weatherford in writing; provided, however, the Buyer's and Weatherford's election to proceed with the Closing shall not be deemed a waiver of any breach of any representation, warranty or covenant herein and such action shall not prejudice the Buyer's or Weatherford's right to recover damages for any such breach. 5.1 Representations, Warranties and Covenants. The representations and warranties of the Shareholders contained in this Agreement shall be true, correct and complete in all respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made or given on and as of such date; each and all of the agreements and covenants of the Shareholders to be performed or complied with by them on or before the Closing Date pursuant to this Agreement shall have been performed or complied with in all respects; and the Shareholders shall have delivered to the Buyer a certificate, dated the Closing Date, regarding the matters set forth in this Section 5.1. 5.2 Good Standing. The Shareholders shall have delivered to the Buyer certificates issued by appropriate Governmental Entities evidencing the status of the Company, as of a date not more than twenty calendar days prior to the Closing Date, in each jurisdiction specified in Section 2.1(a) of the Disclosure Schedule. 24 30 5.3 Certificates and Instruments of Transfer. The Shareholders shall have delivered to the Buyer all stock certificates representing the Shares and shall have executed, acknowledged and delivered to the Buyer such instruments of transfer of the Shares (including stock powers) as shall be reasonably requested by the Buyer to vest in the Buyer all the right, title and interest in and to the Shares. 5.4 No Litigation. No preliminary or permanent injunction or other order of any court or other Governmental Entity shall be in effect or threatened nor shall there be in effect any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity that, in any such case, prevents the consummation of the transactions contemplated by this Agreement. No suit, action, claim, proceeding or investigation before any Governmental Entity shall have been commenced or threatened by any Person (other than the Buyer or its Affiliates) seeking to prevent the sale of the Shares or asserting that the sale of all or a portion of the Shares would be unlawful. 5.5 No Material Adverse Event. The business and properties of the Company shall not be affected or threatened to be affected by any loss or damage, whether or not covered by insurance, except to the extent that the same would not have a material adverse effect on the Company. 5.6 Other Legal Matters. All Exhibits, Schedules, certificates, documents and legal matters in connection with this Agreement and the transactions contemplated hereby shall be in substantially the forms required by this Agreement. 5.7 Licenses, Consents and Approvals. All licenses, consents or approvals of Governmental Entities required for the Shareholders to consummate the transactions contemplated by this Agreement shall have been obtained. The Shareholders shall have delivered to the Buyer a copy of each of the licenses, consents, approvals and other authorizations from Governmental Entities necessary or appropriate for the Shareholders to consummate the transactions contemplated by this Agreement. 5.8 Consents of Third Persons. All consents from third Persons, including those consents necessary for the consummation of the transactions contemplated by this Agreement shall have been obtained on terms satisfactory to the Buyer and delivered to the Buyer. 5.9 Legal Opinion. The Buyer shall have been furnished an opinion of Liskow & Lewis, counsel to the Shareholders, that (i) this Agreement and the transactions contemplated hereby have been authorized by all necessary action on the part of the Shareholders, (ii) the Shares are all of the outstanding securities of the Company, were validly issued, fully paid and non-assessable and were not issued in violation of any preemptive, preferential purchase or other similar rights of any other Person and (iii) this Agreement constitutes a legal, valid and binding obligation of the Shareholders and is enforceable against the Shareholders in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors' rights generally and by legal and equitable limitations on the availability of specific remedies; provided, however, that the opinion shall not cover non-compete matters. 5.10 Shareholder and Other Payment Obligations. All indebtedness and other obligations owed by the Company to each of the Shareholders and their respective Affiliates shall have extinguished or canceled. The Buyer shall also have been provided with evidence of the payment of the tax withholding amount for Mr. Manuel described in Section 4.12. 5.11 Liabilities. The Shareholders shall have provided to the Buyer sufficient evidence of the assumption of the Retained Liabilities by the Shareholders. 25 31 5.12 Employment Agreement. The Buyer shall have entered into an Employment Contract with Wesley B. Manuel in substantially the form set forth in Exhibit A. 5.13 Stock Exchange Approval. The New York Stock Exchange shall have approved the listing of the Weatherford Shares. 5.14 Approvals for Issuance of Weatherford Shares. Weatherford shall have received all consents, approvals and other authorizations from Governmental Entities necessary or appropriate for Weatherford to issue the Weatherford Shares. 5.15 Resolutions. The Shareholders shall have delivered to the Buyer certified copies of resolutions of the board of directors and the shareholders of the Company approving this Agreement and the transactions contemplated hereby. 5.16 Broussard Facilities. The Buyer and YOGI, L.L.C. ("YOGI") shall have entered into a lease of the facility located at 200 S. Bernard in Broussard, Louisiana (the "Broussard Facilities") in substantially the form set forth in Exhibit B. 5.17 Cayman Islands Name Change. The Shareholders shall have delivered to the Buyer sufficient evidence of the change of the name of the Cayman Islands corporation owned by one or more of the Shareholders to a name not including "Petro-Drive" or any derivations thereof. 5.18 Certain Licenses and Agreements. Except as otherwise agreed to by the Buyer, each of the Shareholders and the Company agree to obtain amendments or waivers to each of the licenses and agreements listed in Section 2.4(c) of the Disclosure Schedule and such amendments and waivers shall be approved in advance by Buyer and Weatherford. ARTICLE 6 SHAREHOLDERS' CONDITIONS The obligation of the Shareholders to transfer the Shares as contemplated hereby is, at the option of the Shareholders, subject to the satisfaction on or before the Closing Date of the conditions set forth below, any of which may be waived by the Shareholders in writing; provided, however, the Shareholders' election to proceed with the Closing shall not be deemed a waiver of any breach of any representation, warranty or covenant herein and such action shall not prejudice any Shareholder's rights to recover damages for any such breach. 6.1 Representations, Warranties and Covenants. The representations and warranties of each of the Buyer and Weatherford contained in this Agreement shall be true, correct and complete in all respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made or given on and as of such date; each and all of the agreements and covenants of each of the Buyer and Weatherford to be performed or complied with by it on or before the Closing Date pursuant to this Agreement shall have been performed or complied with in all respects; and each of the Buyer and Weatherford shall have delivered to the Shareholders a certificate signed by one of its duly authorized officers, dated the Closing Date, regarding the matters set forth in this Section 6.1. 26 32 6.2 Purchase Price. Weatherford shall have issued the Weatherford Shares in payment of the Purchase Price, and Weatherford shall have issued and retained in escrow the Escrowed Shares. 6.3 Licenses, Consents and Approvals. All licenses, consents or approvals of Governmental Entities required for the Buyer and Weatherford to consummate the transactions contemplated by this Agreement shall have been obtained. The Buyer shall have delivered to the Shareholders a copy of each of the licenses, consents, approvals and other authorizations from Governmental Entities necessary or appropriate for the Buyer and Weatherford to consummate the transactions contemplated by this Agreement. 6.4 No Litigation. No preliminary or permanent injunction or other order of any Governmental Entity shall be in effect or threatened nor shall there be any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity that, in any such case, prevents the consummation of the transactions contemplated by this Agreement. No suit, action, claim, proceeding or investigation before any court or other Governmental Entity shall have been commenced or threatened by any Person (other than the Shareholders or any of their respective Affiliates) seeking to prevent the sale of the Shares or asserting that the sale of all or a portion of the Shares would be unlawful. 6.5 Other Legal Matters. All exhibits, schedules, certificates, documents and legal matters in connection with this Agreement and the transactions contemplated hereby shall be in substantially the forms required by this Agreement. 6.6 Legal Opinion. The Shareholders shall have been furnished an opinion of Andrews & Kurth L.L.P. or internal counsel to Buyer and Weatherford, that (i) this Agreement and the transactions contemplated hereby have been authorized by all necessary action on the part of the Buyer and Weatherford and (ii) this Agreement constitutes a legal, valid and binding obligation of the Buyer and Weatherford and is enforceable against the Buyer and Weatherford in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors' rights generally and by legal and equitable limitations on the availability of specific remedies. 6.7 Company Obligations. All indebtedness and other obligations that the Company owes to each of the Shareholders and their respective Affiliates as of the Closing shall have been extinguished or canceled. 6.8 Employment Agreement. The Buyer shall have entered into an Employment Contract with Wesley B. Manuel in substantially the form set forth in Exhibit A. 6.9 Resolutions. The Buyer shall have delivered to the Shareholders certified copies of resolutions of the boards of directors of the Buyer and Weatherford approving this Agreement and the transactions contemplated hereby. 6.10 Consulting Agreements. The Buyer shall have entered into Consulting Agreements with Charles Milam and Thomas Mautner in substantially the form set forth in Exhibit C. 6.11 Broussard Facilities. The Buyer and YOG1 shall have entered into a lease of the Broussard Facilities in substantially the form set forth in Exhibit B. 27 33 ARTICLE 7 INDEMNIFICATION 7.1 Indemnification by the Shareholders. Charles Milam, Wesley B. Manuel and Thomas Mautner (the "Indemnifying Shareholders") in respective shares of 80%, 10% and 10% of the total obligations hereunder, agree to indemnify, defend and hold the Buyer, Weatherford, each of their respective Affiliates and each of their respective officers, directors, employees, agents, stockholders and controlling Persons and their respective successors and assigns, harmless from and against and in respect of Damages (as defined in Section 10.14) actually suffered, incurred or realized by such party (collectively, "Buyer Losses"), arising out of or resulting from or relating to: (a) any misrepresentation, breach of representation or warranty or breach of any covenant or agreement made or undertaken by the Shareholders in this Agreement or any misrepresentation or omission from any other agreement, certificate, exhibit or writing delivered to the Buyer or Weatherford pursuant to this Agreement, including the Disclosure Schedule; or (b) any Retained Liability. For purposes of determining the Buyer's and Weatherford's right to indemnification for a misrepresentation or breach of warranty made by the Shareholders in this Agreement, all such representations and warranties that have been made subject to a materiality qualification shall be deemed to have been made without that qualification. 7.2 Indemnification by the Buyer and Weatherford. Except as otherwise limited by this Article 7 and Article 8 hereof, the Buyer and Weatherford jointly and severally agree to indemnify, defend and hold the Shareholders and their successors and assigns harmless from and against and in respect of Damages actually suffered, incurred or realized by such party (collectively, "Shareholders Losses"), arising out of or resulting from (a) any misrepresentation, breach of warranty or breach of any covenant or agreement made or undertaken by the Buyer or Weatherford in this Agreement or any misrepresentation in or omission from any other agreement, certificate, Exhibit or writing delivered to the Shareholders pursuant to this Agreement or (b) any liabilities of the Company based upon actions, omissions or events occurring after Closing, excluding all Retained Liabilities and any liabilities arising out of or resulting from any misrepresentation, breach or representation or warranty or breach of covenant or agreement made or undertaken by any of the Shareholders. 7.3 Procedure. All claims for indemnification under this Article 7 shall be asserted and resolved as follows: (a) An Indemnitee (as defined in Section 10.29) shall promptly give the Indemnitor (as defined in Section 10.30) notice of any matter that an Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement, stating the amount of the Loss, if known, and method of computation thereof, all with reasonable particularity, and stating with particularity the nature of such matter. Failure to provide such notice shall not affect the right of the Indemnitee to indemnification except to the extent such failure shall have resulted in liability to the Indemnitor that could have been actually avoided had such notice been provided within such required time period. (b) The obligations and liabilities of an Indemnitor under this Article 7 with respect to Losses arising from claims of any third party that are subject to the indemnification provided for in this Article 7 ("Third Party Claims") shall be governed by and contingent upon the following additional terms and 28 34 conditions: if an Indemnitee shall receive notice of any Third Party Claim, the Indemnitee shall give the Indemnitor prompt notice of such Third Party Claim and the Indemnitor may, at its option, assume and control the defense of such Third Party Claim at the Indemnitor's expense and through counsel of the Indemnitor's choice reasonably acceptable to the Indemnitee. In the event the Indemnitor assumes the defense against any such Third Party Claim as provided above, the Indemnitee shall have the right to participate at its own expense in the defense of such asserted liability, shall cooperate with the Indemnitor in such defense and will attempt to make available on a reasonable basis to the Indemnitor all witnesses, pertinent records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitor. In the event the Indemnitor does not elect to conduct the defense against any such Third Party Claim, the Indemnitor shall pay all reasonable costs and expenses of such defense as incurred and shall cooperate with the Indemnitee (and be entitled to participate) in such defense and attempt to make available to it on a reasonable basis all such witnesses, records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitee. Except for the settlement of a Third Party Claim that involves the payment of money only and for which the Indemnitee is totally indemnified by the Indemnitor, no Third Party Claim may be settled without the written consent of the Indemnitee. 7.4 Payment. Payment of any amounts due pursuant to this Article 7 shall be made within ten Business Days after notice is sent by the Indemnitee. To the extent there exist any Escrowed Shares, payment for any Buyer Losses shall first be made by the retainment by Buyer or Weatherford of Escrowed Shares. 7.5 Failure to Pay Indemnification. If and to the extent the Indemnitee shall make written demand upon the Indemnitor for indemnification pursuant to this Article 7 and the Indemnitor shall refuse or fail to pay in full within ten Business Days of such written demand the amounts demanded pursuant hereto and in accordance herewith, then the Indemnitee may utilize any legal or equitable remedy to collect from the Indemnitor the amount of its Losses. Nothing contained herein is intended to limit or constrain the Indemnitee's rights against the Indemnitor for indemnity, the remedies herein being cumulative and in addition to all other rights and remedies of the Indemnitee. 7.6 Express Negligence. THE INDEMNITIES SET FORTH IN THIS ARTICLE 7 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING THE EXPRESS NEGLIGENCE RULE OF ANY STATE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES. 7.7 Indemnification Limitations. The Shareholders shall be liable under Section 7.1(a) in respect of a misrepresentation or breach of warranty only if and then only to the extent that, the aggregate amount of any Buyer Losses for which the Buyer and Weatherford are entitled to indemnification pursuant to such clause exceeds $50,000; provided, however, the Shareholders' liability under Section 7.1(a) shall not be so limited if such Buyer Losses arise from a breach of any of the representations set forth in Sections 2.1, 2.2(a), 2.4, 2.9, 2.13 or 2.15 or from a breach of any covenant or agreement set forth herein. There shall be no limits on the Shareholders' liability (i) arising from a breach of any of the representations set forth in Sections 2.1, 2.2(a), 2.4(c), 2.7, 2.10, 2.12, 2.13, (ii) under Section 7.1(a) with respect to breaches of covenants or agreements or (iii) under Section 7.1(b). For a breach of any representation other than those specifically identified in clause (i) of the preceding sentence, the liability of the Shareholders shall be limited to the Purchase Price, which shall be calculated as of the Closing Date after taking into account any adjustments made pursuant to Section 1.4. 29 35 7.8 Liability Adjustment. The amount which an Indemnitee shall be entitled to receive from an Indemnitor with respect to any Indemnifiable Losses under this Article 7 shall be net of any insurance recovery by the Indemnitee on account of such Losses from an unaffiliated party. ARTICLE 8 NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS All statements of fact contained in any written statement (including financial statements), certificate, instrument or document delivered by or on behalf of the Shareholders pursuant to this Agreement shall be deemed representations and warranties of the Shareholders. The several representations and warranties of the parties to this Agreement shall survive the Closing Date for a period of two years from the Closing Date (except that (i) the representations and warranties set forth in Sections 2.1, 2.2(a), 2.4, 2.9, 2.10, 2.13, 2.15, 3.1, 3.3 and 3.4 shall survive the Closing Date without limitation and (ii) the representations and warranties set forth in Sections 2.11 and 2.12 shall survive the Closing Date for the period of the applicable statutes of limitations) (the period during which the representations and warranties shall survive being referred to herein with respect to such representations and warranties as the "Survival Period"), and shall be effective with respect to any inaccuracy therein or breach thereof (and a claim for indemnification under Article 7 hereof may be made thereon) if a written notice asserting the claim shall have been given within the Survival Period with respect to such matter. Any claim for indemnification made during the Survival Period shall be valid and the representations and warranties relating thereto shall remain in effect for purposes of such indemnification notwithstanding such claim may not be resolved within the Survival Period. The agreements and covenants set forth herein shall survive without limitation. All representations, warranties, covenants and agreements made by the parties shall not be affected by any investigation heretofore or hereafter made by and on behalf of either of them and shall not be deemed merged into any instruments or agreements delivered in connection with this Agreement or otherwise in connection with the transactions contemplated hereby. ARTICLE 9 TERMINATION 9.1 Termination. The obligation of the parties to close the transactions contemplated by this Agreement may be terminated by: (a) mutual agreement of the Buyer, Weatherford and the Shareholders; (b) the Buyer or Weatherford, if a material default shall be made by any of the Shareholders in the observance or in the due and timely performance by any of the Shareholders of any agreements and covenants of the Shareholders herein contained, or if there shall have been a breach by any of the Shareholders of any of the warranties and representations of the Shareholders herein contained, and such default or breach has not been cured or has not been waived; (c) the Shareholders, if a material default shall be made by the Buyer or Weatherford in the observance or in the due and timely performance by the Buyer or Weatherford of any agreements and covenants of such Person herein contained, or if there shall have been a breach by the Buyer or Weatherford of any of the warranties and representations of the Buyer or Weatherford herein contained, and such default or breach has not been cured or has not been waived; or 30 36 (d) the Buyer, Weatherford or the Shareholders (provided the terminating party has not materially breached any of its agreements, covenants or representations and warranties) if the Closing shall not have occurred on or before September 14, 1999. 9.2 Liability Upon Termination. If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 9.1, then this Agreement shall forthwith become void and there shall not be any liability or obligation with respect to the terminated provisions of this Agreement on the part of the Shareholders, the Buyer or Weatherford except and to the extent such termination results from the willful breach by a party of any of its representations, warranties or agreements hereunder. The termination of this Agreement shall not relieve any party of its obligations under Section 4.1(b), this Section 9.2 and any applicable Article 7 indemnity obligation resulting from a willful breach of Section 4.1(b) and/or Section 9.2. 9.3 Notice of Termination. The parties hereto may exercise their respective rights of termination under this Article 9 only by delivering written notice to that effect to the other party or parties, and such notice is received on or before the Closing Date. ARTICLE 10 DEFINITIONS OF CERTAIN TERMS In addition to terms defined elsewhere in this Agreement, the following terms shall have the meanings assigned to them herein, unless the context otherwise indicates, both for purposes of this Agreement and all Exhibits hereto and the Disclosure Schedule: 10.1 "Affiliate" shall mean, with respect to any specified Person, any officer, director, Shareholders or any other Person that directly or indirectly controls, is controlled by or is under common control with such specified Person. 10.2 "Agreement" shall mean this Stock Purchase Agreement among the Shareholders, the Buyer and Weatherford, as amended from time to time by the parties hereto, including the exhibits hereto and the Disclosure Schedule. 10.3 "Average Closing Price" shall mean the average of the closing sales price per share of the Common Stock for the five consecutive trading days ending on the third Business Day immediately preceding the Closing Date, as reported on the New York Stock Exchange. 10.4 "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized by law to close. 10.5 "Buyer" shall mean Grant Prideco, Inc., a Delaware corporation, or one or more of its designees. 10.6 "Buyer Losses" shall have the meaning given such term in Section 7.1 hereof. 10.7 "Closing" shall mean the transfer by the Shareholders to the Buyer of the Shares and the transfer by the Buyer to the Shareholders of the consideration set forth herein. 31 37 10.8 "Closing Date" shall have the meaning given such term in Section 1.2 hereof. 10.9 "Closing Date Balance Sheet" shall have the meaning given such term in Section 1.4(a) hereof. 10.10 "Closing Date Debt" shall mean the aggregate amount of Debt Obligations and Other Liabilities reflected on the Closing Date Balance Sheet. 10.11 "Closing Date Working Capital" shall mean the aggregate amount of (a) all current assets reflected on the Closing Date Balance Sheet (but excluding all deferred tax assets) less (b) all current liabilities reflected on the Closing Date Balance Sheet (excluding all (i) short-term debt and the current portion of long-term debt to the extent the same is included in Closing Date Debt, (ii) deferred tax liabilities and (iii) Other Liabilities (as defined in Section 10.34). 10.12 "Common Stock" shall mean the common stock, par value $1.00 per share, of Weatherford. 10.13 "Company Benefit Plan" shall mean (1) any employee welfare benefit plan or employee pension benefit plan as defined in sections 3(1) and 3(2) of ERISA, including, but not limited to, a plan that provides retirement income or results in deferrals of income by employees for periods extending to their terminations of employment or beyond, and a plan that provides medical, surgical, or hospital care benefits or benefits in the event of sickness, accident, disability, death or unemployment and (2) any other material employee benefit agreement or arrangement that is not an ERISA plan, including without limitation, any deferred compensation plan, incentive plan, bonus plan or arrangement, stock option plan, stock purchase plan, stock award plan, golden parachute agreement, severance pay plan, dependent care plan, cafeteria plan, employee assistance program, scholarship program, employment contract, retention incentive agreement, noncompetition agreement, consulting agreement, confidentiality agreement, vacation policy, or other similar plan or agreement or arrangement that has been sponsored, maintained or adopted by the Company at any time during the past three years, or has been approved by the Company before this date but is not yet effective, for the benefit of directors, officers, employees or former employees (or their beneficiaries) of the Company, or with respect to which the Company may have any liability. 10.14 "Damages" shall mean any and all liabilities, losses, damages, demands, assessments, claims, costs and expenses (including interest, awards, judgments, penalties, settlements, fines, costs of remediation, diminutions in value, consequential damages, costs and expenses incurred in connection with investigating and defending any claims or filed causes of action (including, without limitation, attorneys' fees and expenses and all fees and expenses of consultants and other professionals)). 10.15 "Debt Obligations" shall mean any contract, agreement, indenture, note or other instrument relating to the borrowing of money, any capitalized lease obligation, any obligation properly classified as indebtedness or debt under GAAP or any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person (other than the endorsement of negotiable instruments for deposit or collection in the ordinary course of business) and shall specifically include any loans or advances to or from the Shareholders or their respective Affiliates. 10.16 "Disclosure Schedule" shall mean the disclosure schedule dated as of the date of this Agreement delivered to the Buyer by the Shareholders. 32 38 10.17 "Documents and Other Papers" shall mean and include any document, agreement, instrument, certificate, writing, notice, consent, affidavit, letter, telegram, telex, statement, file, computer disk, microfiche or other document in electronic format, schedule, exhibit or any other paper or record whatsoever. 10.18 "Environmental Condition" shall mean any pollution, contamination, degradation, damage or injury caused by, related to or arising from the generation, handling, use, treatment, storage, transportation, disposal, discharge, release or emission of any Hazardous Materials. 10.19 "Environmental Laws" shall mean all national, federal, state, provincial, municipal or local laws, rules, regulations, statutes, ordinances or orders of any Governmental Entity relating to (a) the control of any potential pollutant or protection of the air, water or land, (b) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation and (c) the regulation of or exposure to hazardous, toxic or other substances alleged to be harmful. 10.20 "Environmental Liabilities" shall mean any and all Damages (including remediation, removal, response, abatement, clean-up, investigative and/or monitoring costs and any other related costs and expenses) incurred or imposed (a) pursuant to any agreement, order, notice, requirement, responsibility or directive (including directives embodied in Environmental Laws), injunction, judgment or similar documents (including settlements) arising out of, in connection with or under Environmental Laws, or (b) pursuant to any claim by a Governmental Entity or other third Person or entity for personal injury, property damage, damage to natural resources, remediation or similar costs or expenses incurred or asserted by such entity or person pursuant to common law or statute and arising out of or in connection with a release, as such term is defined in Environmental Laws, of Hazardous Materials. 10.21 "Environmental Losses" shall mean any and all Environmental Liabilities that may be imposed upon or incurred by the Buyer or its officers, directors, employees, agents, shareholders and controlling Persons or their respective successors and assigns, arising out of or in connection with (i) the acts or omissions of any Person prior to the Closing Date relating to the Shareholders, any business currently or previously conducted by the Company, the operations currently or previously conducted by the Company or any of its Affiliates on any other assets or properties currently or previously leased or owned by the Company or any of its Affiliates in connection with any business currently or previously conducted at the properties owned or leased by the Company or any of its Affiliates, (ii) any breach of a representation or warranty contained in Section 2.9, (iii) any and all Environmental Conditions existing on or prior to the Closing Date on, at or underlying the real property owned or leased by the Company, or (iv) the handling, storage, treatment or disposal of any Hazardous Materials generated by the Company or any of its Affiliates on or prior to the Closing Date. 10.22 "Environmental Permits" shall mean any permit, license, approval, registration, identification number or other authorization with respect to the Company under any Environmental Law. 10.23 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 10.24 "ERISA Affiliate" shall mean any entity that is treated as a single employee together with the Company under section 414 of the Code. 10.25 "Financial Statements" shall have the meaning given such term in Section 2.6 hereof. 10.26 "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. 33 39 10.27 "Governmental Entity" shall mean any national, state or local government, domestic or foreign, or any subdivision thereof or any arbitrator, court, administrative or regulatory agency, commission, department, board or bureau or body or other government or authority or instrumentality or any entity or Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 10.28 "Hazardous Materials" shall mean (a) any substance or material that is listed, defined or otherwise designated as a hazardous substance under any Environmental Law, (b) any petroleum or petroleum products, (c) radioactive materials, urea formaldehyde, asbestos and PCBs, and (d) any other chemical, substance or waste that is regulated by any Governmental Entity under any Environmental Law. 10.29 "Indemnitee" shall mean the Person or Persons indemnified, or entitled or claiming to be entitled to be indemnified, pursuant to the provisions of Section 7.1 or Section 7.2 hereof, as the case may be. 10.30 "Indemnitor" shall mean the Person or Persons having the obligation to indemnify pursuant to the provisions of Section 7.1 or Section 7.2 hereof, as the case may be. 10.31 "Intellectual Property" shall have the meaning given such term in Section 2.4(c). 10.32 "Lien" shall mean any lien, pledge, claim, charge, security interest or other encumbrance, option, defect or other rights of any third Person of any nature whatsoever (including, without limitation, lessor ownership rights). 10.33 "Losses" shall mean Shareholders Losses or Buyer Losses, as the case may be. 10.34 "Other Liabilities" shall mean accrued payroll, accrued vacation pay, accrued workers compensation insurance, accrued payroll Taxes, accrued royalties due to Continental Insurance, accrued royalties due to Home Center Property, accrued royalties due to IHC Hydrohammer, garnishments payable and IRA payroll deductions. 10.35 "PBGC" shall mean the Pension Benefit Guaranty Corporation. 10.36 "Pension Plans" shall have the meaning given such term in Section 2.11(e) hereof. 10.37 "Person" shall mean a corporation, an association, a partnership, an organization, a business, an individual or a Governmental Entity. 10.38 "Proprietary Information" shall mean collectively (a) Proprietary Rights and (b) any and all other information and material proprietary to the Company, owned, possessed or used by the Company, whether or not such information is embodied in writing or other physical form, and which is not generally known to the public, that (i) relates to financial information regarding the Company, including, without limitation, (A) business plans and (B) sales, financing, pricing and marketing procedures or methods of the Company or (ii) relates to specific business matters concerning the Company, including, without limitation, the identity of or other information regarding sales personnel or customers of the Company. 10.39 "Proprietary Rights" shall mean all rights to the name "Petro-Drive" and all patents, inventions, shop rights, know how, trade secrets, designs, drawings, art work, plans, prints, manuals, computer files, computer software, hard copy files, catalogs, specifications, confidentiality agreements, confidential information and other proprietary technology and similar information; all registered and unregistered trademarks, service marks, logos, names, trade names and all other trademark rights; all registered and 34 40 unregistered copyrights; and all registrations for, and applications for registration of, any of the foregoing, that are used in the conduct of the business of the Company. 10.40 "Purchase Price" shall have the meaning such term is given in Section 1.3. 10.41 "Retained Liabilities" shall mean any and all liabilities, claims, claim for liability (whether in contract, in tort or otherwise, and whether or not successful), debts and obligations to the extent not fully accrued for on the Financial Statements relating to or arising from (a) any and all Taxes pertaining or attributable to the Company with respect to any and all taxable periods or portions thereof ending on or before the Closing Date, (b) any Liens of any nature whatsoever against or in any way related to the assets or the business of the Company to the extent such liability or claim for liability arises in connection with any Lien that is in existence at or attributable to periods prior to the Closing Date, (c) any lawsuit or threatened lawsuit or claim involving the Shareholders or the Company based upon actions, omissions or events occurring on or prior to the Closing Date, including, but not limited to, those items listed on Section 2.7 of the Disclosure Schedule, (d) any employee, including without limitation any workers' compensation or worker injury claim based on any actions, omissions or events occurring on or prior to the Closing Date or any termination or severance obligations for any employee of the Company on or prior to the Closing Date, (e) the administration or termination on or prior to the Closing of, or any benefits under, any Company Benefit Plan, (f) any obligation, liability or claim for liability (whether in contract, in tort or otherwise, and whether or not successful) of the Company to any Affiliate of the Shareholders to the extent such obligation, liability or claim arises in connection with any action, omission or event occurring on or prior to the Closing Date or relates to any agreement or commitment in existence on the Closing Date, (g) any and all Environmental Losses, (h) any products manufactured, sold or distributed or services provided by or on behalf of the Company or with respect to any claims made pursuant to warranties to third Persons in connection with products manufactured, sold or distributed or services provided by or on behalf of the Company, (i) any claims or rights of any former shareholders of the Company, including, without limitation, any claims relating to pre-emptive rights or contractual rights of first refusal (j) any claims or obligations arising from or relating to any verbal or unwritten agreements or contracts of or involving the Company, the Shareholders or any of their Affiliates and (k) any other matter or liability relating to the Shareholders or the Company. 10.42 "SEC Documents" shall mean Weatherford's (a) Annual Report on Form 10-K for the year ended December 31, 1998, (b) proxy statement with respect to the Annual Meeting of Stockholders held on May 6, 1999, (c) Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1999 and June 30, 1999, and (d) Current Reports on Form 8-K dated April 29, 1999, May 21, 1999, July 21, 1999, and August 17, 1999. 10.43 "Securities Act" shall mean the Securities Act of 1933, as amended. 10.44 "Service" shall mean the Internal Revenue Service. 10.45 "Shareholders" shall have the meaning given such term in the preamble hereof. 10.46 "Shareholder Representative" shall have the meaning given such term in Section 11.1 hereof. 10.47 "Shareholders Losses" shall have the meaning given such term in Section 7.2 hereof. 10.48 "Shares" shall mean all of the outstanding capital stock of the Company. 35 41 10.49 "Subsidiary" shall mean, as to a Person, any corporation, partnership, joint venture, association or other entity or organization in which such Person owns (directly or indirectly) any equity or other similar ownership interest. 10.50 "Target Debt" shall mean $5,267,000, as reflected on the Company's balance sheet at March 31, 1999. 10.51 "Target Working Capital" shall mean $1,530,000, as reflected on the Company's balance sheet at March 31, 1999. 10.52 "Taxes" shall mean all United States, federal, state, provincial, local, foreign and other taxes, charges, fees, duties, levies, imposts, customs or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, profit share, license, lease, service, service use, value added, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, premium, property, windfall profits, or other taxes, fees, assessments, customs, duties, levies, imposts or charges of any kind whatsoever, together with any interest, penalties, additions to tax, fines or other additional amounts imposed thereon or related thereto, and the term "Tax" shall mean any one of the foregoing Taxes. 10.53 "Tax Returns" shall mean all returns, declarations, reports, statements and other documents of, relating to, or required to be filed in respect of, any and all Taxes. 10.54 "Third Party Claims" shall have the meaning given such term in Section 7.3(b) hereof. 10.55 "Waste Materials" shall mean any toxic or hazardous materials or substances or solid wastes, including asbestos, buried contaminants, chemicals, flammable or explosive materials, radioactive materials, petroleum and petroleum products, and any other chemical, pollutant, contaminant, substance or waste that is regulated by any Governmental Entity under any Environmental Law. "Waste Materials" does not include useful products that are stored or maintained in authorized containers. 10.56 "Weatherford Shares" shall mean 328,767 shares of Common Stock; provided, however, that if the Average Closing Price equals or exceeds $39.50, the Weatherford Shares shall mean the number of shares of Common Stock equal to $12,986,000 divided by the Average Closing Price. ARTICLE 11 MISCELLANEOUS 11.1 Shareholder Representative. Each of the Shareholders hereby irrevocably appoints Thomas W. Mautner to be the representative (the "Shareholder Representative") of the Shareholders following the Closing Date in any matter arising out of this Agreement. For any matter in which the Buyer or Weatherford is entitled to rely on or otherwise deal with the Shareholders, the Buyer and Weatherford shall be entitled to communicate solely with the Shareholder Representative and shall be entitled to rely on any such communications as being the desire and will of the Shareholders. Notice delivered to the Shareholder Representative in accordance with Section 11.4 hereof shall be deemed notice to all of the Shareholders. 11.2 Spousal Consent. The spouses of all married Shareholders are also executing this Agreement. By executing this Agreement, each of such spouses (a) acknowledges that he or she knows of the contents of 36 42 this Agreement, (b) consents to the entering into of this Agreement by his or her spouse and (c) agrees that this Agreement shall be binding upon such spouse to the extent of his or her community property interest. 11.3 Expenses. Except as otherwise set forth herein, and whether or not the transactions contemplated by this Agreement shall be consummated, each party agrees to pay, without right of reimbursement from any other party, the costs incurred by such party incident to the preparation and execution of this Agreement and performance of its obligations hereunder, including, without limitation, the fees and disbursements of legal counsel, accountants and consultants employed by such party in connection with the transactions contemplated by this Agreement; provided, however, that upon consummation of the Closing, the Buyer shall reimburse the Shareholders for up to $20,000 in legal fees actually incurred by the Shareholders in connection with the Transactions contemplated by this Agreement. 11.4 Notices. All notices, requests, consents, directions and other instruments and communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person, by courier, by overnight delivery service with proof of delivery or by prepaid registered or certified first-class mail, return receipt requested, addressed to the respective party at the address set forth below, or if sent by facsimile or other similar form of communication (with receipt confirmed) to the respective party at the facsimile number set forth below: If to the Shareholders or the Shareholder Representative, to: Thomas W. Mautner 200 Countryview Drive Youngsville, LA 70592 Attention: Thomas W. Mautner Facsimile: 318-267-2398 Confirm: 318-267-2342 Copies to: Liskow & Lewis and Darnall, Sikes & Frederick 822 Harding St. 125 Rue Beauregard Lafayette, LA 70503 Lafayette, LA 70508 Attention: Billy J. Domingue Attention: Larry Sikes Facsimile: (318) 267-2398 Facsimile: (318) 237-3614 Confirm: (318) 232-7424 Confirm: (318) 232-3312 If to the Buyer, to: Grant Prideco, Inc. 1450 Lake Robbins Drive, Suite 600 The Woodlands, Texas 77380 Attention: President Facsimile: (281) 297-8569 Confirm: (281) 297-8500
37 43
Copies to: Weatherford International, Inc. and Andrews & Kurth L.L.P. 515 Post Oak Blvd., Suite 600 600 Travis, Suite 4200 Houston, Texas 77027 Houston, Texas 77002 Attention: General Counsel Attention: Robert V. Jewell Facsimile: (713) 693-4484 Facsimile: (713) 238-7135 Confirm: (713) 693-4000 Confirm: (713) 220-4358
or to such other address or facsimile number and to the attention of such other Person as either party may designate by written notice. Any notice mailed shall be deemed to have been given and received on the third Business Day following the day of mailing. 11.5 Specific Performance. It is specifically understood and agreed that any breach by a party of the covenants or agreements of this Agreement is likely to result in irreparable harm to the other party and that an action at law for damages alone will be an inadequate remedy for such breach. Accordingly, in addition to any other remedy that may be available to it, in the event of breach or threatened breach by any party of the covenants or agreements of this Agreement, including, without limitation, Section 4.8 hereof, the other party shall be entitled to enforce the specific performance of this Agreement and to seek both temporary and permanent injunctive relief (to the extent permitted by law), without the necessity of providing actual damages, and such other relief as the court may allow. 11.6 Assignment and Successors. Except as specifically contemplated by this Agreement, no party hereto shall assign this Agreement or any part hereof without the prior written consent of the other party; provided, however, the Buyer may, upon written notice to the Shareholders, assign its rights and obligations in this Agreement to an Affiliate of the Buyer. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the parties hereto and their respective successors and assigns. 11.7 Entire Agreement. This Agreement, the Confidentiality Agreement dated November 4, 1998 by and among the parties hereto, the Exhibits hereto and the Disclosure Schedule constitute the entire agreement and understanding between the parties relating to the subject matter hereof and thereof and supersede all prior representations, endorsements, premises, agreements, memoranda communications, negotiations, discussions, understandings and arrangements, whether oral, written or inferred, between the parties relating to the subject matter hereof. This Agreement may not be modified, amended, rescinded, canceled, altered or supplemented, in whole or in part, except upon the execution and delivery of a written instrument executed by a duly authorized representative of each of the parties hereto. 11.8 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas without giving effect to choice of law principles. 11.9 Waiver. The waiver of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. 11.10 Severability. Any provision hereof that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 38 44 11.11 No Third Party Beneficiaries. Any agreement contained, expressed or implied in this Agreement shall be only for the benefit of the parties hereto and their respective legal representatives, successors and assigns, and such agreements shall not inure to the benefit of the obligees of any indebtedness of any party hereto, it being the intention of the parties hereto that no Person shall be deemed a third party beneficiary of this Agreement, except to the extent a third party is expressly given rights herein. 11.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.13 Headings. Each statement set forth in the Disclosure Schedule with respect to a particular section herein shall be deemed made solely with respect to such section and not with respect to any other section hereof unless specifically set forth in the Disclosure Schedule as also being made with respect to such other section. The headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the terms or provisions hereof or affect in any way the meaning or interpretation of this Agreement. 11.14 Arbitration. In the event there shall exist any dispute or controversy with respect to this Agreement or any matter relating hereto or the transactions contemplated hereby, including, but not limited to Article 7, the parties hereto agree to seek to resolve such dispute or controversy by mutual agreement. If the parties hereto are unable to resolve such dispute or controversy by agreement within 60 days following notice by any party hereto of the nature of such dispute or controversy setting forth in reasonable detail the circumstances and basis of such dispute or controversy, the parties agree that such dispute or controversy be resolved by binding arbitration pursuant to the provisions of this Section 11.14 and in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association. If a party elects to submit such matter to arbitration, such party shall provide notice to the other party of its election to do so, which notice shall name one arbitrator. Within 10 days after the receipt of such notice, the other party shall provide written notice to the electing party naming a second arbitrator. The two arbitrators so appointed shall name a third arbitrator, or failing to do so, a third arbitrator shall be appointed pursuant to the Commercial Arbitration Rules of the American Arbitration Association. All arbitration proceedings shall be held in Houston, Texas. Each arbitrator selected to act hereunder shall be qualified by education and experience to pass on the particular question in dispute and shall be independent and not affiliated with any of the parties hereto. The arbitrators shall resolve all disputes in controversy in accordance with the Texas substantive law. All statutes of limitations that would otherwise be applicable shall apply to any arbitration proceeding. The arbitrators appointed pursuant to this Section 11.14 shall promptly hear and determine (after due notice and hearing and giving the parties reasonable opportunity to be heard) the questions submitted, and shall render their decision within 60 days after appointment of the third arbitrator or as soon as practical thereafter. If within such period a decision is not rendered by the board or a majority thereof, new arbitrators may be named and shall act hereunder at the election of either party in like manner as if none had previously been named. The decision of the arbitrators, or a majority thereof, made in writing, shall absent manifest error be final and binding upon the parties hereto as to the questions submitted, and each party shall abide by such decision. 11.15 Negotiated Transaction. The provisions of this Agreement were negotiated by the parties hereto, and this Agreement shall be deemed to have been drafted by all of the parties hereto. 39 45 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. SHAREHOLDERS: /s/ Charles R. Milam -------------------------------------------- Charles R. Milam /s/ Thomas W. Mautner -------------------------------------------- Thomas W. Mautner /s/ Wesley B. Manuel -------------------------------------------- Wesley B. Manuel Trust #1 of Luke Charles Milam By: /s/ E. Larry Sikes -------------------------------------------- E. Larry Sikes Trustee Trust #1 of Mark W. Milam By: /s/ E. Larry Sikes -------------------------------------------- E. Larry Sikes Trustee Trust #1 of Brent R. Milam By: /s/ E. Larry Sikes -------------------------------------------- E. Larry Sikes Trustee 40 46 Trust #1 of Tammy S. Milam By: /s/ E. Larry Sikes -------------------------------------------- E. Larry Sikes Trustee Trust #1 of Linda A. Milam By: /s/ E. Larry Sikes -------------------------------------------- E. Larry Sikes Trustee SPOUSES: /s/ Vicki Willis Milam -------------------------------------------- Vicki Willis Milam /s/ Julianne Ferrera Mautner -------------------------------------------- Julianne Ferrera Mautner /s/ Kim Comeaux Manuel -------------------------------------------- Kim Comeaux Manuel BUYER: GRANT PRIDECO, INC. By: /s/ Frances Powell -------------------------------------------- Name: Frances R. Powell ------------------------------------------ Title: Vice President ----------------------------------------- 41 47 WEATHERFORD: WEATHERFORD INTERNATIONAL, INC. By: /s/ Curtis W. Huff -------------------------------------------- Curtis W. Huff Senior Vice President EX-27.1 3 FINANCIAL DATED SCHEDULE
5 The schedule contains summary financial information extracted from the consolidated condensed balance sheets and consolidated condensed statements of income and is qualified in its entirety by reference to such statements. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 21,169 0 365,744 20,340 359,446 852,476 901,502 0 3,443,469 607,975 627,544 0 0 119,999 1,732,193 3,443,469 387,446 867,561 274,553 624,804 0 0 31,917 15,441 3,903 8,717 (19,292) 0 0 (10,575) (0.11) (0.10) This amount is not disclosed in the financial statements and thus a value of zero has been shown for purposes of this financial data schedule.
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