<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934
DAILEY PETROLEUM SERVICES CORP.
--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Commission File No. 001-11963
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Annual Report on Form
10-K as set forth in the pages attached hereto:
Part III, Items 10, 11, 12 and 13
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is the name, age as of August 20, and position of each
of the directors and executive officers of the Company, and in the case of
directors of the Company, the year of expiration of his initial term of office.
<TABLE>
<CAPTION>
YEAR TERM
AS DIRECTOR
NAME AGE POSITION WILL EXPIRE
- ---------------------------------- ---------- ---------------------------------------- ---------------
<S> <C> <C> <C>
J. D. Lawrence ........................ 51 Chairman of the Board of Directors 1999
James F. Farr (1)(2)................... 40 President, Chief Executive Officer 1999
and Director
William D. Sutton (1)(2)............... 43 Senior Vice President, General 1997
Counsel, Secretary and Director
David T. Tighe (2)..................... 45 Senior Vice President--Finance, 1997
Chief Financial Officer, Treasurer
and Director
Bernard J. Duroc-Danner (1)(3)......... 43 Director 1998
Al Kite (1)(3)......................... 65 Director 1998
John W. Sinders, Jr. .................. 43 Advisory Director
Chaman Malhotra........................ 60 President--Air Drilling
International, Inc.
Tommy Ramsay........................... 41 President--Canadian Air Drilling
Services Ltd.
John E. Blacklaws...................... 40 Vice President--Production Services
James C. Brame......................... 45 Vice President--Air Drilling
International, Inc.
Dwight A. Goolsbay..................... 36 Vice President--Eastern Hemisphere
Operations
Martin Lyons........................... 48 Vice President--North American
Operations
Mike Torres............................ 45 Vice President--South American
Operations
</TABLE>
- -----------------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Executive Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
J. D. Lawrence has been a director of the Company since 1973, and
Chairman of the Board of Directors since June 1989. He has been employed by
the Company since 1968, serving as its President from 1982 to 1989 and as a
Vice President from 1973 to 1982. Mr. Lawrence is Chairman of the Board of
Directors, President and the sole director of Lawrence.
James F. Farr has been President of the Company since December 1990,
its Chief Executive Officer since August 1991, and a director of the Company
since September 1991. As International Manager from October 1989 to December
1990, he was responsible for all international activities, including the
marketing, distribution and sale of the Company's products and services, and
developing and maintaining the Company's relationships with its agents. From
August 1988 to October 1989, Mr.
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Farr served as Managing Director of Dailey International, Inc., the Company's
wholly-owned subsidiary, and as Regional Manager for Europe/West Africa, with
responsibility for the Company's facilities in the United Kingdom as well as
marketing operations in Europe/West Africa. From 1975 to August 1988, he
served the Company in various managerial, marketing and operating capacities.
William D. Sutton has been Senior Vice President, General Counsel and
Secretary since 1984, and a director of the Company since September 1991. He
has served as the Company's Secretary and General Counsel since 1980. He also
served as a director of the Company from 1979 to 1990, and as a Vice President
from 1982 to 1984. Prior to joining the Company in 1979, Mr. Sutton was an
attorney in private practice.
David T. Tighe has been Senior Vice President--Finance and Treasurer
of the Company since May 1988 and Chief Financial Officer of the Company since
June 1996. He became a director of the Company in September 1991. From 1985
to April 1988, he served as Corporate Controller. From 1984 to 1985, he was
the Company's Assistant Controller. Prior to joining the Company in 1984, Mr.
Tighe, a certified public accountant, was Controller of Carolina International,
Inc. from 1982 to 1984 and Tandem Industries, Inc. from 1980 to 1982.
Bernard J. Duroc-Danner became a director of the Company in September
1996. Mr. Duroc-Danner is Chief Executive Officer of EVI, Inc. In prior
years, Mr. Duroc-Danner was with Arthur D. Little Inc., a management consulting
firm in Cambridge, Massachusetts. He has held management positions with Mobil
Oil, Inc. (New York), Anheuser Busch Center for Management Science
(Philadelphia) and Lambert Freres & Co., (Paris). Mr. Duroc-Danner holds a
Ph.D. in economics from the University of Pennsylvania and an MBA in finance
from The Wharton School.
Al Kite became a director of the Company in September 1996. Mr. Kite
was President of Halliburton Drilling Systems from 1993 to 1994 and President
of Eastman Christensen from 1986 to 1990. He has served as International
Manager in London and Executive Vice President of Operations for Smith/Servco,
President of Worldwide Operations at Eastman Christensen and Senior Vice
President Eastern Hemisphere for Smith International. Mr. Kite is retired but
maintains several industry interests.
John W. Sinders, Jr. became an advisory director of the Company in
August 1997, to serve until the 1998 Annual Meeting of Stockholders. Mr.
Sinders is entitled to notice of and to attend all meetings of the Board of
Directors but is not entitled to vote on any matters coming before the Board of
Directors. Mr. Sinders has served as an Executive Vice President of Jefferies
& Company, Inc. ("Jefferies") since February 1997, and from 1993 to 1997,
served as a Managing Director of Jefferies. From 1987 to 1993, Mr. Sinders
served as a Managing Director of Howard, Weil, Labouisse, Friedrichs
Incorporated ("Howard Weil") and a member of the Board of Directors of Howard
Weil from 1990 to 1993. Prior to joining Howard Weil, he was a director with
the law firm of McGlinchey, Stafford, Mintz, Cellini & Lang, P.C. Mr. Sinders
is also a member of the Board of Directors of The Shaw Group Inc.
Chaman Malhotra has been President and Chief Executive Officer of Air
Drilling International, Inc. (or its predecessor) ("ADI") since 1975. He has
been employed by ADI since 1961, serving eleven years in sales and operations.
Tommy Ramsay has been President of Canadian Air Drilling Services,
Ltd. ("CADS") since 1995. Mr. Ramsay joined CADS in 1974 where he handled
various operation functions. In 1979 he became a project manager for True Test
Pipelines, Ltd., a division of CADS, and was promoted to Assistant General
Manager in 1984.
John E. Blacklaws has been Vice President--Production Services since
June 1997, with responsibility for the Company's manufacturing, engineering,
domestic field repairs and management inventory. Between September 1994 and
June 1997, Mr. Blacklaws held the title of President of
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<PAGE> 4
Production Services and had substantially the same responsibilities as he has
now. From November 1990 to September 1994, he was Vice President for the
manufacturing and production division in Houston, Texas. From March 1989 to
November 1990, he was Manager of Manufacturing Technical Services with quality
control responsibilities at the Company's Houston facility and in the field.
James C. Brame was named Vice President--Business Development in July
1996 and Vice President--ADI in June 1997. From August 1991 to June 1997, he
served as Senior Marketing Analyst, Project Manager, Director of Business
Development and IT Steering Committee Chairman. Prior to joining the Company
in 1991, Mr. Brame was president and owner of a manufacturing and distribution
company from 1986 to 1991. From 1977 to 1986, Mr. Brame held Assistant
Controller and Manager of Financial Analysis and Reporting positions with
Hughes Production Tools, a division of Hughes Tool Company.
Dwight A. Goolsbay has been Vice President--Eastern Hemisphere
Operations since June 1997 and prior to such time had been Vice President--MWD
Services since May 1996. As an MWD Product Manager between December 1993 and
May 1996, he was responsible for managing the Company's entry into the domestic
and international MWD services business. From October 1990 to December 1993,
he was a drilling motor product engineer and assisted with development and
expansion of the drilling motor product line. Prior to joining the Company in
1990, Mr. Goolsbay was the Oklahoma City District Manager for Halliburton
Drilling Systems, Inc.--MWD Division. From 1985 to 1987, he was U.S.
Operations Coordinator for Drilex Systems, Inc.
Martin Lyons was named Vice President--North American Operations in
June 1997. Before such time, Mr. Lyons had been Senior Vice President
Directional Drilling & Marketing since May 1996. From December 1993 through
May 1996, he served as Vice President Directional Drilling, responsible for
management of all the Company's domestic directional drilling sales and
operations. His duties during this time period also included operations and
capital budgeting for all domestic directional drilling operations. During the
time period of August 1990 to December 1993 he functioned as Western Division
Manager and was responsible for the Gulf Coast directional drilling and sales
operations west of the Sabine River. From August of 1989 to August of 1990 Mr.
Lyons was a Senior Technical Sales Representative in the Houston, Texas market.
Prior to joining Dailey, Mr. Lyons was employed by Helmer Directional Drilling,
Inc. where he held the positions of Office Manager and Directional Drilling
Supervisor.
Mike Torres was named Vice President of Operations--Latin America in
June 1997. He previously served as Eastern Regional Manager and then Vice
President of Eastern Region. Mr. Torres began his career with the Company in
Directional Sales in 1980. Prior to joining Dailey, Mr. Torres was employed by
NL Industries and Eastman Whipstock, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent stockholders are
required by the regulations promulgated under Section 16(a) to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
August 14, 1997 through April 30, 1997, all filing requirements applicable to
officers, directors, and greater than ten-percent stockholders were complied
with.
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<PAGE> 5
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
the fiscal years ended April 30, 1997 and 1996 earned by or paid to the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company during the year ended April 30, 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, 1997
-------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------------------------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
OTHER ANNUAL AWARD(S) OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION ($) SARS (#) (1)
- ------------------------------- ------ --------- ---------- --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. D. Lawrence................. 1997 $221,022 $ -- $29,202(3) -- -- $ 924
Chairman of the Board 1996 296,532(2) 73,280 * -- -- 2,326
James F. Farr.................. 1997 258,958 93,240 49,131(4) $960,000 97,912 924
President and Chief 1996 248,651 55,500 * -- -- 571
Executive Officer
William D. Sutton.............. 1997 223,936 75,819 36,973(5) $960,000 97,912 924
Senior Vice President, 1996 230,896 55,260 * -- -- 824
General Counsel and
Secretary
David T. Tighe................. 1997 186,852 59,940 35,675(6) $960,000 97,912 924
Senior Vice President 1996 148,671 54,960 21,723(7) -- -- 901
Finance, Chief Financial
Officer and Treasurer
James J. Percle................ 1997 227,611 79,452 9,692(9) $405,000 34,200 462
Former Executive Vice 1996 -- -- -- -- -- --
President and Chief
Operating Officer (8)
</TABLE>
* Amounts exclude the value of perquisites and personal benefits because
the aggregate amount thereof did not exceed the lesser of $50,000 or
10% of the total annual salary and bonus reported for each Executive
Officer.
(1) Represents payments for premiums for group term life insurance on
behalf of such individual.
(2) Effective upon the closing of the Company's initial public offering of
its Class A Common Stock in August 1996 (the "IPO"), Mr. Lawrence's
salary was reduced to $100,000, subject to subsequent adjustment
upward in the discretion of the Compensation Committee of the Board of
Directors. See "--Employment Agreements" below.
(3) Relates to payments for a car allowance and a charge for usage of
Company assets.
(4) Includes $26,923 related to accrued vacation cashed rather than taken
during the year and $22,209 related to a Company auto allowance.
(5) Includes $17,514 related to accrued vacation cashed rather than taken
during the year and $19,459 related to a Company auto allowance.
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<PAGE> 6
(6) Includes $17,308 related to accrued vacation cashed rather than taken
during the year and $19,459 related to a Company auto allowance.
(7) Includes $16,618 related to accrued vacation cashed rather than taken
during the year and $5,105 related to a Company automobile.
(8) Mr. Percle was not employed by the Company during the year ended April
30, 1996. Mr. Percle ceased to be employed by the Company effective
June 23, 1997.
(9) Relates to payments for a Company automobile.
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<PAGE> 7
The following table summarizes certain information relating to options
granted to the Company's Named Executive Officers during the year ended April
30, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------------------------------- -------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---------------------- --------------- ----------------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. D. Lawrence .......... -- -- -- -- -- --
James F. Farr ........... 72,912 14.8% 8.00 8/13/06 366,831 929,623
25,000 5.1% 8.75 3/06/07 137,571 348,631
William D. Sutton ....... 72,912 14.8% 8.00 8/13/06 366,831 929,623
25,000 5.1% 8.75 3/06/07 137,571 348,631
David T. Tighe .......... 72,912 14.8% 8.00 8/13/06 366,831 929,623
25,000 5.1% 8.75 3/06/07 137,571 348,631
James J. Percle (1) ..... 19,199 3.9% 8.00 8/13/06 96,953 244,786
15,001 3.0% 9.00 8/13/06 84,906 209,193
</TABLE>
- --------------------------------
(1) Mr. Percle ceased to be employed by the Company effective June 23,
1997.
The following table sets forth for each Named Executive Officer
information concerning stock option exercises in fiscal 1997 and the value of
unexercised options at April 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997 AND VALUE TABLE AT
APRIL 30, 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON REALIZED APRIL 30, 1997 FY-END (1)
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------ ----------- ------------ ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
J. D. Lawrence .......... -- -- -- --
James F. Farr ........... -- -- 97,912/0 0
William D. Sutton ....... -- -- 97,912/0 0
David T. Tighe .......... -- -- 97/912/0 0
James J. Percle (2) ..... -- -- 34,200/0 0
</TABLE>
- ----------------
(1) The exercise price for options owned by the Named Executive Officers
exceeded the fair market value of the Class A Common Stock at April
30, 1997.
(2) Mr. Percle ceased to be employed by the Company effective June 23,
1997.
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<PAGE> 8
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive any additional
compensation for their services as a director of the Company. The Company pays
an annual retainer of $15,000 to each non-employee director. In addition, each
non-employee director receives $1,000 for each Board of Directors meeting
attended and $750 for each committee meeting attended. The Company also pays
reasonable out-of-pocket expenses incurred by non-employee directors to attend
Board of Directors and committee meetings. Non-employee directors also are
entitled to receive options pursuant to the 1996 Non-Employee Director Stock
Plan (the "1996 Director Plan"). Under the 1996 Director Plan, an aggregate of
100,000 shares of Class A Common Stock have been reserved for grant of options
to purchase Class A Common Stock. To date, options to acquire 10,000 shares of
Class A Common Stock at an exercise price equal to the fair market value of the
Class A Common Stock on the date of grant have been granted to each of Messrs.
Duroc-Danner and Kite pursuant to the 1996 Director Plan. In addition, under
such plan, options to acquire 10,000 shares automatically will be granted after
each annual meeting of stockholders to each non-employee director who served as
a director during the preceding six months and who will continue to serve as a
director.
Effective April 23, 1997, the Board of Directors granted to each of
the Company's non-employee directors, Messrs. Duroc-Danner and Kite additional
options to purchase 10,000 shares of Class A Common Stock at an exercise price
equal to the fair market value on the date of grant.
1996 KEY EMPLOYEE STOCK PLAN
The Company has established the 1996 Plan pursuant to which incentive
and non-qualified options to purchase shares of Class A Common Stock and awards
of restricted shares of Class A Common Stock will be available for future
grants. The 1996 Plan is designed to provide certain key employees, including
officers and employee-directors of the Company, with additional incentives to
promote the success of the Company's business and to enhance the Company's
ability to attract and retain the services of qualified persons. Under the
Plan, options to purchase Class A Common Stock and restricted stock awards up
to an aggregate of 900,000 shares of Class A Common Stock may be granted by the
Committee. In the event options or restricted stock granted under the 1996
Plan or unvested restricted stock grants expire or terminate or are
surrendered, the unexercised portion thereof may again be available for award
under the 1996 Plan. As of July 30, 1997, only 1,871 additional shares were
available for grant under the 1996 Plan.
401(k) PLAN
The Company's employees are eligible to participate in a defined
contribution retirement plan that complies with Section 401(k) of the Code.
Pursuant to such plan, the Company provides matching contributions up to 50% of
the employee's contribution up to 6% of the employee's compensation.
EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS
Each of the Senior Executive Officers has entered into an employment
agreement (collectively, the "Executive Employment Agreements") with the
Company. Each of the Executive Employment Agreements has an initial term
through December 31, 1999, except the Executive Employment Agreement with Mr.
Sutton which has an initial term through April 30, 1999. The Executive
Employment Agreements provide for a minimum annual salary during the term of
the Executive Employment Agreements of approximately $100,000, $280,000,
$228,000 and $180,000 for Messrs. Lawrence, Farr, Sutton and Tighe,
respectively. The Executive Employment Agreements also provide for certain
automobile allowances, employee benefits, vacation and reimbursement of
expenses.
The Executive Employment Agreements may be terminated by the Company
with or without
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<PAGE> 9
cause (as hereinafter defined) or by the Executive Officer at any time for any
reason.
If the Company terminates the Executive Employment Agreement for any
reason other than for "cause" and such termination is not within one year of a
change in control (as defined in the Executive Employment Agreements), the
Company is required to pay to the Executive Officer an amount equal to (i) the
greater of (x) his total base salary for the remainder of the employment period
(as defined in the Executive Employment Agreement) or (y) one month of base
salary for each full year of service completed with the Company as of the date
of termination (or in the case of Mr. Lawrence, three months of his base
salary, if greater) and with the exception of Mr. Lawrence, (ii) to pay an
amount equal to the Senior Executive Officer's most recent annual bonus and
(iii) to cause the Senior Executive Officer to become fully vested in any stock
options and stock grants held by him. If the Company terminates the Executive
Employment Agreement for any reason other than for "cause" and such termination
occurs within one year of a change in control, or if the Executive Officer
terminates the Agreement for good cause (as defined in the Executive Employment
Agreement) and such termination occurs within one year of a change in control,
the Company is required to pay to the Executive Officer an amount equal to the
greater of (i) his total base salary for the remainder of the employment
period; (ii) two times the greater of (a) his annualized base salary in effect
upon the occurrence of the change in control or (b) his annualized base salary
in effect on the date notice of termination is received; or (iii) one month of
base salary for each full year of service completed with the Company as of the
date of termination and with the exception of Mr. Lawrence, (A) to pay to the
Senior Executive Officer an amount equal to two times his most recent annual
bonus and (B) to cause the Senior Executive Officer to become fully vested in
any stock options and stock grants held by him.
Each of Messrs. Farr, Sutton and Tighe has agreed that for the term of
his Executive Employment Agreement and (i) perpetually after termination for
whatever reason, he will not, directly or indirectly, disclose confidential
information; (ii) for a period of two years (one year for Mr. Tighe) following
termination for whatever reason, he will not participate in any business in any
geographic region in which the Company conducts business that is in competition
with the Company or employ any of the Company's employees, induce any of the
Company's employees to leave their employment or in any way interfere with the
employee relations of the Company; and (iii) will disclose and assign to the
Company all inventions developed by him.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation levels for the Company's executive officers prior to the
IPO in August 1996 were established by the Company's Board of Directors. The
Board of Directors at the time of the IPO also established the salary levels
set forth in the Company's employment agreements with its executive officers,
including the Company's Chief Executive Officer, as well as the restricted
stock and stock options awards granted at the time of the IPO. Members of the
Board of Directors at such time consisted entirely of executive officers of the
Company, including the Company's Chairman of the Board, Chief Executive
Officer, General Counsel and Chief Financial Officer (collectively, the "Senior
Executive Officers").
Following the IPO, compensation relating to the Senior Executive
Officers has been set by the Compensation Committee, except with respect to
compensation levels previously set forth in employment agreements executed in
connection with the IPO, while compensation with respect to other officers of
the Company has been set by the Company's Executive Committee, whose members
consist of Messrs. Farr, Sutton and Tighe. The Compensation Committee also
has administered the 1996 Plan following the initial public offering.
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<PAGE> 10
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Class A Common Stock and Class B Common Stock on
August 20, 1997, by (i) each director and director nominee of the Company, (ii)
each Named Executive Officer, (iii) each person known or believed by the
Company to own beneficially 5% or more of either the Class A Common Stock or
Class B Common Stock and (iv) all directors and executive officers as a group.
Unless otherwise indicated, each person has sole voting and dispositive power
with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------------------------------------------
CLASS A CLASS B PERCENT
COMMON PERCENT COMMON PERCENT VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK CLASS A STOCK CLASS B POWER(2)
- --------------------------------------- ------------ --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Lawrence (3).......................... * * 5,000,000 100% 89%
J. D. Lawrence (3).................... * * 5,000,000 100% 89%
James F. Farr......................... 147,912(4) 3.4% -- -- *
William D. Sutton..................... 169,912(4) 3.9% -- -- *
David T. Tighe........................ 169,912(4) 3.9% -- -- *
Bernard J. Duroc-Danner............... 10,000(5) * -- -- *
Al Kite............................... 10,000(5) * -- -- *
James J. Percle....................... 79,200(6) 1.8% -- -- *
------- ---- --------- --- --
All executive officers and directors
as a group (13 Persons)............... 663,732 14.4% 5,000,000 100% 90%
</TABLE>
- ------------------
* Less than 1%
(1) The Securities and Exchange Commission has defined beneficial
ownership to include sole or shared voting or investment power with
respect to a security or the right to acquire beneficial ownership of
a security within 60 days. The number of shares indicated are owned
with sole voting and investment power unless otherwise noted.
(2) Percent based upon both Class A Common Stock and Class B Common Stock,
combined.
(3) Represents shares owned by Dailey Holdings Inc. ("Dailey Holdings"), a
wholly-owned subsidiary of Lawrence. The executive offices of Dailey
Holdings and Lawrence are located at 2507 North Frazier, Conroe, Texas
77305. Mr. Lawrence and trusts for his children own all of the voting
stock of Lawrence. Because of these relationships, Mr. Lawrence may
be deemed to be the beneficial owner of all shares of Class B Common
Stock owned by Lawrence.
(4) Includes presently exercisable options to purchase 97,912 shares of
Class A Common Stock.
(5) Represents options exercisable within 60 days to purchase 10,000
shares of Class A Common Stock. Excludes options to purchase 10,000
shares of Class A Common Stock which are not exercisable within 60
days.
(6) Includes presently exercisable options to purchase 34,200 shares of
Class A Common Stock. Mr. Percle ceased to be employed by the Company
on June 23, 1997.
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<PAGE> 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL STOCKHOLDER
Prior to the IPO, the Company funded certain of its working capital
requirements through advances from Lawrence, which had been evidenced by a note
to Lawrence. The Company repaid the full amount of principal and accrued
interest on such note with $1.6 million of the net proceeds from the IPO. In
addition, on June 27, 1996, Dailey declared and paid a dividend in the form of
a $10.0 million promissory note to Dailey's then sole stockholder, a subsidiary
of Lawrence. On August 13, 1996, such stockholder contributed $5.0 million of
the outstanding principal amount of such note to the capital of the Company.
The remaining $5.0 million principal plus accrued interest was repaid utilizing
a portion of the net proceeds from the IPO.
Lease Agreements. The Company maintains executive offices in a
building located in Conroe, Texas and occupies four adjacent manufacturing and
maintenance research and development, and storage facilities, all of which are
owned by Lawrence. During fiscal 1997, the Company incurred rent expense of
$915,000, respectively, relating to such properties. Prior to completion of
the IPO, Dailey entered into a new lease agreement with Lawrence relating to
the executive office building and a separate lease agreement relating to the
adjacent facilities. The rental rates under these new lease agreements were
determined by the Company and Lawrence based upon a survey of rental rates
prepared by an independent firm. Based upon this survey, the Company believes
that the rental rates and other terms under these lease agreements are
comparable to those that would be obtained in an arm's-length transaction with
an independent third party.
The Office Lease Agreement is for a five-year term effective as of May
1996, and covers all of the 64,368 square feet of office space in the Conroe
building, as well as the use of access roads and an adjacent outdoor parking
lot. Rent is payable monthly at the rate of $48,276 per month for the first
two years of the lease, $51,226 per month for the third year, $52,781 per month
for the fourth year and $54,390 per month for the fifth year.
The Service Center Lease Agreement is for a five-year term effective
as of May 1996. This lease covers the combined square feet of the district
facility building, 31,316 square feet; the manufacturing building, 31,373
square feet; the open storage building, 17,000 square feet and the separator
building, 1,530 square feet. The use of access roads and immediately
surrounding grounds is also included. Rent is $28,000 per month for all four
buildings in the aggregate.
Relationship Agreement. Under the terms of a relationship agreement
between the Company and Lawrence (the "Relationship Agreement"), the Company
has agreed to provide to Lawrence and its affiliates, upon their request and on
an as-available basis, various administrative and management services including
cash management, accounting, tax, data processing, human resources and legal
services. Lawrence pays for such services at rates calculated to recover the
Company's reasonable costs of providing such services. The Relationship
Agreement also provides that Lawrence will render to the Company technical
consulting services when requested by the Company. In return, the Company will
pay Lawrence approximately $250,000 per year for the term of the Relationship
Agreement. The Relationship Agreement commenced upon the closing of the IPO in
August 1996 and terminates on April 30, 1999. In addition, under the
Relationship Agreement, Lawrence and the Company have agreed to reimburse each
other for the costs of certain insurance policies purchased by one party on
behalf of the other. As of April 30, 1997, Lawrence owed the Company
approximately $68,000, for products and services rendered pursuant to the
Relationship Agreement.
Tax Allocation Agreement. For taxable periods ending on or before the
closing of the IPO, the Company was included in the consolidated federal income
tax returns filed by Lawrence as the common
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parent for itself, its subsidiaries and affiliated companies. The Company is
jointly and severally liable for federal income tax imposed on the Lawrence
consolidated group while the Company was a member. The Tax Allocation
Agreement imposes an indemnity on Lawrence in favor of the Company for any
federal income tax relating to members of the Lawrence consolidated group other
than the Company and its subsidiaries.
Registration Rights Agreement. Pursuant to the terms of a
registration rights agreement with Lawrence (the "Registration Rights
Agreement"), upon the request of Lawrence (or certain assignees) for a period
of ten years (beginning in 1996), the Company has agreed to register, on up to
two occasions, the sale of a minimum of 500,000 shares of Common Stock
beneficially owned by Lawrence that Lawrence (or such assignees) requests to be
registered under applicable federal and state securities laws. The Company
will become obligated to register the sale of the Common Stock on one
additional occasion if Mr. Lawrence dies during the term of the Registration
Rights Agreement and Lawrence previously has exhausted its two demand
registrations. The Company also is obligated to offer Lawrence and certain
assignees the right to include shares of the Common Stock owned by them in
certain registration statements filed by the Company. The Company is obligated
to pay all expenses incidental to such registrations, excluding fees of counsel
to Lawrence, underwriters' discounts and commissions, and transfer fees.
OTHER
In January 1997, the Company loaned Mr. Farr $250,000 pursuant to a
five-year promissory note. Interest accrues at the prime rate and is payable
monthly by Mr. Farr. The note is secured by a pledge of 36,000 shares of Class
A Common Stock held by Mr. Farr.
Air Drilling International, Inc. ("ADI"), which was acquired by the
Company in June 1997, leases its Casper, Wyoming property from Melodi Lane
Investments, L.L.C. ("Melodi Lane"), a limited liability company in which Mr.
Malhotra is a member. The lease is for a term of ten years and provides for
monthly rental payments of $4,250, subject to adjustment after July 2001. The
lease also provides ADI with a right to purchase the property at its fair
market value on or before May 31, 2001. ADI also leases certain equipment from
Melodi Lane for $7,400 per month. Such equipment lease expires in June 2001
and provides for an option to purchase based on an amortization schedule
providing for a purchase price of $0 at the end of the term.
Certain subsidiaries of ADI guarantee a loan of Mr. Malhotra to
Southern Pacific Thrift and Loan Assn., which had a principal balance of
$87,987 at April 30, 1997. Such loan relates to a condominium held by Mr.
Malhotra and his wife as nominee for such subsidiaries.
ADI also leases real property in Nisku, Alberta from Malhotra
Enterprises Ltd. ("Malhotra Enterprises"), a Canadian corporation in which both
Mr. Malhotra and Mr. Ramsay are shareholders. Lease payments for this real
property aggregate $8,470 per month. The lease expires in August 2001. ADI
also leases certain equipment from Malhotra Enterprises pursuant to a lease
expiring in October 1997. This equipment lease requires monthly payments of
$21,822 and contains an option to purchase the equipment for $20,000 plus the
monthly rental for all unexpired months.
In August 1997, John W. Sinders, Jr., an Executive Vice President of
Jefferies & Company, Inc. ("Jefferies"), accepted his appointment as a
non-voting advisory director of the Board of Directors of the Company.
Although Mr. Sinders does not currently receive compensation for his position
as a non-voting director, the Company may offer him compensation in the future.
Jefferies has provided investment banking services to the Company in the past,
including serving as lead underwriter in the Company's initial public offering
of common stock in 1996 and sole underwriter in the Company's August 1997
issuance of 9 3/4% Senior Notes due 2007 (collectively, the "Offerings"), and
has received usual and customary fees for the Offerings. Pursuant to a letter
agreement between the Company and Jefferies,
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Jefferies has acted and will continue to act as a financial advisor to the
Company in connection with the acquisition of, merger or other combination with
certain potential acquisition targets. If the Company completes a transaction
with any such target, the Company will pay Jefferies certain usual and
customary fees for such services. The Company has not paid Jefferies and is
not obligated to pay Jefferies any compensation for services rendered under
this agreement to date. Jefferies may provide additional investment banking
and financial advisory services to the Company in the future.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAILEY PETROLEUM SERVICES CORP.
Dated: August 29, 1997 By: /s/ David T. Tighe
-----------------------------
David T. Tighe
Chief Financial Officer
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