Document:

Exhibit 10.1

LOAN AGREEMENT

This
Agreement dated as of December 7, 2006, is between Bank of America, N.A. (the “Bank”)
and Merit Medical Systems, Inc. (the “Borrower”).

1.             FACILITY NO. 1:  LINE OF CREDIT AMOUNT AND TERMS

1.1           Line of Credit Amount.

(a)                                  During the
availability period described below, the Bank will provide a line of credit to
the Borrower.  The amount of the line of
credit (the “Facility No. 1 Commitment”) is Thirty Million and 00/100 Dollars
($30,000,000.00).

(b)                                 This is a
revolving line of credit.  During the
availability period, the Borrower may repay principal amounts and reborrow
them.

(c)                                  The Borrower
agrees not to permit the principal balance outstanding to exceed the Facility
No. 1 Commitment.  If the Borrower
exceeds this limit, the Borrower will immediately pay the excess to the Bank
upon the Bank’s demand.

1.2           Availability Period.  The line of credit is available between the
date of this Agreement and December 7, 2010, or such earlier date as the
availability may terminate as provided in this Agreement (the “Facility No. 1
Expiration Date”).

At any time between
December 7, 2007 and the date sixty (60) days prior to the Facility No. 1
Expiration Date, Borrower may request Bank to extend the Facility No. 1
Expiration Date for an additional year period. If the Bank decides to agree to
such extension, the Bank will send to the Borrower a written notice of
extension, effective as of the Facility No. 1 Expiration Date (“Extension
Notice”). If this Line of Credit is extended, it will continue to be subject to
all the terms and conditions set forth in this Agreement except as modified by
the Extension Notice. if this Line of Credit is extended, the term “Expiration
Date” shall mean the date set forth in the Extension Notice as the Expiration Date.

1.3           Repayment Terms.

(a)                                  The Borrower
will pay interest on January 1, 2006, and then on the first day of each month
thereafter until payment in full of any principal outstanding under this
facility.

(b)                                 The Borrower
will repay in full any principal, interest or other charges outstanding under
this facility no later than the Facility No. 1 Expiration Date.  Any interest period for an optional interest
rate (as described below) shall expire no later than the Facility No. 1
Expiration Date.

1.4           Interest Rate.

(a)                                  The interest
rate is a rate per year equal to the lesser of (i) the maximum lawful rate of
interest permitted under applicable usury laws, now or hereafter enacted (the “Maximum
Rate”), or (ii) Bank’s Prime Rate plus the Applicable Margin as defined below.

(b)                                 The Prime
Rate is the rate of interest publicly announced from time to time by the Bank
as its Prime Rate.  The Prime Rate is set
by the Bank based on various factors, including the Bank’s costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. 
The Bank may price loans to its customers at, above, or

 

 

                                                below the
Prime Rate.  Any change in the Prime Rate
shall take effect at the opening of business on the day specified in the public
announcement of a change in the Bank’s Prime Rate.

1.5           Optional Interest Rates.  Instead of the interest rate based on the
rate stated in the paragraph entitled “Interest Rate” above, the Borrower may
elect the optional interest rates listed below for this Facility No. 1 during
interest periods agreed to by the Bank and the Borrower.  In no event shall the optional interest rate
exceed the Maximum Rate.   The optional
interest rates shall be subject to the terms and conditions described later in
this Agreement.  Any principal amount
bearing interest at an optional rate under this Agreement is referred to as a “Portion.”  The following optional interest rates are
available:

(a)                                  The lesser
of (i) the maximum rate of interest permitted under applicable usury laws, now
or hereafter enacted (the “Maximum Rate”), or (ii) the LIBOR Rate  plus the Applicable Margin as defined below.

1.6           Applicable Margin.  The Applicable Margin shall be the following
amounts per annum, based upon the Funded Debt to EBITDA Ratio (as defined in
the “Covenants” section of this Agreement), as set forth in the most recent
compliance certificate (or, if no compliance certificate is required, the  Borrower’s most recent financial statements)
received by the Bank as required in the Covenants section; provided, however,
that, until the Bank receives the first compliance certificate or financial
statement, such amounts shall be those indicated for pricing level 1 set forth
below:

Applicable
Margin

(in percentage points per annum)

	
  Pricing

  Unused Fee*

  Level

  	
   

  	
  Funded Debt to EBITDA Ratio

  	
   

  	
  Bank’s Prime

  	
   

  	
  LIBOR

  	
   

  	
  Letter of Credit

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  <1.00

  	
   

  	
  minus 2.250

  	
   

  	
  plus 0.500

  	
   

  	
  0.500

  
	
  0.100

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  > equal 1.00 but < 1.50

  	
   

  	
  minus 2.125

  	
   

  	
  plus 0.625

  	
   

  	
  0.625

  
	
  0.150

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  > equal 1.50 but < 2.00

  	
   

  	
  minus 2.000

  	
   

  	
  plus 0.750

  	
   

  	
  0.750

  
	
  0.200

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  > equal 2.00 but < 2.50

  	
   

  	
  minus 1.250

  	
   

  	
  plus 1.500

  	
   

  	
  1.500

  
	
  0.250

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

The
Applicable Margin shall be in effect from the date the most recent compliance
certificate or financial statement is received by the Bank until the date the
next compliance certificate or financial statement is received; provided,
however, that if the Borrower fails to timely deliver the next compliance
certificate or financial statement, the Applicable Margin from the date such
compliance certificate or financial statement was due until the date such
compliance certificate or financial statement is received by the Bank shall be
the highest pricing level set forth above.

*The
Unused Fee Applicable Margin will be increased by 0.10% for any periods during
which the actual amount of principal outstanding is less than 50% of the
Facility No. 1 Commitment.

1.7           Letters of Credit.

(a)                                  During the
availability period, at the request of the Borrower, the Bank will issue:

(i)                                     commercial
letters of credit with a maximum maturity not to extend beyond the Facility No.
1 Expiration Date.  Each commercial
letter of credit will require drafts payable at sight.

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(ii)                                  standby
letters of credit with a maximum maturity not to extend beyond the Facility No.
1 Expiration Date.  The standby letters
of credit may include a provision providing that the maturity date will be
automatically extended each year for an additional year unless the Bank gives
written notice to the contrary.

(b)                                 The amount
of the letters of credit outstanding at any one time (including the drawn and
unreimbursed amounts of the letters of credit) may not exceed Five Million and
00/100 Dollars ($5,000,000).

(c)                                  In
calculating the principal amount outstanding under the Facility No. 1
Commitment, the calculation shall include the amount of any letters of credit outstanding,
including amounts drawn on any letters of credit and not yet reimbursed.

(d)           The Borrower agrees:

(i)                                     Any sum drawn
under a letter of credit may, at the option of the Bank, be added to the
principal amount outstanding under this Agreement.  The amount will bear interest and be due as
described elsewhere in this Agreement.

(ii)                                  If there is
a default under this Agreement, to immediately prepay and make the Bank whole
for any outstanding letters of credit.

(iii)                               The issuance
of any letter of credit and any amendment to a letter of credit is subject to
the Bank’s written approval and must be in form and content satisfactory to the
Bank and in favor of a beneficiary acceptable to the Bank.

(iv)                              To sign the
Bank’s form Application and Agreement for Commercial Letter of Credit or
Application and Agreement for Standby Letter of Credit, as applicable.

(v)                                 To pay any
issuance and/or other fees that the Bank notifies the Borrower will be charged
for issuing and processing letters of credit for the Borrower.

(vi)                              To allow the
Bank to automatically charge its checking account for applicable fees,
discounts, and other charges.

(vii)                           To pay the
Bank a non-refundable fee per annum equal to the Applicable Margin for Letters
of Credit (as provided in section 1.6 above) multiplied by the outstanding
undrawn amount of each standby letter of credit, payable quarterly in advance,
calculated on the basis of the face amount outstanding on the day the fee is
calculated.

2.             OPTIONAL INTEREST RATES

2.1           Optional Rates. Each optional
interest rate is a rate per year. Interest will be paid on January 1, 2006 and
then on the first day of each month thereafter until payment in full of any
principal outstanding under this Agreement. No Portion will be converted to a
different interest rate during the applicable interest period. Upon the
occurrence of an event of default under this Agreement, the Bank may terminate
the availability of optional interest rates for interest periods commencing
after the default occurs.  At the end of
each interest period, the interest rate will revert to the rate stated in the
paragraph(s) entitled “Interest Rate” above, unless the Borrower has designated
another optional interest rate for the Portion.

2.2           LIBOR Rate.  The election of LIBOR Rates shall be subject
to the following terms and requirements:

(a)                                  The interest
period during which the LIBOR Rate will be in effect will be one month, two
months, three months, six months or twelve months.  The first day of the interest period must be
a day other than a Saturday or a Sunday on which banks are open for business in
New York and London and dealing in offshore dollars (a “LIBOR Banking Day”).  The last day of the interest

 3
 

 

 

                                                period and
the actual number of days during the interest period will be determined by the
Bank using the practices of the London inter-bank market.

(b)                                 Each LIBOR
Rate portion will be for an amount not less than One Hundred Thousand and
00/100 Dollars ($100,000.00) with a maximum of seven (7) tranches outstanding
at any one time.

(c)                                  The “LIBOR
Rate” means the interest rate determined by the following formula.  (All amounts in the calculation will be
determined by the Bank as of the first day of the interest period.)

	
  LIBOR Rate = London
  Inter-Bank Offered Rate

  
	
   

  	
   

  	
  (1.00 - Reserve Percentage)

  

Where,

(i)                                     “London
Inter-Bank Offered Rate” means for any applicable interest period, the rate per
annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as
published by Reuters (or other commercially available source providing
quotations of BBA LIBOR as selected by the Bank from time to time) at
approximately 11:00 a.m. London time two (2) London Banking Days before the
commencement of the interest period for U.S. Dollar deposits (for delivery on
the first day of such interest period) with a term equivalent to such interest
period.  If such rate is not available at
such time for any reason then the rate for that interest period will be
determined by such alternate method as reasonably selected by the Bank.  A “London Banking Day” is a day on which
banks in London are open for business and dealing in offshore dollars.

(ii)                                  “Reserve
Percentage” means the total of the maximum reserve percentages for determining
the reserves to be maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent.  The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.

(d)                                 The Borrower
shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon Central time on the LIBOR
Banking Day preceding the day on which the London Inter-Bank Offered Rate will
be set, as specified above.  For example,
if there are no intervening holidays or weekend days in any of the relevant locations,
the request must be made at least three days before the LIBOR Rate takes
effect.

(e)                                  The Bank
will have no obligation to accept an election for a LIBOR Rate Portion if any
of the following described events has occurred and is continuing:

(i)                                     Dollar deposits
in the principal amount, and for periods equal to the interest period, of a
LIBOR Rate Portion are not available in the London inter-bank market; or

 (f)                                 Each
prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below.  A “prepayment” is a payment of an amount on a
date earlier than the scheduled payment date for such amount as required by
this Agreement.

(g)                                 The
prepayment fee shall be in an amount sufficient to compensate the Bank for any
loss, cost or expense incurred by it as a result of the prepayment, including
any loss of anticipated profits and
any loss or expense arising from the liquidation or reemployment of funds
obtained by it to maintain such Portion or from fees payable to terminate the
deposits from which such funds were obtained.  The Borrower shall also pay any customary
administrative fees charged by the Bank in connection with the foregoing.  For purposes of this paragraph, the Bank shall be deemed to have funded
each Portion by a matching deposit or other borrowing in the applicable
interbank market, whether or not such Portion was in fact so funded.

 4
 

 

 

3.             FEES AND EXPENSES

3.1           Fees.

(a)           Unused Commitment Fee.  The Borrower agrees to pay a fee equal to the
product of (i) the Applicable Margin for         Unused
Fee (as provided in section 1.6 above), multiplied by (ii) any difference
between the Facility No. 1            Commitment
and the amount of credit it actually uses, determined by the average of the
daily amount of credit     outstanding
during the specified period.

This
fee is due on January 1, 2007 and on the first day of each following quarter
until the expiration of the      availability
period.

(b)                                 Waiver Fee.  If the Bank, at its discretion, agrees to
waive or amend any terms of this Agreement, the Borrower will, at the Bank’s
option, pay the Bank a fee for each waiver or amendment in an amount advised by
the Bank at the time the Borrower requests the waiver or amendment.  Nothing in this paragraph shall imply that
the Bank is obligated to agree to any waiver or amendment requested by the
Borrower.  The Bank may impose additional
requirements as a condition to any waiver or amendment.

(c)                                  Late Fee.  To the extent permitted by law, the Borrower
agrees to pay a late fee in an amount not to exceed four percent (4%) of any
payment that is more than fifteen (15) days late; provided that  such late fee shall be reduced by two percent
(2%) of any required principal and interest payment that is not paid within
fifteen (15) days of the date it is due if the loan is secured by a mortgage on
an owner-occupied residence. The imposition and payment of a late fee shall not
constitute a waiver of the Bank’s rights with respect to the default.

3.2           Expenses.  The Borrower agrees to immediately repay the
Bank for expenses that include, but are not limited to, filing, recording and
search fees, appraisal fees, title report fees, and documentation fees.

3.3           Reimbursement Costs.

(a)                                  The Borrower
agrees to reimburse the Bank for any expenses it incurs in the preparation of
this Agreement and any agreement or instrument required by this Agreement.  Expenses include, but are not limited to,
reasonable attorneys’ fees, including any allocated costs of the Bank’s
in-house counsel to the extent permitted by applicable law.

3.4           No Excess Fees.  Notwithstanding anything to the contrary in
this Section 3, in no event shall any sum payable under this Section 3 (to the
extent, if any, constituting interest under applicable laws), together with all
other amounts constituting interest under applicable laws and payable in
connection with the credit evidenced hereby, exceed the amount of interest
computed at the Maximum Rate.

4.
            DISBURSEMENTS, PAYMENTS AND
COSTS

4.1
          Disbursements and Payments.

(a)                                  Each payment
by the Borrower will be made in U.S. Dollars and immediately available funds by
direct debit to a deposit account as specified below or, for payments not
required to be made by direct debit, by mail to the address shown on the
Borrower’s statement or at one of the Bank’s banking centers in the United
States.

(b)                                 Each
disbursement by the Bank and each payment by the Borrower will be evidenced by
records kept by the Bank.  In addition,
the Bank may, at its discretion, require the Borrower to sign one or more
promissory notes.

4.2                                 Telephone
and Telefax Authorization.

(a)                                  The Bank may
honor telephone or telefax instructions for advances or repayments or for the
designation of optional interest rates and telefax requests for the issuance of
letters of credit

 

 5

 

 

                                                     given, or
purported to be given, by any one of the individuals authorized to sign loan
agreements on behalf of the Borrower, or any other individual designated by any
one of such authorized signers.

(b)                                      Advances
will be deposited in the Depository listed below (the “Designated Account”)
owned by Borrower or such other of the Borrower’s accounts as designated in
writing by the Borrower.

	
  DEPOSITORY NAME: Zions First National Bank

  
	
  Address:

  	
   

  	
  310 S Main St, Suite 1420

  
	
   

  	
   

  	
  Salt Lake City, UT 84101

  
	
  Routing Number: ABA#/Routing # 124000054

  
	
  Deposit Account Number: Acct# 550-000-37-6

  

 

(c)                                       In regard to
Borrower’s telephone or telefax instructions for transfers from the line of
credit, the Bank agrees to confirm that all transactions are made by
individuals authorized by the Borrower as designated on appropriate signature
cards and that all advances of funds under this Agreement are
distributed to the Designated Account.    
The Bank will hold Borrower harmless from all liability, loss and costs
in connection with any act resulting from the Bank’s failure to confirm these
obligations, in an amount not to exceed the amount of loan advance that is
sent by the Bank not in accordance with these directions. The
Borrower will indemnify and hold the Bank harmless from all liability, loss and
costs in connection with any act resulting from the Bank’s actions in
accordance with these obligations.   Any advance sent by the
Bank to the Designated Account shall be presumed to comply with Borrower’s directions
under this section, and thereafter Bank shall have no further obligations with
respect to any transactions in the Borrower’s Account by any other person.

4.3             Banking Days.  Unless otherwise provided in this Agreement,
a banking day is a day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close, or are in fact closed, in the state
where the Bank’s lending office is located, and, if such day relates to amounts
bearing interest at an offshore rate (if any), means any such day on which
dealings in dollar deposits are conducted among banks in the offshore dollar
interbank market.  All payments and
disbursements which would be due on a day which is not a banking day will be
due on the next banking day.  All
payments received on a day which is not a banking day will be applied to the
credit on the next banking day.

4.4             Interest Calculation.  Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. 
This results in more interest or a higher fee than if a 365-day year is
used.  Installments of principal which
are not paid when due under this Agreement shall continue to bear interest
until paid.

4.5             Default Rate.  Upon the occurrence of any default or after
maturity or after judgment has been rendered on any obligation under this
Agreement, all amounts outstanding under this Agreement, including any
interest, fees, or costs which are not paid when due, will at the option of the
Bank bear interest at a rate which is the lesser of (i) the Maximum Rate or
(ii) 6.0 percentage point(s) higher than the rate of interest otherwise
provided under this Agreement.  This may
result in compounding of interest.  This
will not constitute a waiver of any default.

5.               CONDITIONS

Before
the Bank is required to extend any credit to the Borrower under this Agreement,
it must receive any documents and other items it may reasonably require, in
form and content acceptable to the Bank, including any items specifically
listed below.

5.1             Authorizations.  If the Borrower or any guarantor is anything
other than a natural person, evidence that the execution, delivery and
performance by the Borrower and/or such guarantor of this Agreement and any
instrument or agreement required under this Agreement have been duly
authorized.

 6
 

 

 

5.2
            Governing Documents.  If required by the Bank, a copy of the
Borrower’s organizational documents.

5.3
            Good Standing.  Certificates of good standing for the
Borrower from its state of formation and from any other state in which the
Borrower is required to qualify to conduct its business.

5.4
            Insurance.  Evidence of insurance coverage, as required
in the “Covenants” section of this Agreement.

5.5             Legal Opinion.  A written opinion from the Borrower’s legal
counsel, covering such matters as the Bank may require. The legal opinion and
the terms of the opinion must be acceptable to the Bank.

6.               REPRESENTATIONS AND WARRANTIES

When
the Borrower signs this Agreement, and until the Bank is repaid in full, the
Borrower makes the following representations and warranties.  Each request for an extension of credit
constitutes a renewal of these representations and warranties as of the date of
the request:

6.1             Formation.  If the Borrower is anything other than a
natural person, it is duly formed and existing under the laws of the state or
other jurisdiction where organized.

6.2             Authorization.  This Agreement, and any instrument or
agreement required hereunder, are within the Borrower’s powers, have been duly
authorized, and do not conflict with any of its organizational papers.

6.3             Enforceable Agreement.  This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed
and delivered, will be similarly legal, valid, binding and enforceable.

6.4             Good Standing.  In each state in which the Borrower does
business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.

6.5             No Conflicts.  This Agreement does not conflict with any
law, agreement, or obligation by which the Borrower is bound.

6.6             Financial Information.  All financial and other information that has
been or will be supplied to the Bank is sufficiently complete to give the Bank
accurate knowledge of the Borrower’s (and any guarantor’s) financial condition,
including all material contingent liabilities. 
Since the date of the most recent financial statement provided to the
Bank, there has been no material adverse change in the business condition
(financial or otherwise), operations, properties or prospects of the Borrower
(or any guarantor).  If the Borrower is
comprised of the trustees of a trust, the foregoing representations shall also
pertain to the trustor(s) of the trust.

6.7             Lawsuits.  There is no lawsuit, tax claim or other
dispute pending or threatened against the Borrower which, if lost, would impair
the Borrower’s financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank.

6.8             Permits, Franchises.  The Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights, copyrights and fictitious name rights
necessary to enable it to conduct the business in which it is now engaged.

6.9             Other Obligations.  The Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation, except as have
been disclosed in writing to the Bank.

6.10           Tax Matters.  The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year and all taxes due
have been paid, except as have been disclosed in writing to the Bank.

 7
 

 

 

6.11           No Event of Default.  There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.

6.12           Insurance.  The Borrower has obtained, and maintained in
effect, the insurance coverage required in the “Covenants” section of this
Agreement.

7.               COVENANTS

The Borrower agrees, so
long as credit is available under this Agreement and until the Bank is repaid
in full:

7.1             Use
of Proceeds.

(a)                                       To
use the proceeds of Facility No. 1 only for refinancing of existing
indebtedness (if any) and for working capital, capital expenditures,
acquisitions, and other lawful corporate purposes.

7.2             Financial Information.  To provide the following financial
information and statements in form and content acceptable to the Bank, and such
additional information as requested by the Bank from time to time:

(a)                                       Within
ninety (90) days of the fiscal year end, the annual financial statements of the
Borrower, certified and dated by an authorized financial officer.  These financial statements must be audited
(with an opinion satisfactory to the Bank) by a Certified Public Accountant
acceptable to the Bank.  The statements
shall be prepared on a consolidated basis.

(b)                                      Within
forty five (45) days of the period’s end (excluding the last period in each
fiscal year), quarterly financial statements of the Borrower, certified and
dated by an authorized financial officer. 
These financial statements may be company-prepared.  The statements shall be prepared on a
consolidated basis.

(c)                                       Within
ninety (90) days of the end of each fiscal year and within forty five (45) days
of the end of each quarter, a compliance certificate of the Borrower signed by
an authorized financial officer, and setting forth (i) the information and
computations (in sufficient detail) to establish that the Borrower is in
compliance with all financial covenants at the end of the period covered by the
financial statements then being furnished and (ii) whether there existed as of
the date of such financial statements and whether there exists as of the date
of the certificate, any default under this Agreement and, if any such default
exists, specifying the nature thereof and the action the Borrower is taking and
proposes to take with respect thereto.

(d)                                      Annual
Budget due within ninety (90) days of the fiscal year end.

7.3             Funded
Debt to EBITDA Ratio.  To maintain on
a consolidated basis a ratio of Funded Debt to EBITDA not exceeding 2.50:1.0.

“Funded Debt” means all outstanding liabilities for
borrowed money and other interest-bearing liabilities, including current and
long term debt (including capitalized leases if any), less the non-current
portion of Subordinated Liabilities. This ratio will be calculated at the end
of each reporting period for which the Bank requires financial statements,
using the results of the twelve-month period ending with that reporting period.

“Subordinated Liabilities” means liabilities
subordinated to the Borrower’s obligations to the Bank in a manner acceptable
to the Bank in its sole discretion.

7.4             Basic
Fixed Charge Coverage Ratio.  To
maintain on a consolidated basis a Basic Fixed Charge Coverage Ratio of at
least 1.25:1.0.

“Basic Fixed Charge Coverage Ratio” means the ratio of
(a) the sum of EBITDA, minus income tax, minus

 8
 

 

 

dividends, withdrawals, and other distributions, minus
unfinanced capital expenditures (excluding the $41,000,000.00 in expenditures
incurred during fiscal year 2005 for the construction and refurbishment of the
head office complex), to (b) the sum of interest expense, the current portion
of long term debt and the current portion of capitalized lease obligations.
This ratio will be calculated at the end of each reporting period for which the
Bank requires financial statements, using the results of the twelve-month
period ending with that reporting period. 
The current portion of long-term liabilities will be measured as of the
date twelve (12) months prior to the current financial statement.

7.5             No
Negative Pledge.  Not to enter into
any agreement with a party other than the Bank that obligates the Borrower not
to pledge any of its assets in an amount that exceeds a total of Five Million
Dollars ($5,000,000.00).

7.6             Other
Debts.  Not to have outstanding or
incur any direct or contingent liabilities or lease obligations (other than
those to the Bank), or become liable for the liabilities of others, without the
Bank’s written consent. This does not prohibit:

(a)             Acquiring
goods, supplies, or merchandise on normal trade credit.

(b)             Endorsing
negotiable instruments received in the usual course of business.

(c)             Obtaining
surety bonds in the usual course of business.

(d)             Liabilities,
lines of credit and leases in existence on the date of this Agreement disclosed
in writing to the Bank.

(e)             Additional
debts and lease obligations for the acquisition of fixed assets, to the extent
permitted elsewhere in this Agreement.

(f)              Additional
debts and lease obligations for business purposes which, together with the
debts permitted under subparagraph(s) a - e, above, do not exceed a total
principal amount of Five Million Dollars ($5,000,000.00) outstanding at any one
time.

7.7             Other
Liens.  Not to create, assume, or
allow any security interest or lien (including judicial liens) on property the
Borrower now or later owns, except:

(a)             Liens
and security interests in favor of the Bank.

(b)             Liens
for taxes not yet due.

(c)             Liens
outstanding on the date of this Agreement disclosed in writing to the Bank.

(d)             Additional
purchase money security interests in assets acquired after the date of this
Agreement, if the total principal amount of debts secured by such liens does
not exceed Five Million Dollars ($5,000,000.00) at any one time.

7.8             Maintenance
of Assets.

(a)             Not to sell, assign, lease,
transfer or otherwise dispose of all or a substantial part of the Borrower’s
business or the Borrower’s assets except in an aggregate amount not exceeding
Fifteen Million Dollars ($15,000,000.00) in any fiscal year.

(b)             Not to sell, assign, lease, transfer
or otherwise dispose of any assets in excess of $100,000.00 for less than fair
market value, or enter into any agreement to do so.

(c)             Not to enter into any sale and
leaseback agreement covering any of its fixed assets exceeding $1,000,000.00.

(d)             To maintain and preserve all
rights, privileges, and franchises the Borrower now has.

 9
 

 

 

(e)                                  To
make any repairs, renewals, or replacements to keep the Borrower’s properties
in good working condition.

7.9             Cash
Management Investments.  Not to have
any existing, or make any new, investments in any individual or entity, (excluding
mergers and acquisitions permitted by 7.11) or make any capital contributions
or other transfers of assets to any individual or entity, except for:

(a)                                  Existing
investments disclosed to the Bank in writing.

(b)                                 Investments
in the Borrower’s current subsidiaries.

(c)                                  Investments
in any of the following:

(i)                                     certificates
of deposit;

(ii)                                  U.S.
treasury bills and other obligations of the federal government;

(iii)                               readily marketable
securities (including commercial paper, but excluding restricted stock and
stock subject to the provisions of Rule 144 of the Securities and Exchange
Commission).

(iv)                              investments
in keeping with Borrower’s Investment Policy dated April 1, 2005, as updated
from time to time with a copy to Lender.

7.10                           Loans.  Not to make any loans, advances or other
extensions of credit to any individual or entity, except for:

(a)                                  Existing
extensions of credit disclosed to the Bank in writing.

(b)                                 Extensions
of credit to the Borrower’s current subsidiaries.

(c)                                  Extensions
of credit in the nature of accounts receivable or notes receivable arising from
the sale or lease of goods or services in the ordinary course of business to
non-affiliated entities.

(d)                                 Extensions
of credit that do not exceed an amount of Two Million Dollars ($2,000,000.00)
outstanding at any one time.

7.11                           Additional
Negative Covenants.  Not to, without
the Bank’s written consent:

(a)                                  Enter
into any consolidation, merger, or other combination where Borrower is not the
surviving entity.

(b)                                 Acquire
or purchase a business, or part thereof, or its assets for a consideration,
including assumption of direct or contingent debt, in excess of Fifteen Million
Dollars ($15,000,000.00) per annum and Forty Million Dollars ($40,000,000.00)
through maturity.

(c)                                  Engage
in any business activities outside of the healthcare industry.

(d)                                 Liquidate
or dissolve the Borrower’s business.

(e)                                  Voluntarily
suspend the Borrower’s business.

7.12                           Notices
to Bank.  To promptly notify the Bank
in writing of:

(a)                                  Any
lawsuit claiming actual damages over Two Million Five Hundred Thousand Dollars
($2,500,000.00) that a plaintiff files against the Borrower (or any guarantor
or, if the Borrower is comprised of the trustees of a trust, any trustor).

 

 10

 

 

(b)                                 Any
substantial dispute between any governmental authority and the Borrower (or any
guarantor or, if the Borrower is comprised of the trustees of a trust, any
trustor).

(c)                                  Any
event of default under this Agreement, or any event which, with notice or lapse
of time or both, would constitute an event of default.

(d)                                 Any
material adverse change in the Borrower’s (or any guarantor’s, or, if the
Borrower is comprised of the trustees of a trust, any trustor’s) business
condition (financial or otherwise), operations, properties or prospects, or a
material adverse change affects the Borrower’s ability to repay the credit.

(e)                                  Any
change in the Borrower’s name, legal structure, place of business, or chief
executive office if the Borrower has more than one place of business.

(f)                                    Any
actual contingent liabilities of the Borrower (or any guarantor or, if the
Borrower is comprised of the trustees of a trust, any trustor), and any such
contingent liabilities which are reasonably foreseeable, where such liabilities
are in excess of Two Million Five Hundred Thousand Dollars ($2,500,000.00).

7.13         Insurance.

(a)                                  General
Business Insurance.  To maintain
insurance satisfactory to the Bank as to amount, nature and carrier covering
property damage (including loss of use and occupancy) to any of the Borrower’s
properties, business interruption insurance, public liability insurance
including coverage for contractual liability, product liability and workers’
compensation, and any other insurance which is usual for the Borrower’s business.  Each policy shall provide for at least 30
days prior notice to the Bank of any cancellation thereof.

7.14         Compliance
with Laws.  To comply with the laws
(including any fictitious or trade name statute), regulations, and orders of
any government body with authority over the Borrower’s business.  The Bank shall have no obligation to make any
advance to the Borrower’s except in compliance with all applicable laws and
regulations and the Borrower’s shall fully cooperate with the Bank in complying
with all such applicable laws and regulations.

7.15         ERISA
Plans.  Promptly during each year, to
pay and cause any subsidiaries to pay contributions adequate to meet at least
the minimum funding standards under ERISA with respect to each and every Plan;
file each annual report required to be filed pursuant to ERISA in connection
with each Plan for each year; and notify the Bank within ten (10) days of the
occurrence of any Reportable Event that might constitute grounds for
termination of any capital Plan by the Pension Benefit Guaranty Corporation or
for the appointment by the appropriate United States District Court of a
trustee to administer any Plan.  “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time.  Capitalized terms in this
paragraph shall have the meanings defined within ERISA.

7.16         Books
and Records.  To maintain adequate
books and records.

7.17         Audits.  To allow the Bank and its agents to inspect
the Borrower’s properties and examine, audit, and make copies of books and
records at any reasonable time.  If any
of the Borrower’s properties, books or records are in the possession of a third
party, the Borrower authorizes that third party to permit the Bank or its
agents to have access to perform inspections or audits and to respond to the
Bank’s requests for information concerning such properties, books and records.

7.18         Cooperation.  To take any action reasonably requested by
the Bank to carry out the intent of this Agreement.

 11
 

 

 

 8.            DEFAULT
AND REMEDIES

If
any of the following events of default occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. 
If an event which, with notice or the passage of time, will constitute
an event of default has occurred and is continuing, the Bank has no obligation
to make advances or extend additional credit under this Agreement.  In addition, if any event of default occurs,
the Bank shall have all rights, powers and remedies available under any
instruments and agreements required by or executed in connection with this
Agreement, as well as all rights and remedies available at law or in equity.  If an event of default occurs under the
paragraph entitled  “Bankruptcy,” below,
with respect to the Borrower, then the entire debt outstanding under this
Agreement will automatically be due immediately.

8.1           Failure to Pay.  The Borrower fails to make a payment under
this Agreement when due.

8.2           Other Bank Agreements.  Any default occurs under any other agreement
the Borrower (or any Obligor) or any of the Borrower’s related entities or
affiliates has with the Bank or any affiliate of the Bank.  For purposes of this Agreement, “Obligor”
shall mean any guarantor, any party pledging collateral to the Bank, or, if the
Borrower is comprised of the trustees of a trust, any trustor.

8.3           Cross-default.  Any default occurs, and remains uncured for
30 days, under any agreement in connection with any credit over $250,000.00 the
Borrower (or any Obligor) or any of the Borrower’s related entities or
affiliates has obtained from anyone else or which the Borrower (or any Obligor)
or any of the Borrower’s related entities or affiliates has guaranteed.

8.4           False Information.  The Borrower or any Obligor has given the
Bank false or misleading information or representations.

8.5           Bankruptcy.  The Borrower, any Obligor, or any general
partner of the Borrower or of any Obligor files a bankruptcy petition, a
bankruptcy petition is filed against any of the foregoing parties, or the
Borrower, any Obligor, or any general partner of the Borrower or of any Obligor
makes a general assignment for the benefit of creditors.

8.6           Receivers.  A receiver or similar official is appointed
for a substantial portion of the Borrower’s or any Obligor’s business, or the
business is terminated, or, if any Obligor is anything other than a natural
person, such Obligor is liquidated or dissolved.

8.7           Judgments.  Any judgments or arbitration awards are
entered against the Borrower or any Obligor, or the Borrower or any Obligor
enters into any settlement agreements with respect to any litigation or
arbitration, in an aggregate amount of Two Million Five Hundred Thousand and
00/100 Dollars ($2,500,000.00) or more in excess of any insurance coverage.

8.8           Material Adverse Change.  A material adverse change occurs, or is
reasonably likely to occur, in the Borrower’s (or any Obligor’s) business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.

8.9           Government Action.  Any government authority takes action that
the Bank believes materially adversely affects the Borrower’s or any Obligor’s
financial condition or ability to repay.

8.10         Default under Related Documents.  Any default occurs under any guaranty,
subordination agreement, security agreement, deed of trust, mortgage, or other
document required by or delivered in connection with this Agreement or any such
document is no longer in effect, or any guarantor purports to revoke or disavow
the guaranty.

8.11         ERISA Plans.  Any one or more of the following events
occurs with respect to a Plan of the Borrower subject to Title IV of ERISA,
provided such event or events could reasonably be expected, in the judgment of
the Bank, to subject the Borrower to any tax, penalty or liability (or any
combination of the

 12
 

 

 

foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of the Borrower:

(a)                                  A reportable
event shall occur under Section 4043(c) of ERISA with respect to a Plan.

(b)                                 Any Plan
termination (or commencement of proceedings to terminate a Plan) or the full or
partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

8.12         Other Breach Under Agreement.  A default occurs under any other term or
condition of this Agreement not specifically referred to in this Article.  This includes any failure or anticipated
failure by the Borrower (or any other party named in the Covenants section) to
comply with the financial covenants set forth in this Agreement, whether such
failure is evidenced by financial statements delivered to the Bank or is
otherwise known to the Borrower or the Bank.

9.             ENFORCING THIS AGREEMENT;
MISCELLANEOUS

9.1           GAAP.  Except as otherwise stated in this Agreement,
all financial information provided to the Bank and all financial covenants will
be made under generally accepted accounting principles, consistently applied.

9.2           New York Law.  This Agreement is governed by New York state
law.

9.3           Successors and Assigns.  This Agreement is binding on the Borrower’s
and the Bank’s successors and assignees. 
The Borrower agrees that it may not assign this Agreement without the
Bank’s prior consent.  The Bank may sell
participations in or assign this loan, and may exchange information about the
Borrower (including, without limitation, any information regarding any
hazardous substances) with actual or potential participants or assignees.  If a participation is sold or the loan is assigned,
the purchaser will have the right of set-off against the Borrower.

9.4           Arbitration and Waiver of Jury
Trial

(a)                                  This
paragraph concerns the resolution of any controversies or claims between the
parties, whether arising in contract, tort or by statute, including but not
limited to controversies or claims that arise out of or relate to: (i) this
agreement (including any renewals, extensions or modifications); or (ii) any
document related to this agreement (collectively a “Claim”).  For the purposes of this arbitration
provision only, the term “parties” shall include any parent corporation,
subsidiary or affiliate of the Bank involved in the servicing, management or
administration of any obligation described or evidenced by this agreement.

(b)                                 At
the request of any party to this agreement, any Claim shall be resolved by
binding arbitration in accordance with the Federal Arbitration Act (Title 9,
U.S. Code) (the “Act”).  The Act will
apply even though this agreement provides that it is governed by the law of a
specified state.  The arbitration will
take place on an individual basis without resort to any form of class action.

(c)                                  Arbitration
proceedings will be determined in accordance with the Act, the then-current
rules and procedures for the arbitration of financial services disputes of the
American Arbitration Association or any successor thereof (“AAA”), and the
terms of this paragraph.  In the event of
any inconsistency, the terms of this paragraph shall control.  If AAA is unwilling or unable to (i) serve as
the provider of arbitration or (ii) enforce any provision of this arbitration
clause, any party to this agreement may substitute another arbitration
organization with similar procedures to serve as the provider of arbitration.

(d)                                 The
arbitration shall be administered by AAA and conducted, unless otherwise
required by law, in any U.S. state where real or tangible personal property
collateral for this credit is located or if there is no such collateral, in the
state specified in the governing law section of this agreement.  All Claims shall be determined by one
arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon
the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence
within ninety (90) days of the demand for arbitration and

 13
 

 

 

                                                close
within ninety (90) days of commencement and the award of the arbitrator(s)
shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of
good cause, may extend the commencement of the hearing for up to an additional
sixty (60) days.  The arbitrator(s) shall
provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any
court having jurisdiction to be confirmed, judgment entered and enforced.

(e)                                  The
arbitrator(s) will give effect to statutes of limitation in determining any
Claim and may dismiss the arbitration on the basis that the Claim is barred.
For purposes of the application of the statute of limitations, the service on
AAA under applicable AAA rules of a notice of Claim is the equivalent of the
filing of a lawsuit.  Any dispute
concerning this arbitration provision or whether a Claim is arbitrable shall be
determined by the arbitrator(s).  The
arbitrator(s) shall have the power to award legal fees pursuant to the terms of
this agreement.

(f)                                    This
paragraph does not limit the right of any party to: (i) exercise self-help
remedies, such as but not limited to, setoff; (ii) initiate judicial or
non-judicial foreclosure against any real or personal property collateral;
(iii) exercise any judicial or power of sale rights, or (iv) act in a court of
law to obtain an interim remedy, such as but not limited to, injunctive relief,
writ of possession or appointment of a receiver, or additional or supplementary
remedies.

(g)                                 The
filing of a court action is not intended to constitute a waiver of the right of
any party, including the suing party, thereafter to require submittal of the
Claim to arbitration.

(h)                                 BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND
VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CLAIM. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS AGREEMENT TO
ARBITRATE, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY
AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING
INTO THIS AGREEMENT.

9.5           Severability; Waivers.  If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced.  The Bank retains all rights, even if it makes
a loan after default.  If the Bank waives
a default, it may enforce a later default. 
Any consent or waiver under this Agreement must be in writing.

9.6           Attorneys’ Fees.  The Borrower shall reimburse the Bank for any
reasonable costs and attorneys’ fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, “workout” or restructuring under this
Agreement.  In the event of a lawsuit or
arbitration proceeding, the prevailing party is entitled to recover costs and
reasonable attorneys’ fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator.  In the event that any case is commenced by or
against the Borrower under the Bankruptcy Code (Title 11, United States Code)
or any similar or successor statute, the Bank is entitled to recover costs and
reasonable attorneys’ fees incurred by the Bank related to the preservation,
protection, or enforcement of any rights of the Bank in such a case.  As used in this paragraph, “attorneys’ fees”
includes the allocated costs of the Bank’s in-house counsel.

9.7           One Agreement.  This Agreement and any related security or
other agreements required by this Agreement, collectively:

(a)                                  represent
the sum of the understandings and agreements between the Bank and the Borrower
concerning this credit;

(b)                                 replace any
prior oral or written agreements between the Bank and the Borrower concerning
this credit; and

(c)                                  are intended
by the Bank and the Borrower as the final, complete and exclusive statement of
the terms agreed to by them.

 14
 

 

 

In
the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.  Any reference in any related document to a “promissory
note” or a “note” executed by the Borrower and dated as of the date of this
Agreement shall be deemed to refer to this Agreement, as now in effect or as
hereafter amended, renewed, or restated.

9.8           Indemnification.  The Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of (a) this Agreement or any
document required hereunder, (b) any credit extended or committed by the Bank
to the Borrower hereunder, and (c) any litigation or proceeding related to or
arising out of this Agreement, any such document, or any such credit.  This indemnity includes but is not limited to
attorneys’ fees (including the allocated cost of in-house counsel).  This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns.  This
indemnity will survive repayment of the Borrower’s obligations to the
Bank.  All sums due to the Bank hereunder
shall be obligations of the Borrower, due and payable immediately without
demand.

9.9           Notices.  Unless otherwise provided in this Agreement
or in another agreement between the Bank and the Borrower, all notices required
under this Agreement shall be personally delivered or sent by first class mail,
postage prepaid, or by overnight courier, to the addresses on the signature
page of this Agreement, or sent by facsimile to the fax numbers listed on the
signature page, or to such other addresses as the Bank and the Borrower may
specify from time to time in writing. 
Notices and other communications shall
be effective (i) if mailed, upon the earlier of receipt or five (5) days after
deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when
transmitted, or (iii) if hand-delivered, by courier or otherwise (including
telegram, lettergram or mailgram), when delivered.

9.10         Headings.  Article and paragraph headings are for
reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement.

9.11         Counterparts.  This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.

 

 15

 

 

This Agreement is
executed as of the date stated at the top of the first page.

	
  Borrower:

  	
   

  	
  Bank:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Merit Medical Systems, Inc.

  	
   

  	
  Bank of America, N.A.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address where notices to Borrower are to be sent:

  	
   

  	
  Address where notices to Bank are to be sent:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1600 West Merit Parkway

  	
   

  	
  Dallas - Attn: Notice Desk

  
	
  South Jordan, Utah 84095

  	
   

  	
  TX1-609-06-07

  
	
   

  	
   

  	
   

  	
   

  	
  1201 Main Street, 6th Floor

  
	
  Telephone:

  	
   

  	
   

  	
   

  	
  Dallas, Texas 75202

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fascimile:

  	
   

  	
   

  	
   

  	
  Fascimile: (214) 508-4715

  
											

 

 16Exhibit
10.1

FABRICATION CONTRACT

This Fabrication Contract, together with all
exhibits hereto, is made and entered into by and between Helmerich & Payne
International Drilling Co., a Delaware corporation (hereinafter referred to as “H&P”)
and Southeast Texas Industries, Inc., a Texas corporation (hereinafter referred
to as “Fabricator”) effective this 1st day of December, 2006.

It is agreed as follows:

1.             CONTRACT.  This document, and the
documents referred to herein, which are incorporated herein by reference,
including all the documents contained in H&P’s fabrication specifications
which are attached hereto as Annex 1 (as said documents may have been revised
for the purposes of this contract), and all of the Exhibits attached hereto, and
the drawings identified in Annex 1 shall constitute the entire contract
(hereinafter referred to as the “Contract”) between the parties with regard to
the fabrication and delivery of the work described herein by Fabricator.

2.             DESCRIPTION OF THE WORK.  Subject
to the provisions of Paragraphs 12 and 18 hereof, the work to be performed by
Fabricator is described in Annex 1 (the “Work”).  Wherever reference is made herein to the “Work,”
such reference shall be to all or any portion of the Work as applicable under
the circumstances.

Fabricator shall at its sole risk, cost and expense
furnish all the labor, equipment, supplies and materials, except such
equipment, supplies, materials and labor which under the express provisions of
the Contract is to be furnished by H&P, to construct and fabricate the
Work, together with accessories, and auxiliary parts and/or components at
Fabricator’s yard facilities located in Bridge City, Buna, Orange,

 

Nederland and Vidor, Texas, and shall construct and fabricate the same
in accordance with the Contract and the plans and specifications identified in
Annex 1.

3.             IDENTIFICATION OF THE CONTRACT.  The
Work includes certain equipment and materials which are to be furnished by
H&P, and it is the intent of this Contract that title to said equipment
shall remain at all times in H&P and that title to the Work and the
materials, equipment, parts, and supplies furnished by Fabricator shall also
pass to H&P, as the same are identified to the Contract.

With respect to the materials, equipment, parts, and
supplies furnished by Fabricator, the same shall be identified to the Contract
in the following manner.  At such time in
the process of fabrication of the Work as any materials, equipment, parts, and supplies
to be consumed in fabrication of, to become a part of, or to be incorporated
into the Work reach the Fabricator’s yard facilities, identification to the
Contract of such materials, equipment, parts, and supplies will have occurred.

During the period from the time any materials,
equipment, parts, or supplies have become identified to the Contract as
aforesaid until such time as the Work is completed and delivered to H&P,
such materials, equipment, parts, and supplies shall remain, to the extent
possible, segregated in an area reserved for H&P in each of Fabricator’s
yards (“H&P Area”) and, to the extent possible, shall not be removed to any
other part of Fabricator’s facilities or elsewhere, or commingled with any
materials, equipment, parts, supplies, or other items not belonging to H&P.
 During said period, the H&P Area in
each of Fabricator’s yards shall be used, to the extent possible, exclusively
for the storage and the fabrication of the Work.

 2
 

 

If through the use of reasonable efforts Fabricator
is unable to perform all the Work within the H&P Area, then Fabricator
shall remove to other areas of Fabricator’s yard(s) only those materials,
equipment, parts and supplies necessary to perform such portion of the
Work.  In such event, Fabricator shall
not, to the extent possible, commingle outside of the H&P Area any
materials, equipment, parts and supplies which have been identified to the
Contract with any property of Fabricator or third parties.

Fabricator, before bringing any materials,
equipment, parts, or supplies into the H&P Area, shall, to the extent
possible, partition off said Area into which such materials, equipment, parts,
or supplies are to be kept from the remainder of Fabricator’s facilities and
shall post conspicuous, legible signs, satisfactory to H&P, indicating that
all such materials, equipment, parts, and supplies are the property of H&P
and are not to be removed from such H&P Area, and further indicating that
any materials, equipment, parts, or supplies other than those to be consumed
by, be incorporated into, or become a part of H&P’s Work are not to be
brought into such Area.

All materials, equipment, parts, and supplies
identified to the Contract shall be labeled and identified by metal tags, metal
plates, or metal bands, where appropriate (and by stenciling or otherwise
marking where inappropriate), bearing the inscription “Helmerich & Payne
International Drilling Co.,” or “Rig Number” as H&P may direct.  H&P shall at all times have the right to
inspect Fabricator’s identification process and procedure.

With
respect to any equipment, materials, parts, or supplies furnished by H&P to
Fabricator, the same shall immediately be placed in the H&P Area and shall
be subject

 

 3
 

 

to the same provisions hereinabove set forth with respect to equipment,
parts, materials, and supplies furnished by Fabricator.

4.             REPRESENTATIONS AND RESPONSIBILITIES OF
FABRICATOR.

Fabricator represents and undertakes that:

A.            It has the required skills and capacity to
perform, and shall perform the Work in the best professional manner using state
of art techniques and sound procurement, construction, project management, and
supervisory practice, all in accordance with the requirements of this Contract
and with the highest standards of workmanship for similar kinds of work in the
petroleum industry;

B.            It shall execute the Work continuously and
diligently with all due care and using qualified and competent personnel and
shall execute and complete the Work in accordance with the highest standard of
workmanship for similar kinds of work in the petroleum industry and in strict
accordance with the provisions of this Contract and the plans and
specifications identified in Annex 1;

C.            It shall obtain all authorizations, permits
and licenses necessary for the performance of the Work;

D.            It shall perform the Work in compliance with
all applicable laws and regulations that are in effect on the effective date of
this Contract and that have become effective during the performance of the  Work;

E.             It is responsible for safety during the
performance of the Work and shall provide all reasonable and necessary
safeguards to ensure the safety and

 

 4
 

 

protection of Fabricator’s
facilities and of all persons and other property associated with the Work;

F.             It shall arrange for complete handling of all
materials, equipment and other items required for the performance of the Work,
including inspection expediting, shipping, unloading, receiving, temporary
storage, customs clearance and claims, except as may otherwise may be expressly
provided in this Contract;

G.            It shall remove or replace or have removed or
replaced any personnel performing the Work that H&P requests Fabricator to
remove or replace, and H&P shall not unreasonably make any such requests;

H.            It shall use effective quality assurance
programs in performing the Work which shall comply with all codes and practices
applicable to the Work or as may be specified by H&P.  H&P has the right, at any time, to review
and accept or reject such quality assurance programs;

I.              Fabricator shall comply with all immigration
laws of the United States, and it represents to H&P that all Fabricator’s
employees or agents assigned to perform the Work under this Contract who are
not United States citizens are legally entitled to perform the Work;

J.             All the representations of Fabricator and of
its subcontractors required in this Contract are material and will survive the
completion of the Work or termination of this Contract for a period of one (1)
year.

 

 5
 

 

5.             PAYMENT.

A.            As full compensation for the Work, H&P
shall pay to Fabricator the Contract Price made up of the Time and Material
Rates set forth in Exhibit A.  The Time
and Material Rates shall include all actual and documented costs, profit,
taxes, duties, expenses and charges associated directly or indirectly with
performing the Work and the cost of purchasing services related to any
operating and commissioning supplies, spare parts, storehouse stocks,
maintenance tools and any other items which H&P requests Fabricator to
purchase on a Time and Material Rate basis.

B.            Fabricator shall not be entitled to any
payment on account of any materials, equipment, parts, or supplies that have
not become identified to the Contract, and Fabricator shall not be entitled to
any payment on account of any labor performed as to materials, equipment,
parts, or supplies in which such labor was performed and have not become
identified to the Contract.

C.            On the fourth working day of each week after
the Effective Date, Fabricator shall submit to H&P Time and Material
invoices earned and/or expended by Fabricator for the previous week.  Separate Time and Materials invoices shall be
prepared for each rig number and will provide subtotals for the following
categories:

·                  STI Direct Labor Charges

·                  Sub-Contract Fabrication Labor Charges

·                  Material Charges

·                  Machine Shop Charges

·                  Paint Sub-Contractor Charges

·                  Other 3rd Party Charges on a Per Party Basis

·                  Freight Charges

 

 6
 

 

Supporting
documentation shall be provided for payments shown to be due in each invoice
based on the actual number of labor hours expended and the actual expenditures
for materials and 3rd party
charges.

If, in H&P’s opinion, the actual number of labor hours expended or
the actual expenditures for materials varies at any time from the amounts
stated for the corresponding invoice period, H&P may dispute Fabricator’s
invoice.

D.            Within 10 days of H&P’s receipt of an
invoice submitted in accordance with this Paragraph 5, H&P shall pay to
Fabricator all amounts shown on that invoice that are properly owing and due to
Fabricator less:

(i)             all amounts of credits then owing to H&P;

(ii)            any previous payments on account made by
H&P;

(iii)           any statutory retention required by an applicable lien statute or any
amount claimed by any person under that statute of which H&P has notice or
both;

(iv)          any amount which H&P has notified Fabricator is an amount in
dispute; and

(v)           any withholding amount required to be withheld by any governmental
authority or applicable law.

All
invoices submitted to H&P by Fabricator shall be sent to H&P as
required by Paragraph 16 of this Contract.

E.             As to any disputed invoices, or portions
thereof, the parties agree to mediate same, not less than monthly, in an
attempt to resolve same without

 7
 

 

third
party intervention.  In the event
disputed invoices, not resolved through mediation, exceed $250,000.00 in the
aggregate, the parties agree to submit same to third party mediation in Harris
or Jefferson County, Texas, with mediation to be scheduled within sixty (60)
days of notice from Fabricator that unresolved disputed invoices (or portions
thereof) exceed $250,000.00 in the aggregate. 
The parties will jointly select the third party mediator, who will serve
as mediator for all disputes under this Paragraph 5E.  To the extent disputed invoices are not
resolved through assisted third party mediation, all rights of the parties
under applicable law shall be reserved to be pursued by the parties as they see
fit and the parties shall have no obligation to mediate such dispute under
Paragraph 21B of this Contract.

F.             Pursuant to mutual written agreement of the
parties hereto, this Contract may be amended to provide that certain portions
of the Work will be performed on fixed price basis.  In such event, the parties shall agree to
delivery dates for completion of each phase of the Work and liquidated damages
for late delivery.

6.             PROPRIETARY INFORMATION.  All
drawings, designs, computer models and other information pertaining to the Work
(and the rig to which the Work relates) including without limitation all
information which Fabricator, directly or indirectly, has acquired or acquires
from H&P or its affiliates concerning the technical and business activities
and know-how of H&P or its affiliates, (“Proprietary Information”) shall
be, and remain, the property of H&P. 
Fabricator shall not duplicate said drawings, designs,

 8
 

 

computer models or other Proprietary Information,
except as required for completion of the Work. 
Upon completion of the Work, Fabricator shall (i) remove from its
computer system(s) and destroy all electronic images or information directly or
indirectly relating to the design or engineering of the Work; (ii) deliver to
H&P all drawings, designs, diagrams, sepias, computer models, and other
Proprietary Information and all copies of the same, except one copy of the “as
builts” which shall be retained by Fabricator for its files to be used solely
in connection with its warranty hereunder; and (iii) provide to H&P one set
of original “as built” red-line plans covering the Work.  Each such drawing or diagram retained by
Fabricator shall be clearly marked as the “Property of Helmerich & Payne
International Drilling Co.” and shall bear the legend: “Any use of this drawing
or diagram other than with the express consent of Helmerich & Payne
International Drilling Co. is strictly prohibited and unlawful.”  Fabricator shall not furnish to any third
party, without H&P’s consent, any copy (whether in paper form or electronic
form) of any drawing, design, diagram, sepia or other Proprietary Information
prepared as a part of the Work. 
Fabricator shall immediately notify H&P of any design defect or
defects in the specifications and or fabrication, should Fabricator become
aware of the same.

7.             COMPLETION, DELIVERY AND ACCEPTANCE. 
Fabricator shall continuously and diligently complete each portion of
the Work and tender delivery of each portion of the Work to H&P by written
notice.

The Work shall not be
tendered for delivery to H&P unless:

A.            The Work has been fully completed and
constructed in strict accordance with the plans and specifications heretofore
identified (and

 9
 

 

subsequent
modifications, if any, made in accordance with the terms of the Contract); and

B.            The inspections and tests referred to in
Paragraph 13 hereof have been completed to the reasonable satisfaction of
H&P, having regard to the plans and specifications heretofore identified
and subsequent modifications, if any, made in accordance with the terms of the
Contract.

H&P shall be deemed to have accepted Fabricator’s
written tender of delivery unless it notifies Fabricator of its rejection of such
tender (together with the reasons therefor) within two (2) business days of
H&P’s receipt of Fabricator’s written tender-of-delivery notice.  Acceptance of the Work shall transfer to
H&P risk of loss.

8.             DELAY.  Fabricator shall not be deemed
in default of the performance of any of its obligations for any delay in the
delivery of any portion of the Work to the extent that such delay is caused by
any of the following occurrences:

A.            Delay caused by change orders as defined in
Paragraph 12, provided that at the time of submission of such change order to
H&P, Fabricator has advised H&P in writing of the probable delay
arising from such request and H&P has agreed to such delay and authorized
in writing the requested change to proceed;

B.            Delay caused by the late delivery of any
equipment or parts to be supplied by H&P;

C.            Delay caused by late delivery of an item of
equipment or parts of the Work to be supplied by Fabricator, only in those
cases where (i) H&P has

 10
 

 

requested
in writing that such item of equipment or part be supplied by a particular
named third party supplier, other than the supplier specified in H&P’s
fabrication specifications and (ii) Fabricator has notified H&P in writing
not more than three (3) days after receipt of such request that there is good
reason to believe that delivery of the item by the supplier will cause delivery
of the Work to be delayed (in which notice Fabricator shall have set forth the
factual basis for such belief and the time within which the item of equipment
must be received by Fabricator if delivery of the Rig is not to be delayed),
and unless H&P within two (2) days from the date of receipt of such notice,
either names an alternate supplier from whom the item may be purchased or
itself assumes responsibility for ordering the item and obtaining delivery
within the time set forth in such notice;

D.            If any performance of Fabricator under this
Contract is prevented, hindered, delayed or otherwise made impracticable or
burdensome by reason of any of the following events

(a)             Acts of God,

(b)            Riots,

(c)             Fires, or

(d)            Floods,

Fabricator
shall be excused from performance to the extent that such performance is
necessarily prevented, hindered, delayed or otherwise made impracticable by the
foregoing event(s) (a) through (d). 
Performance of any

 11
 

 

obligation
excused under this paragraph shall be resumed as soon as reasonably practical
after the event ceases.

9.             ALLOCATION OF RISK AND INDEMNITIES.

A.            With respect to any loss or damage to
property (other than loss or damage to (i) the Work or damage to property
either belonging to or furnished by H&P and to be incorporated in the Work
and (ii) the property described in Paragraphs C and D of this Paragraph 9)
occurring at the facilities of Fabricator and during the performance of the
Contract it is agreed as follows:

(1)          Fabricator agrees to protect, indemnify, defend and hold H&P and
H&P’s parent and affiliates and underwriters and their respective officers,
directors, employees, contractors, and agents free and harmless from and
against any and all losses, costs, claims, causes of action and liabilities
(including without limitation court costs and attorneys’ fees) arising in favor
of Fabricator, Fabricator’s parent and affiliates and underwriters, and/or
their respective employees, agents, principals, officers, directors, invitees,
subcontractors (or their servants) or representatives, or any survivor of any
of the foregoing on account of loss or damage to any property of any of such
persons arising out of, resulting from or relating in any way to the Contract
or activities or omissions in connection therewith, regardless of whether
H&P and/or its parent, affiliates, and/or others may have been wholly,
partially or solely negligent

 12
 

 

or otherwise at fault or any defect in premises, goods, equipment, or
materials, irrespective of whether same preexisted the Contract.

(2)            H&P agrees to protect, indemnify, defend
and hold Fabricator and Fabricator’s affiliates and underwriters free and
harmless from and against any and all losses, costs, claims, causes of action
and liabilities (including without limitation court costs and attorneys’ fees)
arising in favor of H&P and/or its officers, employees, agents, principals,
affiliates, invitees, subcontractors (or their servants) or representatives on
account of loss or damage to any property of any such persons arising out of,
resulting from or relating in any way to the Contract or activities or
omissions in connection therewith, regardless of whether Fabricator and/or its
affiliates and/or others may have been wholly, partially or solely negligent or
otherwise at fault or any defect in premises, goods, equipment, or materials,
irrespective of whether same preexisted the Contract.

B.            With respect to bodily injuries or death
resulting from occurrences at the facilities of Fabricator during performance
of the Contract is agreed as follows:

(1)            Fabricator agrees to protect, indemnify,
defend and hold H&P and H&P’s parent, affiliates, and underwriters and
their respective officers, directors, employees, contractors, and agents free
and harmless from and against any and all losses, costs, claims, causes of
action and

 13
 

 

liabilities (including without limitation court costs and attorneys’
fees) arising in favor of Fabricator, Fabricator’s parent and affiliates and underwriters,
and/or their respective employees, agents, principals, officers, directors,
invitees, subcontractors (or their servants) or representatives, or any
survivor of any of the foregoing on account of injury to or death of any such
persons arising out of, resulting from or relating in any way to the Contract
or activities or omissions in connection therewith, regardless of whether
H&P and/or its parent, affiliates, and/or others may be wholly, partially
or solely negligent or otherwise at fault, or any defect in goods, equipment,
or materials, irrespective of whether same preexisted the Contract.

(2)            H&P agrees to protect, indemnify, defend
and hold Fabricator and Fabricator’s affiliates and underwriters free and
harmless from and against any and all losses, costs, claims, causes of action
and liabilities (including without limitation, court costs and attorney fees)
arising in favor of H&P and/or any of H&P’s employees, agents,
principals, officers, affiliates, invitees, subcontractors (other than Fabricator)
or representatives, or any survivor of any of the foregoing, on account of
injury to or death of any such persons arising out of, resulting from or
relating in any way to the Contract or activities or omissions in connection
therewith, regardless of whether Fabricator and/or its affiliates and/or others
may be wholly, partially or solely negligent or otherwise at fault, or

 14
 

 

any defect in premises, goods, equipment, or materials, irrespective of
whether same preexisted the Contract.

C.            All machinery, tools, material, and equipment
furnished by H&P or otherwise identified to the Contract and not
incorporated into the Work shall, at the completion or abandonment of the Work,
be returned or incorporated in the Work and delivered to H&P in as good
condition as when received by Fabricator. 
Fabricator, except for reasonable wear occasioned by use in performance
of the Work hereunder, shall be liable to H&P for any loss or damage to
such machinery, tools, material and equipment provided that Fabricator’s liability
to compensate H&P shall not exceed the amount of Fabricator’s insurance as
specified herein.

D.            Fabricator shall examine visually all
equipment, machinery, tools, and or other items furnished by H&P and if any
defects are found therein, sufficient to make the use of any such items
unsuitable or unsafe, Fabricator shall immediately notify H&P of such
defect or defects and H&P shall replace the defective items.  Should Fabricator fail to make such examination
or fail to report a defect or defects in such an item or items, Fabricator
shall be deemed to have assumed all risks and all liability for any mishap
which may occur by reason of failure or defects in such equipment, machinery,
tools, or other items except for failure due to latent defects that could not
be ascertained from a visual inspection. 
Fabricator shall have the right to insist on an inspection of any such
equipment, materials and or other items by H&P’s representative before

 15
 

 

accepting
the same or incorporating it in the Work, on notification to H&P’s
representative of the arrival of the same.

10.           INSURANCE.  At all times during the
performance of Work hereunder, Fabricator agrees to carry and maintain in force
at least the following types of insurance:

A.            Workmen’s Compensation Insurance in
accordance with the laws of the appropriate state and federal jurisdiction in
which the Work is to be performed.  This
coverage shall contain the following special endorsements:

(1)            Employer’s Liability coverage with limits of
not less than $1,000,000 per accident.

(2)            U.S. Longshoremen and Harbor Workers’ Act
coverage and Outer Continental Shelf Lands Act coverage, if applicable to the
Work.

(3)            Employers’ Liability arising out of Maritime
operations including coverage for benefits and damages under the Jones Act with
limits of $1,000,000 per accident.

(4)            “Borrowed Servant” endorsement providing that
a Worker’s Compensation claim brought against H&P by a Fabricator employee
will be treated as a claim against Fabricator.

(5)            “In rem” endorsement providing that a claim “in
rem” shall be treated as a claim against Fabricator.

 

 16

 

B.            Comprehensive General Liability Insurance,
including contractual liability with combined single limits of $1,000,000 for
injuries to or death of persons and damage to property per occurrence.

C.            Automobile Liability Insurance for liability
arising out of all owned, non-owned and hired vehicles with combined single
limits of $1,000,000 for injuries to or death of persons and damage to property
per occurrence.

D.            In the event watercraft are used by
Fabricator, Fabricator shall carry or require owners of such watercraft to
carry Protection and Indemnity Insurance in an amount of not less than the
market value of the vessel or $1,000,000, whichever is greater, with Charterer’s
Limitation Clause deleted.

E.             Excess Liability coverage with limits of Five
Million and no/100 Dollars ($5,000,000) excess of all primary liability
coverage.

Fabricator’s insurance described herein shall be endorsed to provide
that the underwriters waive their right of subrogation against H&P and its
insurer, parent, subsidiaries affiliated companies, co-venturers and their
respective employees and agents, in respect of the risks assumed by Fabricator
hereunder.  H&P will, as well, cause
its insurers to waive subrogation against Fabricator in respect of the risks
assumed by H&P hereunder.  All
policies of insurance provided by Fabricator shall be carried with insurance
companies which are satisfactory to H&P, and such policies and shall be
primary as to any other valid and collectible insurance which may be carried by
H&P in respect of the risks assumed by Fabricator hereunder.  Fabricator shall cause H&P, its parent,
and

 17
 

 

their
respective agents, employees and affiliates to be named as additional insured
on all of said policies except those in Section A above.

H&P and Fabricator hereby waive the right to subrogate against each
other.

Prior to the commencement of the Work, Fabricator or any of its
subcontractors, will provide H&P with Certificates of Insurance evidencing
that Fabricator or its subcontractors are in compliance with all of the above
requirements.  Said Certificate will
provide that H&P will be given thirty (30) days’ prior notice of
cancellation or material alteration of any of the insurance policies specified
in the Certificate.  Upon request,
Fabricator shall permit H&P to examine any of the insurance policies
specified herein.  Fabricator shall
require its subcontractors to obtain, maintain and keep in force during the
time in which they are engaged in performing any Work hereunder insurance
coverage acceptable to Fabricator and furnish Fabricator acceptable evidence of
such insurance.  Fabricator shall require
all insurance policies carried by subcontractors to contain endorsements
waiving insurers’ rights of subrogation against H&P and its insurers,
parent, subsidiaries, affiliated companies, co-venturers and their respective
employees and agents.

11.           PATENT INDEMNITY. 
Fabricator agrees to indemnify and hold harmless H&P against claims
of third persons for damage sustained by reason of the infringement of patent
rights with respect to materials, processes, machinery or equipment selected
and used by Fabricator in performing its Work; and H&P agrees to

 18
 

 

indemnify and hold Fabricator harmless against
claims of third persons for damages sustained by reason of infringement of patent
rights with respect to materials, processes, machinery or equipment supplied or
selected or specifically required by H&P or other party on behalf of
H&P and against claims arising out of any plans or drawings provided to
Fabricator by H&P, provided, however, that the indemnitee shall notify the
indemnitor of the filing of any suit so as to permit the timely filing of an
answer thereto, and upon such notice the indemnitor shall have the obligation
to assume the full defense as such suit with attorneys of the indemnitor’s
selection and shall have the right to settle such suit in the indemnitee’s
name, and further provided that the indemnitee will fully cooperate with the
indemnitor in the defense of such suit.

12.           CHANGES IN WORK AND CHANGE ORDERS.

A.            H&P retains the right at any time to (i)
make changes to all or any portion of the Work, (ii) change the sequence of
Fabricator’s performance or delivery of any portion of the Work, and (iii)
eliminate any portion of the Work from this Contract and transfer such Work to
other fabricators.  Fabricator will
immediately notify H&P if a proposed change in all or any portion of the
Work or in the delivery sequence of such Work will potentially delay the
scheduled delivery of such Work.

B.            In the event that this Contract is amended to
provide that all or a portion of the Work will be performed on a fixed price
basis, then any change to such fixed price work must be initiated by change
order as provided in this Paragraph 12B. 
For work performed on a fixed price basis, a change order will

 19
 

 

be
defined as: “A change in the construction or fabrication effort beyond the
original scope of the Work which increases or decreases Fabricator’s expense.”  Fabricator will submit in writing to H&P
a change order (together with supporting sketches, drawings and instructions
reasonably describing the change order), which shall specify the increase (or
decrease) in cost associated with the “change” within such time as is
reasonable and will not result in delays. 
H&P will approve or reject said change order within a seventy-two
(72) hour period.  Should the “Change”
decrease Fabricator’s expense, Fabricator will submit to H&P in a change
order the cost decrease including prorated profit associated with the “change.”  In the event that H&P and Fabricator
cannot agree upon the extra cost or cost savings of such change, then at the
option of H&P, to be exercised within said seventy-two (72) hour period,
the change or addition will be performed (or the decrease will be calculated)
on a time and material basis having regard to industry standards and practices
and at labor rates and material rates as set forth in Exhibit A.   H&P will not be required to grant, nor
will it consider, requests for increased compensation due to “changes” unless
its authorized representative at the site has signed the change order either
approving Fabricator’s specified increased cost, or has signed the same
approving the change on a time and material basis, in advance of the
performance of the Work incorporating the change.  With regard to time and material change
orders, all personnel time cards and equipment charge sheets shall be submitted
to H&P for approval within forty-eight (48) hours of labor being

 20
 

 

performed
or equipment being used.  In the event
such time cards or charge sheets are not submitted to H&P within such
forty-eight (48) hour period, then H&P shall have no obligation to pay
Fabricator for such costs.

Notwithstanding anything to the contrary in this Paragraph 12B,
Fabricator must provide H&P with an invoice for each approved time and
materials change order within thirty (30) days of the completion of the work
attributable to each such change order. 
The invoice amount shall not exceed the total aggregate amount of
H&P-approved personnel time cards and equipment charge sheets.  If Fabricator fails to provide such invoice
within such thirty (30) day period, then Fabricator shall have waived the right
to receive all compensation attributable to such time and materials change
order.

If such changes or additions involve a change in the delivery date,
H&P and Fabricator shall mutually agree in writing in the change order of
the amount of time that the delivery date will be extended.  Extensions of time due to changes increasing
the time to do the Work shall be subject to offset by any changes reducing the
time.  Unless Fabricator requests such an
extension of time in the written change order prior to proceeding with the
change, it shall not be entitled to any extension of time, irrespective of
cause.  If the parties are unable to
agree to an extension of time, then at H&P’s option (i) the change in the
Work will be performed without prejudice to the claim of either party on the
issue of extension of time, but such change shall not proceed without the
express written election of H&P to proceed or (ii) H&P shall furnish,
at H&P’s 

 21
 

 

cost,
sufficient non-Fabricator personnel to perform such change order work and no
surcharge or other fee shall be charged by Fabricator with regard to such work.

H&P may from time to time require Fabricator to make reasonable
studies, proposals, or estimates related to the Work described herein or
related to the functioning of the Work. 
Fabricator will furnish the same to H&P within a reasonable period
of time.

No waiver by H&P of any of the change order provisions described in
this Paragraph 12B for any particular change order shall constitute a waiver of
H&P’s rights to enforce the change order provisions with regard to all
other change orders.  In addition, no
failure on the part of H&P to exercise and no delay in exercising and no
course of dealing with respect to any right, power or privilege under this
Paragraph 12B shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege thereunder preclude any other
or further exercise thereof or exercise of any other right, power or privilege
under this Paragraph 12B.

13.           INSPECTION AND TESTS. 
During fabrication, tests and trials, H&P or its accredited
representatives shall have access to inspect the Work at all reasonable
times.  H&P shall bear the costs
involved in such access and inspection but shall not be required to compensate
Fabricator for reasonable use of Fabricator’s facilities in connection
therewith.  Fabricator will perform all
of the tests and trials required of Fabricator in any of the contract
documents, and shall give H&P at least one (1) days

 22
 

 

written notice or facsimile notice of the date
thereof on all major equipment.  This
shall be coordinated with H&P’s on-site DNV representative.

All of the workmanship and
material required under this Contract, while the same is in the process of
fabrication, erection, construction, installation, and performance, shall be
inspected promptly by H&P’s representative, who shall be given adequate
notice by Fabricator before the material or workmanship is covered, concealed
or obscured, and who shall promptly accept or reject the same in accordance
with the Contract and the plans and specifications.  All workmanship and operational practices of Fabricator
shall be in accordance with the highest standards of workmanship for similar
kinds of work in the petroleum industry, and all material, machinery and
equipment supplied by Fabricator and incorporated in the Work shall be in
accordance with the Contract.

14.           WARRANTIES.

A.            With respect to any and all equipment
obtained from third parties by Fabricator and incorporated in the Work,
Fabricator hereby transfers to H&P, to whatever extent Fabricator can
legally do so, all warranties and guarantees made by the manufacturers thereon
and Fabricator’s vendors and suppliers thereof, and such transfers (to be
evidenced by additional instruments that H&P may reasonably require) shall
constitute full performance by Fabricator of Fabricator’s obligations with regard
to such equipment, all other responsibility and any warranty on the part of
Fabricator in connection therewith being expressly excluded and negated.  Fabricator will use all reasonable efforts
and

 23
 

 

will
cooperate with H&P in order to enforce any claims against manufacturer’s
defects or under warranties that may occur. 
Notwithstanding the foregoing, Fabricator warrants that the Work will be
fabricated and completed in strict accordance with the Contract.

Fabricator shall obtain a one-year transferable written warranty which
shall warrant that all steel included in the Work shall be free of
defects.  Such warranty shall be fully
transferable to H&P without cost to H&P.

B.            Fabricator will be responsible for (i) faulty
or defective material or workmanship, and (ii) all materials, equipment and
workmanship that does not meet the specifications described in this Contract
(including Annex 1 attached hereto) and furnished by Fabricator or its
subcontractors or representatives (but subject to the exclusions and
limitations of Fabricator’s responsibility set forth in Paragraph A
above).  Fabricator will warrant the
items described in 14B(i) and (ii) for a period of 360 days from the date that
the Work is accepted by H&P.  In the
event that written notice to Fabricator of a claim against the warranties
specified in this Paragraph 14B is sent within such 360-day period, then such
notice shall constitute the proper filing of a warranty claim by H&P.  Fabricator reserves the right to inspect and
verify the nature of the warranty claim at its sole cost and expense, before
any action is taken.  Such verification
shall be undertaken within seventy-two (72) hours of receipt of such
claim.  H&P’s commitment to a
seventy-two (72) hour delay is, however, subject to such delay not prejudicing
H&P in its contractual relationship with and obligations to the Operator of
the rig.

 24
 

 

H&P may require
Fabricator to make repairs or replacements at the rig location where the Work
is located.

If, in H&P’s judgment,
the repairs cannot be reasonably effected at said rig location, then Fabricator
will make repairs or replacements (as may be appropriate) at one of its yard
facilities located at Buna, Bridge City, Orange, Nederland or Vidor, Texas,
with the expense of transporting the Rig and/or rig components to or from said
yard to be borne by H&P.

H&P may have such
repairs or replacements made elsewhere if H&P deems necessary, but shall
consult in advance with Fabricator before making the same, and Fabricator shall
pay the cost of such repairs or replacements no later than 15 days from the
date of H&P’s invoice therefore. 
Fabricator shall have no responsibility whatsoever with respect to any
defective or faulty workmanship not reported in writing to Fabricator within
said three hundred sixty (360) day period; deficiencies reported after said
three hundred sixty (360) day period shall be the exclusive responsibility of
H&P.

Fabricator makes no
warranties or representations whatsoever other than those expressly set forth
in this Contract, and any other warranties, which might otherwise be implied,
are hereby expressly excluded and negated.

15.           TAXES AND PERMITS. 
Fabricator agrees to pay all taxes, licenses, and fees levied or
assessed in connection with or incident to, the performance of this Contract by
the state in which the Work is to be performed or by the federal government for
unemployment compensation insurance, old age benefits, social security, or any
other taxes upon wages of Fabricator, its agents, employees, and
representatives.

 25
 

 

Fabricator agrees to
reimburse H&P on demand for all such taxes or government charges, state or
federal, which H&P may be required or deem it necessary to pay on account
of employees of Fabricator or any subcontractor and to furnish H&P with the
information required to make necessary reports and to pay such taxes or
charges, and at its election, H&P is authorized to deduct all sums so paid
for taxes and governmental charges from such amounts as may be or become due or
owing to Fabricator hereunder.

Fabricator agrees to be
responsible for the acquisition of all necessary permits from regulatory bodies
having jurisdiction over the Work to be performed hereunder and for required
and necessary permits covering related facilities.  Fabricator is to notify H&P in detail of
all conditions imposed by such bodies in connection with issuance of such
permits.  Fabricator shall be solely
responsible for compliance therewith to the extent of its obligations hereunder
and shall indemnify and hold H&P harmless from and against all fines,
penalties, losses, claims, and demands, or judgments arising out of, or in any
way connected with the noncompliance with any such conditions.  Fabricator agrees to obtain and maintain all
necessary up-to-date permits and certificates relative to its equipment,
machinery, tools and other appliances.

Fabricator agrees to pay all
claims for labor, material, services, and supplies furnished by Fabricator
hereunder and agrees to allow no lien or charges to be fixed upon the Work,
equipment, machinery, materials or other property connected with the Work and
Fabricator agrees to indemnify, protect, and save H&P harmless from and
against all such claims of liens.  Before
any payments are made by H&P to Fabricator,

 26
 

 

H&P may require Fabricator to furnish evidence
satisfactory to H&P that there are no unsatisfied claims for labor,
materials, equipment, and supplies or for injuries to persons or property not
covered by insurance.

16.           NOTICES.  All notices or communications
hereunder shall be in writing and shall be express mailed postage prepaid or
hand delivered as follows:

	
  If to H&P:

  	
   

  	
  Helmerich & Payne International Drilling Co.

  
	
   

  	
   

  	
  1437 South Boulder Avenue, Suite 1400

  
	
   

  	
   

  	
  Tulsa, OK  74119-3623

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:  Alan Orr and Jim Bishop

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to: General Counsel

  
	
   

  	
   

  	
   

  
	
  If to
  Fabricator:

  	
   

  	
  Southeast Texas Industries, Inc.

  
	
   

  	
   

  	
  P.O. Box 1449

  
	
   

  	
   

  	
  Buna, Texas
  77612

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention: Paul
  Spence and Jim Wimberley

  
	
   

  	
   

  	
  McPherson, Monk,
  Hughes, Wimberley & Steele

  
	
   

  	
   

  	
  3120 Central
  Mail Drive

  
	
   

  	
   

  	
  Port Arthur, TX  77642

  

17.           TAKEOVER.  In the event (i) of
unreasonably slow progress, carelessness, inattention, or incompetency (as
determined by H&P in its sole judgment) on the part of Fabricator in the
performance of the Work; (ii) that a bankruptcy petition is filed against
Fabricator, a receiver is appointed for Fabricator, or Fabricator becomes
insolvent; or (iii) of Fabricator’s failure to comply with its obligations
under this Contract, Fabricator shall be afforded a reasonable period of time,
not to exceed a maximum of ten (10) days, to correct or remedy the matters
complained of by H&P.  Should
Fabricator, within the time afforded by H&P, fail to correct or remedy such
matters to H&P’s satisfaction, then Fabricator will automatically be deemed
to be in default of this

 27
 

 

Contract and H&P shall have the right to take
possession of the Work (including such partially constructed equipment or
materials as have been generated or supplied by either party hereto) or
discontinue the Work.  If H&P so elects,
it may take possession of the Work (including, at no additional cost, so much
of Fabricator’s yard as H&P believes is necessary to complete the Work), as
well as any or all of Fabricator’s tools, machinery, and equipment reasonably
necessary to continue the Work, and through H&P’s employees or employees of
other contractors complete the Work contemplated by this Contract.  In the event that, at the time of notice of
H&P’s dissatisfaction, a condition is present which represents, in H&P’s
opinion, an imminent danger or hazard to the Work, H&P shall have the right
to immediately take over the Work and choose to discontinue, abandon, or
continue the Work as described above.  In
the event of any such takeover, H&P shall be entitled to recover damages
equal to the amount paid by H&P to complete the Work in excess of the
Contract price set forth in Paragraph 1 hereof, together with reasonable
attorney’s fees.  Nothing in this
Paragraph 17 shall be in derogation of H&P’s other rights under this
Contract.

18.           TERMINATION.  H&P may in its sole
discretion terminate this Contract,  with
or without cause for any reason whatsoever at any time by giving written notice
of termination to Fabricator.  In the
event of such termination, Fabricator shall be paid, pursuant to the terms of
the Contract, for the Work performed and materials received up to the date of
termination.  Fabricator shall allow
H&P to review sufficient records, accounts, receipts, invoices and other
documents so that H&P can satisfy itself that the amount due to Fabricator
is reasonable.  Termination by H&P is
not a breach of this

 28
 

 

Contract and does not entitle Fabricator to any
damages or claims except as expressly stated in this Paragraph 18.

Notwithstanding anything to
the contrary in Paragraphs 12A and 18 of this Contract, unless H&P
terminates this Contract for cause, then H&P shall not have the right to
terminate this Contract until Fabricator has constructed and has been paid for
the construction of ten (10) of the rigs described in Annex 1.

19.           INTERPRETATION.  The
various documents comprising the Contract shall be interpreted so as to give
meaning to each document and its separate provisions, as an integral part of
the whole, PROVIDED, HOWEVER, where any irreconcilable inconsistency or
conflict exists between any of the matters contained in one or more of the
documents of the Contract and any other document thereof, then the terms,
provisions and other matters contained in this Contract shall prevail over any
of such matters contained in any of the other documents.

20.           CONSEQUENTIAL DAMAGES. 
Neither Fabricator nor H&P shall be liable to the other for loss of
profits, loss of business, loss of anticipated revenue or any other indirect or
consequential damages or loss arising out of this Contract.

21.           GENERAL CONDITIONS.

A.            This Contract represents the entire agreement
between the parties and supersedes all prior negotiations and agreements.  Any amendment hereof shall be in writing and
signed by the party against whom it is sought to be enforced.

 29

 

B.            This Contract shall
be construed in accordance with the laws of the State of Oklahoma, and
exclusive jurisdiction shall be vested in the federal court located in the
Northern District of Oklahoma. 
Notwithstanding the foregoing in this paragraph 21B, the parties will in
good faith attempt to mediate any dispute arising under this Contract prior to
instituting litigation.  The party
desiring to mediate a dispute shall immediately provide a written mediation
notice to the other party.  In the event
that the parties are unable to resolve any particular dispute within sixty (60)
days from the date of the mediation notice, then any further requirement to
mediate is waived and the parties shall have the right to seek all available
lawful remedies, including litigation.

C.            In the event any
provision of this Contract, especially with regard to the indemnities for
personal injury and death specified herein, are inconsistent with or contrary
to any applicable federal, state or local law, rule or regulation, said provision
shall be deemed to be modified only to the extent required to comply with said
law, rule or regulation and as so modified, said provision and the Contract
shall continue in full force and effect.

D.            H&P shall have
the right, upon seventy-eight hours (78) prior notice, to audit during normal
business hours at Fabricator’s office, that portion of Fabricator’s books and
records covering the Work.  H&P’s
audit rights shall continue for a period of two (2) years from the date of
H&P’s acceptance of all the Work.

 30
 

 

E.             No waiver by
Fabricator or H&P of any default, breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of such
occurrence.  Neither the failure nor any
delay by any party hereto in exercising any right, power or privilege under
this Contract will operate as a waiver of any other such right, power or
privilege, and no single or partial exercise of any right, power or privilege
will preclude any other or further exercise of such right, power or privilege
or the exercise of any other right, power or privilege.

F.             Fabricator shall
not subcontract any of the Work to third parties without the prior written
consent of H&P.  This Contract shall
not be assigned by Fabricator without the prior written consent of H&P.

G.            Notwithstanding
anything to the contrary in this Contract, the parties acknowledge that H&P
shall have the right, in its sole discretion, to have STI subcontractors
(including without limitation machine shops, metal/steel preparation
contractors, paint contractors) perform services directly for H&P without
STI intervention or assistance.

 31
 

 

IN WITNESS WHEREOF, the
parties hereto have executed this Contract as of the day, month and year first
written above.

	
  

  	
  HELMERICH & PAYNE INTERNATIONAL

  
	
  WITNESS:

  	
  DRILLING CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Judy E. Kidd

  	
   

  	
  By

  	
  /s/ Steven R. Mackey

  	
   

  
	
   

  	
  Steven R. Mackey

  
	
   

  	
  Executive Vice President

  
	
   

  	
   

  
	
   

  	
  SOUTHEAST TEXAS INDUSTRIES, INC.

  
	
  WITNESS:

  	
   

  
	
   

  	
   

  
	
  /s/ Gail Garrett

  	
   

  	
  By

  	
  /s/ Paul Spence

  	
   

  
	
   

  	
   

  	
  Paul Spence

  	
   

  
	
   

  	
   

  	
  President

  	
   

  

 

 

 32

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