<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K/A
AMENDMENT NO. 1
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20689
DRILEX INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0438889
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
15151 SOMMERMEYER 77041
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 937-8888
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
Common Stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 27, 1997, there were 6,663,356 shares of Drilex International
Inc. Common Stock, $.01 par value, issued and outstanding, 2,450,264 of which,
having an aggregate market value of $27,718,612, were held by non-affiliates of
the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
DRILEX INTERNATIONAL INC. ("DRILEX" OR THE "COMPANY") HEREBY AMENDS ITS ANNUAL
REPORT ON FORM 10-K ORIGINALLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 28, 1997, PURSUANT TO INSTRUCTION G(3) TO FORM 10-K, BY COMPLETING
ITEMS 10 THROUGH 13 APPEARING IN PART III THEREOF. IN ITS FORM 10-K AS
ORIGINALLY FILED, THE REGISTRANT INDICATED THAT THE INFORMATION REQUIRED FOR
SUCH ITEMS WOULD BE INCORPORATED BY REFERENCE FROM THE PROXY STATEMENT RELATED
TO THE REGISTRANT'S 1997 ANNUAL STOCKHOLDERS MEETING.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART III
Item 10. Directors and Executive Officers of Registrant 1
Item 11. Executive Compensation 2
Item 12. Security Ownership of Certain Beneficial Owners and Management 7
Item 13. Certain Relationships and Related Transactions 9
</TABLE>
* * * *
The statements regarding the industry outlook, the Company's expectations
regarding growth in the precision drilling segment, the Company's expectations
regarding the future performance of its businesses, and other statements which
are not historical facts contained in this report are forward-looking
statements. The words "expect," "project," "estimate," "predict" and similar
expressions are also intended to identify forward-looking statements. Such
statements are subject to numerous risks and uncertainties, including but not
limited to the uncertainties relating to the exploration and development
decisions to be made in the future by oil and gas exploration and development
companies, market factors, market prices of natural gas and oil, future
operations and costs, unanticipated technological changes and other factors
detailed herein and in the Company's other Securities and Exchange Commission
filings. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to executive
officers of the Company was set forth in Part I of the Registrant's Annual
Report on Form 10-K, as originally filed on March 28, 1997.
DIRECTORS
David C. Baldwin, 34, has served as a director of the Company since
April 1994. Mr. Baldwin has been Vice President of L.E. Simmons & Associates,
Incorporated ("SCF G.P.") since March 1993. Through its affiliate, SCF
Partners, L.P., SCF G.P. manages private institutional partnerships that
generally invest in the oilfield service and equipment industry. From August
1991 to March 1993, Mr. Baldwin was an Associate with SCF G.P. Prior to
attending graduate school from 1989 to 1991, he was employed by Union Pacific
Resources Company in a variety of drilling and operations management positions.
He also serves as a director of C.E. Franklin, Ltd.
Philip Burguieres, 53, has served as a director of the Company since
January 1997. Mr. Burguieres served as President and Chief Executive Officer of
Weatherford Enterra Inc., a diversified international energy service and
manufacturing company, from April 1991 to October 1996. From January 1990 to
November 1990, he was Chairman of the Board, President and Chief Executive
Officer of Panhandle Eastern Corporation, a company that operates interstate
natural gas transmission systems. Mr. Burguieres is currently the Chairman of
the Board of Weatherford Enterra Inc., a position he has held since December
1992. He is also a director of Texas Commerce Bank National Association,
McDermott International, Inc. and Transamerican Waste Industries, Inc.
Sam S. Sorrell, 68, has served as a director of the Company since
February 1995. Mr. Sorrell is currently a consultant to SCF Partners, L.P., and
has served in such capacity since February 1994. From January 1991 to January
1994, Mr. Sorrell held the position of Executive Vice President of Gulf
Publishing Co., a company that publishes various types of media for the oil and
gas industry. He is currently a director of Gulf Publishing Co.
A. Clark Johnson, 66, was appointed as a director in June 1996. Prior
to his retirement in December 1995, Mr. Johnson served as Chairman of the Board
of Union Texas Petroleum Holdings, Inc. since July 1985 and as its Chief
Executive Officer since July 1984. Union Texas Petroleum Holdings, Inc. is an
independent (non-integrated) oil and gas company. Prior thereto, Mr. Johnson
served in various positions with that company's predecessor, Allied Corporation.
John Forrest, 58, is a founder of Drilex Systems, Inc. ("DSI"), the
Company's predecessor, and served as the Chief Executive Officer of DSI since
1981. Mr. Forrest has been the President, Chief Executive Officer and a
director of Drilex International Inc. since its acquisition of DSI in March
1994.
L. E. Simmons, 50, has served as Chairman of the Board and a director
of the Company since March 1994. Mr. Simmons has, for more than five years,
served as President of SCF G.P. Mr. Simmons was a co-founder of Simmons &
Company International, an investment banking firm, and served as an officer and
director of such firm from 1974 through September 1993. Mr. Simmons is Chairman
of the Board of Tuboscope Vetco International Corporation and is a director of
Zions Bancorporation.
R. T. Swinton, 50, has served as a director of the Company since
November 1996. He has served as the Chairman and Chief Executive Officer of
Kenting Energy Services Inc., a provider of oil and gas drilling services, since
January 1997. Prior thereto, Mr. Swinton served as the President and Chief
Executive Officer of Enserv Corporation, a diversified Canadian oilfield
services company, from November 1988 to September 1996, and served as that
company's Chairman of the Board from December 1994 to September 1996. He served
as the Vice Chairman of Precision Drilling Corporation from May 1996 to October
1996, following its acquisition of Enserv Corporation. He also currently serves
as a director of Kenting Energy Services Inc.
1
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's executive officers and directors,
and persons who own more than ten percent of a registered class of the Company's
equity securities, file reports of ownership and changes of ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all such forms they file.
Based solely on its review of the copies of such forms received by the
Company, and on written representations by the Company's officers and directors
regarding their compliance with the filing requirements, the Company believes
that during the year ended December 1996, all reports required by Section 16(a)
to be filed by its directors, officers and greater than ten percent beneficial
owners were filed on a timely basis, except that Mr. Swinton, a Canadian
resident, inadvertently filed his Form 3 late and Mr. David M. Henry
inadvertently reported on his Form 5 an incorrect amount of stock options
granted to him by the Company in 1996, which was corrected through the filing of
an amended Form 5.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Each director who is not also an officer of the Company (a
"Nonemployee Director") receives a quarterly retainer of $2,500 and also
receives (i) $500 per meeting of the Board of Directors at which such director
participated, (ii) $500 per meeting of any committee of the Board of Directors
at which such director participated, if not in connection with a Board meeting,
and (iii) reimbursement for all reasonable out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors or committees
thereof.
In May 1996, the Company established the Drilex International Inc.
Deferred Compensation Plan for Directors (the "Deferred Compensation Plan for
Directors"), whereby each director can defer cash compensation for services as a
director, payable by the Company in the form of any retainer, annual committee
or meeting fee, to a date subsequent to such director's death, retirement,
disability or termination of services as a director. Earnings with respect to
deferred compensation may be calculated, at the election of the director, as if
the amount deferred had been invested in common stock, par value $.01 per share,
of Drilex ("Common Stock") or as if deferred compensation had been invested in
an interest-bearing account. During 1996, Messrs. Baldwin, Johnson, Simmons and
Swinton each deferred $5,500, $1,650, $5,500 and $2,500 of compensation,
respectively.
The Drilex International Inc. Stock Option Plan (the "Stock Option
Plan") provides for an automatic one-time grant to each Nonemployee Director of
an option to purchase 3,620 shares of Common Stock at an option price equal to
the fair market value of Common Stock on the date of such grant. Pursuant to
such provision, upon completion of the Company's initial public offering in July
1996, Messrs. Baldwin, Johnson, Simmons and Waite each received an option for
the purchase of 3,620 shares of Common Stock. At such time, Mr. Peebler and Mr.
Sorrell were each granted an option to purchase 1,200 shares of Common Stock
(each already had been granted an option for 2,420 shares), at an exercise price
per share equal to the initial public offering price to the public. Each of
Messrs. Swinton and Burguieres received an option for the purchase of 3,620
shares of Common Stock upon his appointment to the Board of Directors in
November 1996 and January 1997, respectively. All of the options granted to
Nonemployee Directors have a term of ten years, and become exercisable in
cumulative annual installments of one-third each, beginning on the first
anniversary of the date of grant.
2
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SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation provided by the Company during the past two years to the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") during
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
AWARDS
----------------
SECURITIES
ANNUAL COMPENSATION (1) UNDERLYING
--------------------------------- STOCK OPTIONS
NAME AND OTHER ANNUAL (NUMBER OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (2) COMPENSATION SHARES) COMPENSATION (3)
------------------ ---- ------ --------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John Forrest...................... 1996 $215,004 $ 0 $ 0 8,000 $1,267
President and Chief 1995 $190,117 $64,500 $ 0 22,623 $1,232
Executive Officer
G. Bruce Broussard................ 1996 $108,000 $ 0 $ 0 5,000 $2,160
Vice President--Finance and 1995 $ 98,055 $26,600 $ 0 0 $1,961
Administration and Secretary
Charles Denton Kerr, II........... 1996 $144,000 $ 0 $ 0 5,000 $1,267
President--Energy Services 1995 $111,671 $28,800 $ 0 0 $1,562
Division of Drilex Systems, Inc.
David M. Henry.................... 1996 $ 91,108 $ 0 $23,334 (5) 8,000 $ 0
Vice President--Business 1995 -- -- -- -- --
Development (4)
Lee F. Hardin..................... 1996 $105,072 $ 0 $18,484 (7) 3,500 $1,576
Vice President--Engineering 1995 $ 48,966 $15,800 $ 0 0 $ 0
and Manufacturing (6)
Archie A. Cobb, III............... 1996 $151,500 $ 0 $ 0 2,000 $ 0
President--Cobb Directional 1995 $151,375 $ 0 $ 0 0 $ 0
Drilling Company, L.L.C. (8)
</TABLE>
- ------------------------------
(1) Except as indicated in the table, other annual compensation for the named
individuals during each of 1995 and 1996 did not exceed the lesser of
$50,000 or 10% of the annual compensation earned by such individual.
(2) The bonus amounts shown for 1995 were paid in 1996 for the twelve-month
period ended March 31, 1996. The bonus amounts shown for 1996 are with
respect to the nine-month period ended December 31, 1996; no bonus was paid
for such period to any of the Named Executive Officers.
(3) The amounts shown represent contributions by the Company under its 401(k)
Profit Sharing Plan.
(4) Mr. Henry was appointed to his position with the Company effective May 14,
1996. Mr. Henry left his position with the Company effective April 18,
1997.
(5) The amount paid to Mr. Henry represents a sign-on payment made by the
Company to Mr. Henry in connection with his appointment.
(6) Mr. Hardin was appointed to his position with the Company effective August
14, 1995.
(7) The amount paid to Mr. Hardin represents relocation expenses that were paid
by the Company.
(8) Mr. Cobb left his position with Cobb Directional Drilling Company, L.L.C.,
a subsidiary of the Company ("Cobb LLC"), effective January 31, 1997. See
Item 13.
3
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OPTION GRANTS
Shown below is further information on grants of stock options during 1996 to
the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED (1) 1996 (PER SHARE) (2) DATE 5% 10%
---- ----------- ---- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John Forrest 8,000 4.9% $16.00 7/2/2001 $35,364 $78,145
G. Bruce Broussard 5,000 3.1% $16.00 7/2/2001 $22,102 $48,841
Charles Denton Kerr, II 5,000 3.1% $16.00 7/2/2001 $22,102 $48,841
David M. Henry 8,000 4.9% $16.00 7/2/2001 $35,364 $78,145
Lee F. Hardin 3,500 2.2% $16.00 7/2/2001 $15,472 $34,189
Archie A. Cobb, III 2,000 1.2% $16.00 7/2/2001 $ 8,841 $19,536
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</TABLE>
(1) All options are five-year options granted pursuant to the Stock Option Plan
on July 2, 1996 (the date of pricing of the Company's initial public
offering) that become exercisable in four equal installments beginning on
the first anniversary of the date of grant.
(2) The exercise price of the options granted is equal to the market value (the
initial public offering price) of the Common Stock on the date of grant.
The option exercise price may be paid in cash or previously owned shares of
Common Stock. Subject to certain conditions, the options permit the
withholding of shares of Common Stock issuable upon exercise to satisfy tax
obligations.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the performance of the Common Stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be achieved. The calculation does not take into account the
effects, if any, of provisions of the Stock Option Plan governing
termination of options upon employment termination, transferability or
vesting.
4
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OPTION EXERCISES AND VALUES
The following table summarizes exercises of stock options during 1996 and the
value of the outstanding options with respect to the Named Executive Officers.
There are no outstanding stock appreciation rights, shares of restricted stock
or other long-term incentive plans with respect to the Company.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996 AND
1996 YEAR-END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT 12/31/96 OPTIONS AT 12/31/96 (2)
NAME ON EXERCISE REALIZED (1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
John Forrest.............. 10,573 $14,591 7,180 / 37,065 $15,233 / $94,393
G. Bruce Broussard........ -- -- 6,049 / 11,049 $39,137 / $39,137
Charles Denton Kerr, II... 4,525 $45,431 1,524 / 11,049 $9,860 / $39,137
David M. Henry............ -- -- 0 / 8,000 -- / $ 0
Lee F. Hardin............. -- -- 0 / 3,500 -- / $ 0
Archie A. Cobb, III....... -- -- 0 / 2,000 -- / $ 0
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</TABLE>
(1) Mr. Forrest's option exercise occurred in March 1996, prior to the
Company's July 1996 initial public offering; consequently, the value
realized is calculated based on the difference between the option exercise
price and $6.91, the estimated fair market value on such date. The value
realized would be $110,700 if it were calculated using the initial public
offering price to the public of $16.00 per share. In the case of Mr. Kerr,
the value realized is calculated based on the difference between the option
exercise price and the closing market price of the Common Stock on the date
of exercise, multiplied by the number of shares underlying the options.
(2) Value of unexercised in-the-money options is calculated based upon the
difference between the option price and the closing price of the Common
Stock at year-end, multiplied by the number of shares underlying the
options. The closing price of the Common Stock, as reported on the NASDAQ
Stock Market on December 31, 1996, was $12.00.
EMPLOYMENT AGREEMENTS
On April 16, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Baker Hughes Incorporated ("Baker Hughes") and a
subsidiary of Baker Hughes ("Subsidiary"), pursuant to which, subject to Drilex
stockholder approval and other conditions, Subsidiary will be merged (the
"Merger") with and into Drilex, and Drilex will become a wholly owned subsidiary
of Baker Hughes. In connection with the Merger Agreement, the Company entered
into letter agreements with each of Mr. Kerr (the "Kerr Agreement") and Mr.
Forrest (the "Forrest Agreement").
The Forrest Agreement provides for Mr. Forrest's employment for six months
after the consummation of the Merger at his current salary and a severance
payment upon termination by either party equal to 18 months salary (one half of
which is payable at termination, with the balance paid over 18 months). Mr.
Forrest has agreed to certain non-competition provisions for the 18-month period
after termination of employment. Mr. Forrest also has a right of first offer
should Baker Hughes dispose of Drilex's trenchless business within six months
after the Merger. Pursuant to prior arrangements with Mr. Forrest, Drilex will
also pay Mr. Forrest a bonus equal to 25% of his base salary if the Merger is
consummated and the per share value received by Drilex stockholders under the
Merger Agreement is $16.
The Kerr Agreement provides, in exchange for Mr. Kerr's agreement not to
solicit Drilex employees for one year after departure and to continue
employment, Drilex will pay Mr. Kerr (i) if the consummation of a substantial
transaction (such as the Merger) does not occur prior to October 31, 1997, two
years' salary if he resigns on or before
5
<PAGE>
December 31, 1997 and (ii) if Mr. Kerr remains employed by Drilex until two
years after the consummation of the Merger (or is terminated other than for
cause), a bonus of one years' salary. In the event of a termination of
employment after the Merger, certain restrictions on Mr. Kerr's activities will
apply.
On April 23, 1996, the Company entered into a letter agreement with Mr. Henry
regarding his employment with the Company (the "Henry Agreement"). The Henry
Agreement provided for severance pay in connection with termination of
employment in the event of a change of control within two years of the date
thereof. Mr. Henry's employment with the Company terminated April 18, 1997, and
he will receive a lump sum payment of approximately $72,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was created in May 1996, its original members
consisting of David C. Baldwin, Robert P. Peebler and Sam S. Sorrell. Following
Mr. Peebler's resignation as a director of the Company in September 1996, Mr. A.
Clark Johnson was appointed to the Compensation Committee. In March 1997, the
Board of Directors provided that the Compensation Committee would thereafter
consist of Messrs. Baldwin, Johnson and Burguieres, who are its current members.
L. E. Simmons is the President and sole stockholder of SCF G.P., the general
partner of SCF Partners, L.P., which is the general partner of DRLX Partners,
L.P., a holder of more than five percent of the Common Stock outstanding. Mr.
Sorrell is also a consultant to SCF Partners, L.P. Mr. Baldwin is an executive
officer of SCF G.P. In connection with the Company's formation in March 1994,
DRLX Partners, L.P. became one of the parties to a registration rights agreement
with the Company, which was amended and restated in connection with the
Offering. See Item 13. As a result of his relationship to DRLX Partners, L.P.,
Mr. Simmons may be deemed to have an indirect personal pecuniary interest in the
4,119,207 shares of Common Stock held by DRLX Partners, L.P.
In connection with the acquisition of the assets of ENSCO Technology Company
in September 1995, the Company incurred a $150,000 fee to SCF Partners, L.P. for
financial advisory and other consultation services, which fee was paid in the
first quarter of 1996. The Company believes that such fee was comparable to fees
that would have been paid to unaffiliated third parties for similar services.
SCF Partners, L.P. is the general partner of institutional investor
partnerships that invest in the oilfield service and equipment industry. As a
result, it is possible that such institutional investor partnerships may compete
with the Company for acquisition candidates, or may invest in businesses that
compete with the Company.
During 1996, the Company made aggregate payments of approximately $159,000 to
Landmark Graphics Corporation in connection with purchases of computer software,
at which time Mr. Peebler was serving as the President and Chief Executive
Officer of Landmark Graphics Corporation. Such charges were incurred in the
ordinary course of business, and the Company believes that the prices paid in
connection with such purchases were comparable to the prices that would be paid
in similar transactions with parties not affiliated with Mr. Peebler.
6
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of February 27, 1997
(except as described in note 3 below) concerning the persons known by the
Company to be beneficial owners of more than five percent of the Company's
outstanding Common Stock, the Company's directors, the Named Executive Officers
and all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER (1) OWNED PERCENT
---------------------------- ------------ --------
<S> <C> <C>
DRLX Partners, L.P. (2)(3)............................................ 4,119,207 61.8%
c/o SCF Partners, L.P.
600 Travis
Suite 6600
Houston, Texas 77002
L. E. Simmons (2)..................................................... 4,120,207 61.8
c/o SCF Partners, L.P.
600 Travis
Suite 6600
Houston, Texas 77002
John Forrest (4)...................................................... 95,451 1.4
David C. Baldwin...................................................... 1,250 *
G. Bruce Broussard (4)................................................ 11,356 *
Charles Denton Kerr, II (4)........................................... 7,662 *
David M. Henry........................................................ -- --
Lee F. Hardin......................................................... -- --
Philip Burguieres..................................................... -- --
A. Clark Johnson...................................................... 1,000 *
Sam S. Sorrell (4).................................................... 2,714 *
R. T. Swinton......................................................... -- --
All directors and executive officers as a group (11 persons) (1)(4)... 4,239,640 63.4
</TABLE>
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* Less than one percent
(1) Except as otherwise noted, each stockholder has sole voting and investment
power with respect to the shares beneficially owned.
(2) The general partner of DRLX Partners, L.P. is SCF Partners, L.P. The
general partner of SCF Partners, L.P. is SCF G.P., of which L. E. Simmons
is the President and a director and sole stockholder. Each of SCF
Partners, L.P., SCF G.P. and L. E. Simmons may be deemed the beneficial
owner, within the meaning of Rule 13d-3 under the Exchange Act, of the
shares of Common Stock hold by DRLX Partners, L.P.
(3) In order to induce Baker Hughes to enter into the Merger Agreement with
Drilex, DRLX Partners, L.P. concurrently entered into a Stockholder
Agreement with Baker Hughes (the "Stockholder Agreement"). In the
7
<PAGE>
Stockholder Agreement, DRLX Partners, L.P. agreed to vote its 4,119,207
shares of Common Stock in favor of the approval of the Merger Agreement and
the Merger. In addition, DRLX Partners, L.P. granted Baker Hughes an option
to purchase, upon the occurrence of certain "Triggering Events," up to
1,665,839 shares of Drilex Common Stock owned by DRLX Partners, L.P. at a
cash exercise price of $16 per share. The shares subject to the Option
represent 25% of the outstanding Common Stock. Triggering Events generally
involve the termination of the Merger Agreement in the context of a third
party's making a competing Acquisition Proposal (as defined) or the
withdrawal or modification of the recommendation of Drilex's Board of
Directors with respect to the Merger. The Option will expire 45 days after
the termination of the Merger Agreement, except that if an Acquisition
Proposal is pending on the 45th day, the expiration date will be extended
(but in no event beyond October 31, 1997) until shortly after the
consummation, withdrawal or termination of all pending Acquisition
Proposals. Baker Hughes' address is 3900 Essex Lane, Houston, Texas 77027.
(4) Shares shown include shares that could be acquired within 60 days after
February 27, 1997 upon exercise of stock options, as follows: 17,361 for
Mr. Forrest, 6,049 for Mr. Broussard, 1,524 for Mr. Kerr, 1,614 for Mr.
Sorrell and 26,548 for all directors and executive officers as a group.
8
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 10, 1997, pursuant to a January 1997 agreement (the "Cobb
Agreement"), the Company repurchased 96,523 shares of Common Stock from a
company owned by Archie A. Cobb, III for approximately $1.3 million in cash.
Mr. Cobb formerly served as President of Cobb LLC, a subsidiary of Drilex. Also
pursuant to the Cobb Agreement, the Company prepaid the outstanding principal,
plus interest accrued but unpaid, with respect to two promissory notes equal to
approximately $1.3 and $.4 million, respectively, issued to affiliates of Mr.
Cobb in connection with the Company's September 1994 acquisition of Cobb
Directional Drilling Company, Inc. and Posi-Trak Mud Motors, Inc. (the "Cobb
Acquisition"). The Cobb Agreement provided that Mr. Cobb's employment with the
Company and its subsidiaries was deemed to have been terminated by him effective
January 31, 1997 and that the post-termination non-competition period set forth
in the employment agreement entered into in connection with the Cobb Acquisition
(the "Cobb Employment Agreement") be reduced to two years. The various
transactions under the Cobb Agreement resulted, in the aggregate, in a net cash
payment by the Company to Mr. Cobb of approximately $2.7 million.
In connection with the Cobb Acquisition, Mr. Cobb and Cobb LLC entered into
the Cobb Employment Agreement on September 30, 1994. Such agreement provided
that Mr. Cobb be employed by Cobb LLC as its chairman and/or president until
September 30, 1999 at an annual salary of $150,000, subject to increase as
determined appropriate by Cobb LLC, as well as the right to participate in
executive compensation programs. If Cobb LLC terminated Mr. Cobb's employment
without cause, it was required to pay him such salary for the remainder of the
term of the agreement. The Cobb Employment Agreement provided that all
inventions, discoveries and similar intellectual property created or conceived
by Mr. Cobb in connection with his work for Cobb LLC are the sole and exclusive
property of the Company. The agreement also required Mr. Cobb to abide by
certain confidentiality provisions with respect to such intellectual property
and other confidential information obtained through his position. The Cobb
Employment Agreement also originally provided that Mr. Cobb not compete with the
Company for a period of five years after the termination of his employment,
which period was reduced to two years under the Cobb Agreement.
During 1996, the Company made payments to Non Magnetic Rental Tools, Inc., a
company owned by two brothers of Mr. Cobb, for rental of certain tools used in
the business of Cobb LLC totaling approximately $755,000. The Company also made
payments of $11,000 to Downhole Directional Tools, Inc., a company owned by Mr.
Cobb's son-in-law. All of such transactions were entered into in the ordinary
course of business, and the Company believes that the rental rates incurred in
connection with such transactions were comparable to those that would have been
incurred in similar transactions with parties not affiliated with Mr. Cobb.
During 1995, the Company lent $250,000 to John Forrest to facilitate certain
tax payments made by Mr. Forrest. The entire principal amount of such loan
remains outstanding as of April 1, 1997. The loan bears interest at a rate
equal to the interest rate incurred by the Company on its borrowings (a
Eurodollar interbank offered rate plus 0.75%, which was 6.31% at April 1, 1997)
and is secured by 45,245 shares of Common Stock owned by Mr. Forrest. During
1996, the largest outstanding amount of this loan, including accrued interest,
was approximately $282,000. The loan is payable upon the earlier of (i) sale of
shares of Common Stock owned by Mr. Forrest and (ii) the termination of Mr.
Forrest's employment with the Company.
In connection with the Company's July 1996 initial public offering, the
Company entered into an amendment and restatement of an existing registration
rights agreement among the Company, DRLX Partners, L.P., and Messrs. Forrest,
Broussard and Kerr (the "Registration Rights Agreement"). The Registration
Rights Agreement provides for registration rights pursuant to which, upon the
request of holders (the "Requesting Holders") of at least 51% of the shares of
Common Stock (or other securities of the Company) subject to such agreement (the
"Registrable Securities"), the Company will file a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), to register
Registrable Securities held by the Requesting Holders and any other stockholders
who are parties to the Registration Rights Agreement and who desire to sell
Registrable Securities pursuant to such registration statement, subject to a
maximum of three requests in total. In addition, subject to certain conditions
and
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limitations, the Registration Rights Agreement provides that holders of
Registrable Securities may participate in any registration by the Company of any
of its equity securities in an underwritten offering. The Registration Rights
Agreement will terminate on December 31, 2001, or earlier if the securities
subject to the Registration Rights Agreement have been (i) distributed to the
public pursuant to a registration statement covering such securities that has
been declared effective under the Securities Act, (ii) distributed to the public
in accordance with the provisions of Rule 144 (or any similar provision then in
force) under the Securities Act or (iii) repurchased by the Company.
For certain other transactions between the Company and its executive officers,
directors or beneficial owners of in excess of five percent of the Company's
outstanding Common Stock, see "Executive Compensation--Compensation Committee
Interlocks and Insider Participation" under Item 11.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 29th day of April, 1997.
DRILEX INTERNATIONAL INC.
By: /s/ G. Bruce Broussard
--------------------------------
G. Bruce Broussard
Vice President -- Finance and
Administration
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