Warrant Agreement - Parker Drilling Co.

EXHIBIT 10.5


WARRANT AGREEMENT


BETWEEN


ENVIRONMENTAL SAFEGUARDS, INC.


and


PARKER DRILLING COMPANY


Dated as of December 19, 1996 2
WARRANT AGREEMENT dated as of December 19, 1996, between Environmental Safeguards, Inc., a Nevada corporation (the "Company"), and Parker Drilling Company ("Parker" and, together with any transferee of Warrants or Warrant Shares, the "Warrant Holders(s)").


WHEREAS, Casuarina, Ltd. ("Casuarina", a Bermuda corporation and wholly owned subsidiary of Parker) and the Company have entered into a certain Credit Agreement and Note (the "Credit Agreement") dated December 19, 1996, pursuant to which Casuarina has agreed to loan $3,000,000 to the Company (the "Loan"); and


WHEREAS, the Company proposes to issue to Parker as partial consideration for Casuarina's agreement to act as Lender pursuant to the Credit Agreement, common stock purchase warrants (the "Original Warrants", the "June 1997 Warrants" and the "December 1997 Warrants" (as defined below), and collectively, the "Warrants"), of the Company's Common Stock, par value $.001 per share (the "Common Stock"), each Warrant entitling the holder thereof to purchase one share of Common Stock.


NOW, THEREFORE, in consideration of the premises and the mutual agreements herein and in the Agreement set forth and for other good and valuable consideration, the parties hereto agree as follows:


1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue and deliver 250,000 Warrants (the "Original Warrants") to Parker, or to an affiliate thereof designated by Parker, on the Closing Date referred to in the Credit Agreement. The form of warrant certificate for the Original Warrants is attached hereto as Exhibit A. If the Loan is not repaid in full, inclusive of any and all interest and other amounts due under the Credit Agreement, by June 30, 1997, then the Company shall issue and deliver an additional 50,000 Warrants (the "June 1997 Warrants") to Parker, or to an affiliate designated by Parker, on June 30, 1997. The form of warrant certificate for the June 1997 Warrants is attached hereto as Exhibit B. Furthermore, if the Loan is not repaid in full, inclusive of any and all interest and other amounts due under the Credit Agreement, by December 31, 1997, then the Company shall issue and deliver an additional 50,000 Warrants (the "December 1997 Warrants") to Parker, or to an affiliate designated by Parker, on December 31, 1997. The form of warrant certificate for the December 1997 Warrants is attached hereto as Exhibit C.


The Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the Chairman of the Board or the President of the Company, under its corporate seal, affixed or in facsimile, attested by the manual or facsimile signature of the Secretary of the Company. A Warrant bearing the manual or facsimile signature of individuals who were at any time the proper officers of the Company shall bind the Company notwithstanding that such individuals or any of them shall have ceased to hold such offices prior to the delivery of such Warrant or did not hold such offices on the date of this Warrant Agreement.


Warrants shall be dated as of the date of execution thereof by the Company either upon initial issuance or upon division, exchange, substitution or transfer.


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The demand and the piggy-back registration rights set forth in Section 16 hereof may be exercised at any time during the term of the Warrants.


2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants as follows:


(a) EXISTENCE. The Company is a corporation, duly
organized and validly existing under the laws of the State of Nevada,
and is authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except where the failure to so qualify, individually or in
the aggregate, could not reasonably be expected to have a material
adverse effect.


(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant Agreement, to
grant, issue and deliver this Warrant and to authorize and reserve for
issuance and, upon payment from time to time of the Exercise Price, to
issue and deliver the shares of Common Stock or other securities
issuable upon exercise of the Warrant. This Warrant Agreement has
been duly executed and delivered by the Company.


(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK.
There have been reserved for issuance, and the Company shall at all
times keep reserved, out of the authorized and unissued shares of
Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrant, and
such shares, when issued upon receipt of payment therefor in
accordance with the terms of the Warrant and of this Warrant
Agreement, will be legally and validly issued, fully paid and
nonassessable and will be free of any preemptive rights of
shareholders or any restrictions not otherwise set forth in this
Warrant Agreement.


(d) EXECUTION AND DELIVERY. Neither the execution or
delivery of this Warrant Agreement nor the consummation of the
transactions herein contemplated does or will result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, Credit
Agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property
or assets of the Company is subject, nor will such action result in
any violation of any provision of the Certificate of Incorporation or
Bylaws of the Company or any statute or any order, rule or regulation
or any court or governmental agency or body having jurisdiction over
the Company or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the issuance
and sale of the Warrant or the consummation by the Company of the
transactions contemplated by this Warrant Agreement.


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(e) VALID AND BINDING OBLIGATIONS. This Warrant
Agreement and all related documents, when duly executed and delivered,
will be legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject to any
applicable bankruptcy, insolvency or other laws of general application
affecting creditors' rights and judicial decisions interpreting any of
the foregoing.


(f) LIABILITIES, LITIGATION AND RESTRICTIONS. Except for
the litigation and liabilities disclosed in connection with the Credit
Agreement, the Company has no liabilities, direct or contingent, which
may reasonably be expected to result in a material adverse effect.
Except as disclosed to Parker in writing, no litigation or other
action of any nature affecting the Company is pending before any
governmental authority or, to the knowledge of the Company, threatened
against or affecting the Company, which might reasonably be expected
to result in a material adverse effect. To the knowledge of the
Company, no unusual or unduly burdensome restriction, restraint or
hazard exists by contract, law, governmental regulation or otherwise
relative to the business or material properties of the Company, other
than such as relate generally to persons engaged in the business
activities similar to those conducted by the Company.


(g) AUTHORIZATION AND CONSENTS. No authorization,
consent, approval, exemption, franchise, permit or license of, or
filing with, any governmental authority or other person is required to
authorize, or is otherwise required in connection with, the valid
execution and delivery by the Company of this Warrant Agreement and
all related documents and the performance by the Company of its
obligations hereunder, except for requisite actions under federal and
state securities laws related to the registration of the Warrant
Shares as contemplated by this Warrant Agreement.


(h) COMPLIANCE WITH LAWS, RULES, REGULATIONS AND ORDERS.
To the knowledge of the Company, neither the business nor any of the
activities of the Company, as presently conducted, violates any
requirement of law the result of which violation could reasonably be
expected to result in a material adverse effect on the Company. The
Company possesses all licenses, approvals, registrations, permits and
other authorizations necessary to enable it to carry on its business
in all material respects as now conducted; all such licenses,
approvals, registrations, permits and other authorizations are in full
force and effect; and the Company has no reason to believe that it
will be unable to obtain the renewal of any such licenses, approvals,
registrations, permits and other authorizations; however, this
representation does not extend to such necessary licenses, approvals,
registrations, permits and authorizations of On-Site Technology,
L.L.C.


(i) NO MATERIAL MISSTATEMENTS. No information,
statement, certificate, document, exhibit or report prepared by or at
the direction or with the supervision of the Company and furnished to
Parker in connection with the negotiation and preparation of this
Warrant Agreement or of the Credit Agreement and all related documents
contains any material misstatements of fact or omits to state a
material fact necessary to make the statements contained therein not
misleading as of the date made or deemed made.


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3. CONDITIONS TO PURCHASE. Parker's obligations hereunder shall be subject to satisfaction of the following conditions on the Closing Date referred to in the Credit Agreement:


(a) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Warrant
Agreement and the Warrants and all other legal matters relating to
this Warrant Agreement, the Warrants and the transactions contemplated
hereby shall be satisfactory in all respects to Ronald C. Potter,
counsel for Parker, in his reasonable judgment, and the Company shall
have furnished to such counsel all documents and information that he
may reasonably request to enable him to pass judgment upon such
matters.


(b) There shall have been duly tendered to Parker or upon
the order of Parker a certificate or certificates representing the
Warrants.


(c) Axelrod, Smith & Kirshbaum, counsel for the Company,
shall have furnished to Parker their written opinion, dated the
Closing Date, in form and substance satisfactory to Parker, covering
the matters set forth in subparagraphs 2(a) through 2(g). Opinions by
counsel for the Company covering the matters set forth in
subparagraphs 2(f) and 2(g) shall be made to the best of such
counsel's knowledge after reasonable inquiry.


(d) As required by paragraph 18, Parker and counsel for
Parker shall have received reimbursement for all reasonable fees and
expenses for which invoices have been presented.


4. REGISTRATION. The Warrants shall be numbered and shall be registered on the books of the Company (the "Warrant Register") as they are issued. The Warrants shall be registered initially in such names and such denominations as Parker has specified to the Company.


5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon transfer set forth in this Warrant Agreement, each Warrant certificate may be exchanged at the option of the Warrant Holder thereof for another certificate or certificates of different denominations entitling the Warrant Holder thereof to purchase upon surrender to the Company or its duly authorized agent a like aggregate number of Warrant Shares as the certificate or certificates surrendered then entitle such Warrant Holder to purchase. Any Warrant Holder desiring to exchange a Warrant certificate or certificates shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate or certificates to be so exchanged. Thereupon, the Company shall execute and deliver to the person entitled thereto a new Warrant certificate or certificates, as the case may be, as so requested. Any Warrant issued upon exchange, transfer or partial exercise of the Warrants shall be the valid obligation of the Company, evidencing the same generic rights and entitled to the same generic benefits under this Warrant Agreement as the Warrants surrendered for such exchange, transfer or exercise.


6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14 hereof, the Warrants shall be transferrable only on the Warrant Register upon delivery to the Company of the


4 6 Warrant certificate or certificates duly endorsed by the Warrant Holder or by his duly authorized attorney-in-fact or legal representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney-in-fact, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited with the Company in its discretion. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto.


7. TERM OF WARRANTS, EXERCISE OF WARRANTS.


(a) The Warrants granted hereunder become exercisable
upon the date of their issuance by the Company. Dates of issuance for
the Warrants are specified in Section 1 hereof. Once issued, each
Warrant entitles the Warrant Holder thereof to purchase one share of
Common Stock at any time prior to 5:00 P.M., Tulsa time, on December
31, 1998 (the "Expiration Date") at a purchase price of $2.50 per
share, subject to adjustment in accordance with Section 12 hereof (the
"Exercise Price").


(b) The Exercise Price and the number of shares issuable
upon exercise of Warrants are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 12
of this Warrant Agreement. Subject to the provisions of this Warrant
Agreement, each Warrant Holder shall have the right, which may be
exercised as expressed in such Warrants, to purchase from the Company
(and the Company shall issue and sell to such Warrant Holder) the
number of fully paid and nonassessable shares of Common Stock
specified in such Warrants, upon surrender to the Company, or its duly
authorized agent, of such Warrants, with the purchase form on the
reverse thereof duly filled in and signed, and upon payment to the
Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 12 of this Warrant Agreement or upon a net
exercise pursuant to this subsection of this Warrant Agreement, for
the number of shares in respect of which such Warrants are then
exercised. The Warrant Holder may (i) pay the Exercise Price in cash,
by certified or official bank check payable to the order of the
Company, or by the surrender to the Company securities of the Company
having a Market Price equal to the Exercise Price or by the surrender
to the Company indebtedness owed by the Company pursuant to the Credit
Agreement (in which case the Company will accept such specified unpaid
principal amount in full payment, as if such payment had been made in
cash or (ii) make an exercise of Warrants for "Net Warrant Shares."
The number of Net Warrant Shares will be determined as described by
the following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS"
is the number of Warrant Shares issuable upon exercise of the Warrants
or portion of Warrants in question. "MP" is the Market Price of the
Common Stock on the last trading day preceding the date of the request
to exercise the Warrants. "Market Price" shall mean the then current
market price per share of Common Stock, as determined in paragraph
12.1(e). "EP" shall mean the Exercise Price.


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Upon such surrender of Warrants, and payment of the Exercise Price, with cash or securities, or upon a net exercise as aforesaid, the Company at its expense shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Warrant Holder and in such name or names as the Warrant Holder may designate, a certificate or certificates for the number of full shares of Common Stock so purchased upon the exercise of such Warrants, together with cash, as provided in Section 12 of this Warrant Agreement, in respect of any fraction of a share of such stock otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such shares as of the date of the surrender of such Warrants and payment of the Exercise Price or receipt of shares by net exercise as aforesaid. The rights of purchase represented by the Warrants shall be exercisable, at the election of the Warrant Holders thereof, either in full or from time to time in part and, in the event that any Warrant is exercised in respect of less than all of the shares purchasable on such exercise at any time prior to the Expiration Date, a new certificate evidencing the remaining Warrant or Warrants will be issued.


8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants that if any share of Common Stock required to be reserved for purposes of exercise or conversion of Warrants require, under any Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any governmental authority, or listing on any such national securities exchange, before such shares may be issued upon exercise, the Company will use its best efforts to cause such shares to be duly registered, approved or listed on the relevant national securities exchange, as the case may be.


9. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Warrant Shares upon the exercise of Warrants and any securities issued pursuant to Section 12 hereof; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrants or certificates for Warrant Shares and any securities issued pursuant to Section 12 hereof in a name other than that of the Warrant Holder of such Warrants.


10. MUTILATED OR MISSING WARRANTS. Upon receipt by the Company of an affidavit signed by an officer of Parker evidencing the mutilation, loss, theft or destruction of any of the Warrants, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest.


11. RESERVATION OF WARRANT SHARES: PURCHASE AND CANCELLATION OF WARRANTS. The Company shall at all times reserve, out of the authorized and unissued shares of Common Stock, a number of shares sufficient to provide for the exercise of the rights of purchase represented by the Warrants, and the transfer agent for the Common Stock ("Transfer Agent") and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid are hereby irrevocably authorized and directed at all times until the Expiration Date to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Company will keep a copy of this Warrant Agreement on file


6 8 with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Company will supply the Transfer Agent and any such subsequent transfer agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be issuable as provided by Section 13 of this Warrant Agreement. The Company will furnish to the Transfer Agent and any such subsequent transfer agent a copy of all notices of adjustments, and certificates related thereto, transmitted to each Warrant Holder pursuant to Section 12.3 hereof. All warrants surrendered in the exercise of the rights thereby evidenced shall be canceled, and such canceled Warrants shall constitute sufficient evidence of the number of shares of stock which have been issued upon the exercise of such Warrants (subject to adjustment as herein provided). No shares of stock shall be subject to reservation in respect of the Warrants subsequent to the Expiration Date except to the extent necessary to comply with the terms of this Warrant Agreement.


12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number and kind of securities purchasable upon the exercise of each Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as hereafter defined.


12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment as follows:


(a) In case the Company shall (i) pay a dividend
in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification
in connection with a consolidation or merger in which the
company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Warrant Holder
shall be entitled to receive the kind and number of Warrant
Shares or other securities of the Company which he would have
owned or have been entitled to receive after the happening of
any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event or
any record date with respect thereto regardless of whether the
Warrants are exercisable at the time of the happening of such
event or at the time of any record date with respect thereto.
An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.


(b) In case the Company shall issue rights,
options or warrants to holders of its outstanding Common Stock
(other than rights, options or warrants issued to an officer,
director or employee of the Company as compensation,


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regardless of whether such officer, director or employee is a
holder of the Company's Common Stock immediately prior to such
issue), without any charge to such holders, entitling them to
subscribe for or purchase shares of Common Stock at a price
per share which is lower, at the record date mentioned below,
than the then current market price per share of Common Stock
(as determined in accordance with paragraph (e) below), then
in each such case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of shares which
the aggregate offering price of the total number of shares of
common stock so offered would purchase at the then current
market price per share of Common Stock. Such adjustment shall
be made whenever such rights, options or warrants are issued,
and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such
rights, options or warrants.


(c) In case the Company shall distribute to
holders of its shares of Common Stock evidences of its
indebtedness or assets (including cash dividends or other cash
distributions) or rights, options or warrants, or convertible
or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock ...