<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1998
REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DAILEY INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1389 76-0503351
(State or other jurisdiction of Primary Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number Identification No.)
</TABLE>
2507 NORTH FRAZIER
CONROE, TEXAS 77305
(281) 350-3399
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
WILLIAM D. SUTTON
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
DAILEY PETROLEUM SERVICES CORP.
2507 NORTH FRAZIER
CONROE, TEXAS 77305
(281) 350-3399
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
ROBERT F. GRAY, JR.
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77010-3095
(713) 651-5151
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
============================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,011.25 per
$1,000 principal
9 1/2% Senior Notes due 2008, Series B...... $275,000,000 amount $278,093,750 $82,038
- ----------------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees of 9 1/2% Senior Notes
due 2008, Series B........................ -- -- (2)
- ----------------------------------------------------------------------------------------------------------------------------
$1,011.25 per
$1,000 principal
Total....................................... $275,000,000 amount $278,093,750 $82,038
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</TABLE>
(1) Pursuant to Rule 457(f) under the Securities Act of 1933, the registration
fee has been calculated based on the average of the bid and asked prices in
the PORTAL market on February 27, 1998, of the 9 1/2% Senior Notes due 2008,
Series A of the Company, for which the securities registered hereby will be
exchanged.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
ZIP CODE, AND
TELEPHONE
NUMBER,
INCLUDING AREA
STATE OR PRIMARY STANDARD CODE, OF
OTHER INDUSTRIAL REGISTRANT'S
JURISDICTION OF CLASSIFICATION IRS EMPLOYER PRINCIPAL EXECUTIVE
NAME INCORPORATION CODE NO. ID NO. OFFICES
---- --------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Dailey Energy Services, Inc. ......... Delaware 8999 76-0066576 *
Dailey International Sales
Corporation......................... Delaware 8999 74-1869524 *
Columbia Petroleum Services Corp...... Delaware 8999 76-0074604 *
International Petroleum Services,
Inc................................. Delaware 8999 76-0084387 *
Dailey Environmental Remediation
Technologies, Inc................... Texas 8999 76-0276940 *
Dailey Worldwide Services, Corp....... Texas 8999 76-0477660 *
Air Drilling International, Inc....... Delaware 1380 84-1305964 *
Air Drilling Services, Inc............ Wyoming 1380 83-0181069 *
</TABLE>
- ---------------
* 2507 North Frazier, Conroe, Texas 77305, telephone (281) 350-3399.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 4, 1998
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
9 1/2% SENIOR NOTES DUE 2008, SERIES A
($275,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
9 1/2% SENIOR NOTES DUE 2008, SERIES B
($275,000,000 PRINCIPAL AMOUNT)
OF
[DAILEY LOGO]
UNCONDITIONALLY GUARANTEED BY:
<TABLE>
<S> <C> <C>
DAILEY ENERGY SERVICES, INC. INTERNATIONAL PETROLEUM DAILEY WORLDWIDE SERVICES,
DAILEY INTERNATIONAL SALES SERVICES, INC. CORP.
CORPORATION DAILEY ENVIRONMENTAL AIR DRILLING INTERNATIONAL,
COLUMBIA PETROLEUM SERVICES REMEDIATION INC.
CORP. TECHNOLOGIES, INC. AIR DRILLING SERVICES, INC.
</TABLE>
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
---------------------
Dailey International Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange up to an aggregate principal amount of
$275,000,000 of its Senior Notes due 2008, Series B (the "Exchange Notes"), for
an equal principal amount of its outstanding 9 1/2% Senior Notes due 2008,
Series A (the "Outstanding Notes"), in integral multiples of $1,000. The
Exchange Notes and the Outstanding Notes are sometimes referred to herein
collectively as the "Notes". The Exchange Notes will be senior unsecured
obligations of the Company and are substantially identical (including principal
amount, interest rate, maturity and redemption rights) to the Outstanding Notes
for which they may be exchanged pursuant to this offer, except for certain
transfer restrictions and registration rights relating to the Outstanding Notes
and except for certain interest provisions relating to such rights. The
Outstanding Notes have been, and the Exchange Notes will be, issued under an
Indenture dated as of February 13, 1998 (the "Indenture"), among the Company,
the Subsidiary Guarantors and U.S. Trust Company of Texas, N.A., as trustee (the
"Trustee"). See "Description of Exchange Notes". There will be no proceeds to
the Company from this offering; however, pursuant to a Registration Rights
Agreement dated as of February 13, 1998 (the "Registration Rights Agreement")
among the Company, the Subsidiary Guarantors (as defined) and the Initial
Purchaser (as defined) of the Outstanding Notes, the Company will bear certain
offering expenses.
(Cover text continued on next page)
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SEE "RISK FACTORS" ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY HOLDERS WHO TENDER OUTSTANDING NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 4
The Company will accept for exchange any and all validly tendered
Outstanding Notes on or prior to 5:00 p.m., New York City time, on ,
1998, unless extended (the "Expiration Date"). Tenders of Outstanding Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. U.S. Trust Company of
Texas, N.A. is acting as Exchange Agent in connection with the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions.
The Exchange Notes will bear interest from the date of issuance (or the
most recent Interest Payment Date (as defined) to which interest on such
Exchange Notes has been paid), at a rate equal to 9 1/2% per annum and on the
same terms as the Outstanding Notes. Interest on the Exchange Notes will be
payable semiannually on February 15 and August 15 of each year commencing August
15, 1998. Accrued interest on the Outstanding Notes that are tendered in
exchange for the Exchange Notes will be payable on or before August 15, 1998.
Outstanding Notes that are accepted for exchange will cease to accrue interest
on and after the date on which interest on the Exchange Notes will begin to
accrue.
The Company's obligation to pay the principal of, premium, if any, and
interest on the Exchange Notes will be unconditionally guaranteed, on a joint
and several basis, by the following subsidiaries of the Company: Dailey Energy
Services, Inc., Dailey International Sales Corporation, Columbia Petroleum
Services Corp., International Petroleum Services, Inc., Dailey Environmental
Remediation Technologies, Inc., Dailey Worldwide Services, Corp., Air Drilling
International, Inc. and Air Drilling Services, Inc. (collectively, the
"Subsidiary Guarantors").
The Outstanding Notes were sold by the Company on February 13, 1998 to the
Initial Purchaser (as defined herein) in transactions not registered under the
Securities Act in reliance upon the exemption provided in Section 4(2) of the
Securities Act. The Initial Purchaser subsequently placed the Outstanding Notes
with qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. Accordingly, the Outstanding Notes may not be reoffered, resold
or otherwise transferred in the United States unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company under the Registration Rights Agreement. See "The
Exchange Offer".
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder who is not an affiliate of the Company without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating in and has no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. Persons wishing to exchange Outstanding
Notes in the Exchange Offer must represent to the Company that such conditions
have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
Exchange Notes. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations). This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Outstanding Notes where such Outstanding Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, if requested by a
Participating Broker-Dealer, it will use its best efforts to make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale for a period of up to or such earlier date
as such Participating Broker-Dealer shall have notified the Company in writing
that such Participating Broker-Dealer has resold all Exchange Notes acquired in
the Exchange Offer. See "Plan of Distribution".
ii
<PAGE> 5
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchaser has advised the Company that they intend to make a market in the
Exchange Notes; however, they are not obligated to do so and any market-making
may be discontinued at any time without notice. Accordingly, no assurance can be
given that an active public or other market will develop for the Exchange Notes
or as to the liquidity of or the trading market for the Exchange Notes.
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Outstanding Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered
Outstanding Notes could be adversely affected. Following consummation of the
Exchange Offer, the holders of Outstanding Notes will continue to be subject to
the existing restrictions upon transfer thereof.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of a Global Exchange Notes (as defined
herein), which will be deposited with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Global Exchange Notes representing
the Exchange Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global
Exchange Notes, Exchange Notes in certificated form will be issued in exchange
for the Global Exchange Notes on the terms set forth in the Indenture. See
"Description of Exchange Notes -- Book Entry; Delivery and Form".
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UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Suite 1400, Northwestern Atrium Center, 500 West Madison Avenue, Chicago,
Illinois 60661-2511, and at Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Class A Common Stock
is traded on the Nasdaq National Market and such reports, proxy and
informational statements and other information may be inspected and copied at
the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. In
addition, the Commission maintains a site on the World Wide Web that contains
reports, proxy and information statements and other information filed
electronically by the Company with the Commission which can be accessed over the
Internet at http://www.sec.gov. While any Notes remain outstanding, the Company
will make available, upon request, to any holder and any prospective purchaser
of Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Secretary of the Company, 2507 North Frazier, P.O. Box 1863, Conroe, Texas
77305.
iii
<PAGE> 6
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995), including certain statements in this Prospectus. Words such
as "anticipate", "expect", "estimate", "project" and similar expressions are
intended to identify such forward-looking statements. Forward-looking statements
may be made by management orally or in written material such as press releases,
portions of "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business and Properties" contained in this
Prospectus, and portions of the Company's filings with the Commission under the
Securities Act and the Exchange Act.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions, including without
limitation those identified below and under "Risk Factors". Should one or more
of these risks or uncertainties materialize, or should any of the underlying
assumptions prove incorrect, actual results of current and future operations may
vary materially from those anticipated, estimated or projected. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.
Among the factors that will have a direct bearing on the Company's results
of operations and the oilfield services industry in which it operates are
changes in the price of oil and natural gas; the impact of competitive products
and pricing; the presence of competitors with greater financial resources;
product demand and acceptance risks, including product obsolescence risks with
respect to its downhole tools and directional drilling technology; risks
associated with the acquisition of the operating assets and liabilities of
Directional Wireline Services, Inc., DAMCO Services, Inc. and DAMCO Tong
Services, Inc., including failure to successfully manage the Company's growth
and integrate the operations acquired in such acquisition; typical operating
risks inherent in the oilfield service industry, including risks of
environmental liability; delays in receiving raw materials utilized in the
manufacture and assembly of the Company's downhole tools and other difficulties
in the manufacture, assembly or delivery of the Company's downhole tools;
worldwide political stability and economic growth and other risks associated
with international operations, including foreign exchange risk; and the
Company's successful execution of internal operating plans as well as regulatory
uncertainties and legal proceedings. In addition, the Company's substantial
leverage following the issuance of the Outstanding Notes will have a direct
bearing on its results of operations and financial condition. See "Risk
Factors".
iv
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information set forth herein reflects the Company's (i)
acquisition of Air Drilling International, Inc. ("ADI") in June 1997 (the "ADI
Acquisition") and (ii) acquisition of the operating assets and liabilities of
Directional Wireline Services, Inc. ("DWS") and DAMCO Services, Inc. and DAMCO
Tong Services, Inc. (collectively "DAMCO" and with DWS, "DWS/DAMCO") in January
1998 (the "DWS/DAMCO Acquisition"). As used herein, unless the context otherwise
requires, the term "Dailey" refers to Dailey International Inc. and its
consolidated subsidiaries prior to consummation of the DWS/DAMCO Acquisition,
and the term the "Company" refers to the post-closing combined operations of
Dailey and DWS/DAMCO and their respective consolidated subsidiaries. Unless the
context otherwise requires, the pro forma information contained herein gives
effect to (i) the ADI Acquisition, (ii) the DWS/DAMCO Acquisition and (iii) the
issuance of the Outstanding Notes and the application of the net proceeds
therefrom as if they were completed as of the beginning of the periods
presented. Investors should carefully consider the information set forth under
"Risk Factors".
THE COMPANY
The Company is an integrated provider of specialty services and
technologically-advanced downhole tools to the oil and gas industry on a
worldwide basis. The Company's services include (i) directional drilling
services, (ii) underbalanced drilling services, (iii) electric wireline and
tubing conveyed perforating services, (iv) tubular testing and handling services
and (v) downhole tool rental. The Company has recently expanded its operations
significantly through strategic acquisitions and internal growth. In January
1998, the Company acquired the operating assets and liabilities of DWS/DAMCO,
specialized providers of electric wireline and tubular services in the U.S. Gulf
of Mexico region and, to a lesser extent, in Nigeria. The Company believes the
DWS/DAMCO Acquisition provides it with significant operational benefits,
including geographic expansion and cross-marketing opportunities.
OPERATIONS
Directional Drilling Services. Directional drilling services involve
assisting oil and gas operators in the controlled drilling of a wellbore to a
prescribed bottomhole location. Directional drilling can be used to develop a
field with multiple wells drilled from the same offshore platform or, in
environmentally sensitive areas, from fewer surface facilities than conventional
drilling would require. In addition, drilling horizontally through a formation
characterized by multiple vertical fractures can result in substantial
reductions in drilling costs and improved well productivity because fewer wells
are required compared to a vertical development program. Based on published
industry sources, the number of oil and gas wells drilled in the United States
using directional and horizontal technology increased 120% from 2,110 in 1990 to
4,649 in 1997, and, as a percentage of total oil and gas wells drilled in the
United States, wells drilled using directional and horizontal technology
increased from 7% in 1990 to 17% in 1997. This growth has been driven primarily
by the substantial cost savings, improvements to drilling efficiency and
enhancements to reservoir production that such techniques can provide to
operators as well as increased offshore drilling activity.
The Company provides skilled personnel to manage the drilling of
directional wells. The directional drilling services offered by the Company
consist of well planning, on-site supervisory services to maximize drilling
efficiency, measurement-while-drilling ("MWD") services and related equipment
rentals, downhole motor rentals and post-well analysis. The Company also derives
revenue from its directional drilling services by renting MWD units, thrusters,
downhole motors and nonmagnetic stabilizers. Directional drilling services
accounted for approximately $19.3 million, or 26%, of the Company's pro forma
revenue for the six months ended October 31, 1997.
Underbalanced Drilling Services. Underbalanced drilling involves
maintaining the pressure in a well at less than that of the surrounding
formation using air, nitrogen, mist, foam or lightweight drilling fluids as the
circulation medium instead of mud. As a result of the ADI Acquisition, the
Company is a worldwide leader in
1
<PAGE> 8
providing air drilling services, which are used in underbalanced drilling
applications, and, since the acquisition, the Company has leveraged off these
services to develop internally the ability to provide other services utilized in
underbalanced drilling applications. The Company provides underbalanced drilling
equipment packages consisting of compressors, boosters, mist pumps and related
equipment along with specially-trained personnel to operate the equipment.
Underbalanced drilling techniques can lead to substantial increases in rates of
penetration and drill bit life resulting in substantially less time and cost for
a drilling program and can reduce substantially the risks of formation damage.
Underbalanced drilling services accounted for approximately $15.9 million, or
21%, of the Company's pro forma revenue for the six months ended October 31,
1997.
Electric Wireline and Tubing Conveyed Perforating Services. As a result of
the DWS/DAMCO Acquisition, the Company is a leading provider of electric
wireline and tubing conveyed perforating ("TCP") services in the U.S. Gulf of
Mexico region and Nigeria. The Company's electric wireline services are utilized
in both the exploration and production phases of an oil and gas well and include
pipe recovery, cased hole logging, electric wireline perforating services and
other cased hole services such as installation of bridge plugs, packers,
retainers, pressure control equipment and thru-tubing bridge plugs.
TCP services involve the use of tubing string to lower and retrieve
perforating charges from the wellbore. The Company believes operating synergies
exist between its electric wireline and TCP services and its downhole tool
rental business as such products and services can be effectively marketed in a
single package. The Company intends to expand its electric wireline and TCP
services by marketing these services through its established distribution
networks for its other products and services. Electric wireline and TCP services
accounted for approximately $10.1 million, or 14%, of the Company's pro forma
revenue for the six months ended October 31, 1997.
Tubular Testing and Handling Services. As a result of the DWS/DAMCO
Acquisition, the Company is a leading provider of tubular testing and handling
services to the offshore and onshore oil and gas industry in the U.S. Gulf of
Mexico region. The Company's tubular testing services consist of hydrostatic and
gas pressure testing services that detect leaks and flaws in tubulars as they
are run into the wellbore. The Company believes operators prefer to incur
testing charges to avoid incurring costly downtime and the expense of pulling a
defective tubular string.
The Company's tubular handling services include assembling production pipe
and tubing, dual completion strings, premium threaded connections and ultra-high
torque tubulars. The Company believes that mistakes in torquing tubulars can be
costly in terms of downtime and damaged equipment and, therefore, operators rely
on experienced tubular companies for handling services. Tubular testing and
handling services accounted for approximately $5.5 million, or 7%, of the
Company's pro forma revenue for the six months ended October 31, 1997.
Downhole Tools. The Company currently offers an array of
technologically-advanced downhole tools, which it selectively markets in every
major oil and gas exploration and production region in the world. Dailey began
renting downhole tools in 1945 and introduced the first drilling jar to the oil
and gas industry in 1965. The Company is currently the leading supplier of
drilling jars to the rental tool market worldwide. A drilling jar is an impact
tool that is placed in the lower section of a drillstring as part of the
bottomhole assembly and, when activated, delivers a sharp, powerful impact to
free the bottomhole assembly should it become lodged in the hole.
In addition to drilling jars, the Company rents other proprietary downhole
tools including hydraulic fishing jars, coiled tubing jars, drilling shock
absorbers, drilling thrusters and drilling slingers. The Company also derives
revenues from the sale of mechanical drilling jars and from downhole tools that
are lost-in-hole by the operator. Downhole tool rentals and sales accounted for
approximately $22.2 million, or 30%, of the Company's pro forma revenue for the
six months ended October 31, 1997.
Dailey traditionally has marketed its array of proprietary downhole tools
directly to the end-user through its direct sales force and agents, rather than
relying on third-party distribution of its products. The Company believes this
strategy results in higher profit margins, and that this direct interaction with
the end user assists
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<PAGE> 9
the Company in identifying demand for new and improved products and better
enables it to design and develop such products in a timely manner.
BUSINESS STRATEGY
The Company's strategy is to expand and diversify the geographic
distribution and range of products and services it provides to the drilling,
completion and workover segments of the upstream oil and gas industry through
internal growth and acquisitions. The Company expects to continue to effect
internal growth primarily by cross marketing its product and service lines and
expanding its recently acquired operations to additional locations within the
Company's worldwide infrastructure.
In addition, as consolidation of the oil and gas services industry
continues in response to increased demand for companies offering a broad range
of services, the Company intends to continue expanding its products and services
through strategic acquisitions. The Company continuously evaluates potential
acquisition candidates in the drilling, workover and completion segments of the
oilfield services industry, including companies providing directional drilling,
underbalanced drilling, fishing and enhanced recovery services, as well as
companies supplying specialized downhole tools and other equipment to the oil
and gas industry. The Company is reviewing several acquisition opportunities
that, if consummated, would allow it to continue to expand the breadth and
geographic scope of the products and services it offers as well as create
additional cross-marketing opportunities for internal growth.
RECENT DEVELOPMENTS
Consistent with its strategy, since April 1997, Dailey has completed four
acquisitions, all of which expand Dailey's scope of operations and geographic
presence and add long-term earnings capacity.
- Four Corners Air Service. In February 1998, the Company acquired the
operating assets of Four Corners Air Service, Inc., an air drilling
service company based in Farmington, New Mexico, for approximately $3.4
million.
- DWS/DAMCO. In January 1998, Dailey acquired the operating assets and
liabilities of DWS/DAMCO for $61 million in cash, subject to adjustment
based upon levels of working capital.
- ADI. In June 1997, Dailey acquired ADI for $46.4 million, including the
repayment of approximately $16.8 million of indebtedness.
- Great Southern Drilling. In April 1997, Dailey acquired the assets of
Great Southern Drilling Services, Inc., a directional drilling company
operating in the U.S. mid-continent region, for approximately $1.6
million and a contingent cash payment of up to $740,000.
3
<PAGE> 10
THE EXCHANGE NOTE OFFERING
The Outstanding Notes...... The Outstanding Notes were issued by the Company on
February 13, 1998, to Jefferies & Company, Inc.,
(the "Initial Purchaser") pursuant to a Purchase
Agreement dated February 6, 1998 (the "Purchase
Agreement"). The Initial Purchaser subsequently
resold the Outstanding Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration
Requirements............... Pursuant to the Purchase Agreement, the Company and
the Initial Purchaser entered into a Registration
Rights Agreement dated February 13, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Outstanding Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange rights, which
terminate upon the consummation of the Exchange
Offer. If applicable law or applicable
interpretations of the staff of the Commission do
not permit the Company to effect the Exchange
Offer, or in certain other circumstances, the
Company has agreed to file a shelf registration
(the "Shelf Registration Statement") covering
resales of Transfer Restricted Securities (as
defined). See "The Exchange Offer -- Resale of
Exchange Notes".
THE EXCHANGE OFFER
Securities Offered......... $275,000,000 aggregate principal amount of 9 1/2%
Senior Notes due 2008, Series B.
The Exchange Offer......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Outstanding Notes. As of the date hereof,
$275,000,000 aggregate principal amount of
Outstanding Notes are outstanding. The Company will
issue the Exchange Notes to holders on or
about , 1998 (the "Exchange Date").
Based on an interpretation of the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which is
an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each Participating Broker-Dealer must acknowledge
that it will deliver a prospectus in connection
with any resale of Exchange Notes. A broker-dealer
that delivers such a prospectus to purchasers in
connection with such resales will be subject to
certain of the civil liability provisions under the
Securities Act and will be bound by the provisions
of the Registration Rights Agreement (including
certain indemnification rights and obligations).
This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, if requested by a Participating
Broker-
4
<PAGE> 11
Dealer, it will use its best efforts to make this
Prospectus available to any Participating
Broker-Dealer for use in connection with any such
resale for a period of up to or such
earlier date as such Participating Broker-Dealer
shall have notified the Company in writing that
such Participating Broker-Dealer has resold all
Exchange Notes acquired in the Exchange Offer. See
"Plan of Distribution".
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes can not rely on the position of the staff of
the Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) or similar
no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Company.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998.
Interest on the Notes...... The Exchange Notes will bear interest from the date
of issuance of the Exchange Notes. Interest on the
Outstanding Notes that are tendered in exchange for
the Exchange Notes that has accrued from February
13, 1998, the date of issuance of the Outstanding
Notes, through the Exchange Date will be payable on
or before August 15, 1998.
Procedures for Tendering
Outstanding Notes........ Each holder of Outstanding Notes wishing to accept
the Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Outstanding Notes and
any other required documentation to the Exchange
Agreement at the address set forth herein. By
executing the Letter of Transmittal, each holder
will represent to the Company that, among other
things, the holder or the person receiving such
Exchange Notes, whether or not such person is the
holder, is acquiring the Exchange Notes in the
ordinary course of business and that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Outstanding Notes,
tendering holders may transfer notes pursuant to
the procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering".
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Outstanding Notes are
registered in the name of a broker-dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Outstanding Notes, either make
appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
5
<PAGE> 12
Guaranteed Delivery
Procedures............... Holders of Outstanding Notes who wish to tender
their Outstanding Notes and whose Outstanding Notes
are not immediately available or who cannot deliver
their Outstanding Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Outstanding
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures".
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawal of Tenders".
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes........... Subject to certain conditions, the Company will
accept for exchange any and all Outstanding Notes
that are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered on the
Exchange Date. See "The Exchange Offer -- Terms of
the Exchange Offer".
Federal Income Tax
Consequences............. The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Consequences".
Private Exchange Notes..... The Registration Rights Agreement provides that if,
prior to consummation of the Exchange Offer, the
Initial Purchaser holds any Outstanding Notes
acquired by it and having, or which are reasonably
likely to be determined to have, the status of an
unsold allotment in the initial distribution, or
any other holder of Outstanding Notes is not
entitled to participate in the Exchange Offer for
certain reasons, the Company upon the request of
the Initial Purchaser or any such holder shall,
simultaneously with the delivery of the Exchange
Notes in the Exchange Offer, issue and deliver to
the Initial Purchaser and any such holder, in
exchange (the "Private Exchange") for such
Outstanding Notes held by such Initial Purchaser
and any such holder, a like principal amount of
debt securities of the Company that are identical
in all material respects to the Exchange Notes (the
"Private Exchange Notes") (and which were issued
pursuant to the same indenture as the Exchange
Notes). The Private Exchange Notes are not covered
by the registration statement of which this
Prospectus is a part and are not being offered
hereby. Any Private Exchange Notes will be entitled
to all the rights and subject to all the
limitations applicable thereto under the Indenture,
and will be subject to the same restrictions on
transfer applicable to untendered Outstanding
Notes. See "The Exchange Offer -- Consequences of
Failure to Exchange". However, pursuant to the
Registration Rights Agreement, holders of Private
Exchange Notes have certain rights to require the
Company to file and maintain a shelf registration
statement that would allow resales of such Private
Exchange Notes owned by such holders. See "The
Exchange Offer -- Shelf Registration Statement".
6
<PAGE> 13
Effect on Holders of
Outstanding Notes........ As a result of the making of this Exchange Offer,
the Company will have fulfilled one of its
obligations under the Registration Rights
Agreement, and, with certain exceptions noted
below, holders of Outstanding Notes who do not
tender their Outstanding Notes will not have any
further registration rights under the Registration
Rights Agreement or otherwise. Such holders will
continue to hold the untendered Outstanding Notes
and will be entitled to all the rights and subject
to all the limitations applicable thereto under the
Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to
have further effectiveness as a result of the
Exchange Offer. All untendered Outstanding Notes
will continue to be subject to certain restrictions
on transfer. Accordingly, if any Outstanding Notes
are tendered and accepted in the Exchange Offer,
the trading market of the untendered Outstanding
Notes could be adversely affected. See "The
Exchange Offer -- Consequences of Failure to
Exchange".
Shelf Registration
Statement.................. If (i) the Company is not permitted to consummate
the Exchange Offer because the Exchange Offer is
not permitted by any applicable law or applicable
interpretation of the Commission or the staff of
the Commission or (ii) any holder of an Outstanding
Note notifies the Company on or prior to the
Exchange Date that (A) due to a change in law or
policy it is not entitled to participate in the
Exchange Offer, (B) due to a change in law or
policy it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public
without delivering a prospectus and this prospectus
is not appropriate or available for such resales by
such holder or (C) it is a broker-dealer that owns
Outstanding Notes (including the initial purchaser
that holds Outstanding Notes as part of an unsold
allotment from the original offering of the
Outstanding Notes) acquired directly from the
Company or an affiliate of the Company or (iii) any
holder of Private Exchange Notes so requests within
120 days after the consummation of the Private
Exchange, the Company has agreed to file and
maintain a shelf registration statement that would
allow resales of transfer restricted Outstanding
Notes, Exchange Notes or Private Exchange Notes
owned by such holders.
Exchange Agent............. U.S. Trust Company of Texas, N.A.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Securities Offered......... $275,000,000 principal amount of 9 1/2% Senior
Notes due 2008, Series B.
Maturity Date.............. February 15, 2008.
Interest Rate and Payment
Dates.................... The Exchange Notes will bear interest at a rate of
9 1/2% per annum. Interest on the Exchange Notes
will accrue from the date of issuance thereof and
will be payable semi-annually in cash in arrears on
each February 15 and August 15, commencing August
15, 1998.
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, from time to
time on or after February 15, 2003, at the
redemption prices set forth herein, plus accrued
and unpaid interest to the applicable redemption
date. In addition, prior to February 15, 2001,
$96.25 million in principal amount of the Exchange
Notes are redeemable at the option of the Company,
in whole or in part, from time
7
<PAGE> 14
to time, at 109 1/2% of the principal amount
thereof, with the Net Proceeds (as defined) of any
Public Equity Offering (as defined) provided that
at least $178.75 million in aggregate principal
amount of Notes remains outstanding immediately
after such redemption. See "Description of the
Exchange Notes -- Redemption and Repurchase".
Change of Control.......... In the event of a Change of Control (as defined),
the Company will be required to make an offer to
repurchase the Exchange Notes at 101% of the
principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. See
"Description of the Exchange Notes -- Change of
Control".
Certain Covenants.......... The Exchange Notes will be issued under the
Indenture, which contains certain covenants,
including covenants that limit: (i) incurrence of
Indebtedness; (ii) restricted payments; (iii) asset
sales; (iv) Liens; (v) payment restrictions
affecting Subsidiaries; (vi) transactions with
related persons; (vii) conduct of business; (viii)
sale-and-leaseback transactions; (ix) issuances and
sales of capital stock of wholly-owned
Subsidiaries; and (x) mergers, consolidations or
sales of substantially all assets. See "Description
of the Exchange Notes -- Certain Covenants".
Ranking.................... The Exchange Notes will be senior unsecured
obligations of the Company, ranking pari passu in
right of payment with all other Senior Indebtedness
of the Company and senior to all subordinated
Indebtedness of the Company. The Exchange Notes and
the Subsidiary Guarantees will be effectively
subordinated to secured Indebtedness of the Company
and the Subsidiary Guarantors, respectively,
including any Indebtedness under the Company's
Third Amended and Restated Credit Facility dated
June 20, 1997 with Wells Fargo Bank, National
Association, as Agent, as amended (the "Credit
Facility"), which is secured by liens on
substantially all of the assets of the Company and
the Subsidiary Guarantors. At October 31, 1997, pro
forma for the DWS/DAMCO Acquisition, the issuance
of the Outstanding Notes and Exchange Notes and the
application of the net proceeds therefrom, the
Exchange Notes and the Subsidiary Guarantees would
have been effectively subordinated to $2.1 million
of secured Indebtedness (excluding letters of
credit) of the Company and the Subsidiary
Guarantors. The Indenture permits the Company and
its Subsidiaries to incur additional Indebtedness
in the future, subject to certain limitations. See
"Description of the Exchange Notes -- Ranking" and
"-- Certain Covenants -- Limitation on Incurrence
of Additional Indebtedness".
Subsidiary Guarantees...... The Exchange Notes will be unconditionally
guaranteed on a senior unsecured basis by all of
the Company's Subsidiaries other than any Exempt
Foreign Subsidiary, as designated by the Company,
and such Subsidiary Guarantees will rank pari passu
in right of payment with all Senior Indebtedness of
the Subsidiary Guarantors and senior to all
subordinated Indebtedness of the Subsidiary
Guarantors. The Subsidiary Guarantees may be
released under certain circumstances. See
"Description of the Exchange Notes -- Subsidiary
Guarantees".
RISK FACTORS
An investment in the Notes involves certain risks that a potential investor
should carefully evaluate prior to making an investment in the Notes. See "Risk
Factors".
8
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents for the periods indicated certain historical
consolidated financial data and certain pro forma combined financial data for
the Company. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the results of operations and
financial position that would have been achieved had the transactions reflected
therein been consummated on the dates indicated. This information should be read
in conjunction with "Unaudited Pro Forma Combined Financial Statements",
"Selected Consolidated Financial Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of Dailey and ADI and the notes thereto and the combined consolidated
financial statements of DWS/DAMCO and the notes thereto included elsewhere in
this Prospectus. During 1997, the Company changed its fiscal year end to
December 31, effective December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
------------------------------------------
FISCAL YEAR ENDED APRIL 30, 1997 PRO 1997
--------------------------- FORMA(1) 1996 1997 PRO FORMA
1995 1996 1997 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)(1)
------- ------- ------- ----------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Rental income.................. $36,691 $42,987 $49,497 $ 49,497 $25,175 $31,262 $31,262
Sales of products and
services..................... 12,172 15,952 16,954 47,083 8,736 11,427 27,260
Underbalanced drilling
revenues..................... -- -- -- 23,542 -- 11,904 15,892
------- ------- ------- -------- ------- ------- -------
Total revenues.......... 48,863 58,939 66,451 120,122 33,911 54,593 74,414
Cost of rentals and services:
Cost of rentals................ 29,685 33,019 37,655 37,655 18,884 21,819 21,819
Cost of products and
services..................... 6,889 7,927 8,890 23,590 4,799 6,901 14,323
Cost of underbalanced
drilling..................... -- -- -- 15,273 -- 7,536 9,676
------- ------- ------- -------- ------- ------- -------
Total cost of rentals
and services.......... 36,574 40,946 46,545 76,518 23,683 36,256 45,818
Selling, general and
administrative expenses........ 9,607 12,083 11,893 28,566 5,968 10,224 16,552
Reorganization costs(2).......... -- -- -- -- -- 2,453 2,453
Non-cash compensation
expense(3)..................... -- -- 2,807 2,807 -- 539 539
Research and development
expenses....................... 775 728 850 850 399 162 162
------- ------- ------- -------- ------- ------- -------
Operating income................. 1,907 5,182 4,356 11,381 3,861 4,959 8,890
Interest expense, net............ 1,001 863 193 26,318 345 2,411 12,775
Other (income) expense, net...... 100 278 188 643 (106) 195 (70)
------- ------- ------- -------- ------- ------- -------
Income (loss) before income
taxes.......................... 806 4,041 3,975 (15,580)(4) 3,622 2,353 (3,815)(4)
Income tax expense............... 838 1,427 1,511 2,468(4) 1,342 1,035 936(4)
------- ------- ------- -------- ------- ------- -------
Net income (loss) before
extraordinary item............. $ (32) $ 2,614 $ 2,464 $(18,048)(4) $ 2,280 $ 1,318 $(4,751)(4)
======= ======= ======= ======== ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures:
Maintenance(5)................. $ 2,631 $ 3,049 $ 2,848 $ 4,256 $ 1,561 $ 2,537 $ 2,640
Discretionary(6)............... 8,165 5,103 12,110 15,710 5,888 10,683 12,337
Depreciation and amortization.... 5,428 5,726 6,593 15,430 3,055 5,534 8,568
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1997
------------------------
PRO FORMA(1)
ACTUAL (UNAUDITED)
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 59,611 $135,150
Working capital............................................. 76,982 163,145
Total assets................................................ 204,082 346,860
Long-term debt, less current portion........................ 114,217 275,494
Stockholders' equity........................................ 65,075 47,291
</TABLE>
9
<PAGE> 16
(1) Adjusted in the case of statement of operations data to reflect the
consummation of the ADI Acquisition, the DWS/DAMCO Acquisition, the issuance
of the Outstanding Notes and the application of the net proceeds therefrom
as if each had occurred on May 1, 1996, and, in the case of balance sheet
data, to reflect the consummation of the DWS/DAMCO Acquisition, the issuance
of the Outstanding Notes and the application of the net proceeds therefrom
as if each had occurred on October 31, 1997.
(2) Reorganization costs relate primarily to staff reductions, severance
settlements and various costs associated with a cost reduction program
implemented in June 1997 to flatten Dailey's management structure and
streamline its operations.
(3) Non-cash compensation expense relates to accelerated vesting of restricted
stock that was granted to certain executive officers of Dailey during the
year ended April 30, 1997 and the six months ended October 31, 1997.
(4) Pro forma operating results are presented before extraordinary items. As a
result of the repurchase of all of the Company's 9 3/4% Senior Notes Due
2007 (the "Old Notes") utilizing a portion of the net proceeds from the
issuance of the Outstanding Notes, the Company immediately recognized an
extraordinary loss (nonrecurring charge) of approximately $17,784,000 (or
$1.91 per share) on the early retirement of the Old Notes with no related
income tax benefit recognized for financial reporting purposes.
(5) Maintenance capital expenditures are primarily comprised of expenditures for
the replacement of downhole tools lost-in-hole or scrapped and for
capitalizable repair of assets.
(6) Discretionary capital expenditures are primarily comprised of expenditures
for additions to the downhole equipment, compressors, boosters and other
property and equipment. All DWS/DAMCO capital expenditures have been
classified as discretionary.
10
<PAGE> 17
RISK FACTORS
Holders of the Outstanding Notes should consider carefully the following
factors as well as the other information provided elsewhere in this Prospectus
before deciding to invest in the Exchange Notes. See "Disclosure Regarding
Forward-Looking Statements".
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer to such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes that are not tendered, or are tendered but not
accepted, may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Outstanding Notes under the
Securities Act. In addition, upon the consummation of the Exchange Offer holders
of Outstanding Notes that remain outstanding will not be entitled to any rights
to have such Outstanding Notes registered under the Securities Act or to any
similar rights under the Registration Rights Agreement. To the extent that
Outstanding Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, or tendered but unaccepted, Outstanding Notes could
be adversely affected. The Registration Rights Agreement provides that if (i)
the Exchange Offer has not been consummated within 30 days of the effectiveness
of the Registration Statement, (ii) a shelf registration statement has not been
declared effective by February 15, 1998, or (iii) this Registration Statement is
filed and declared effective but shall thereafter cease to be effective and is
not immediately followed by an additional Registration Statement that is filed
and declared effective, the interest rate on the Outstanding Notes will increase
by an amount of 0.5% for each 90-day period following such Registration Default,
up to a maximum amount of 2.0% per annum, until such Registration Default is
cured.
INCURRENCE OF SUBSTANTIAL INDEBTEDNESS
At October 31, 1997, on a pro forma basis after giving effect to the
DWS/DAMCO Acquisition, the issuance of the Outstanding Notes and the application
of the net proceeds therefrom as set forth herein under "Use of Proceeds," the
Company would have had approximately $277.1 million in total indebtedness,
compared with total actual indebtedness of $115.4 million at such date. The
Company historically has operated at substantially lower levels of debt than
will be outstanding after giving effect to the offering of the Outstanding
Notes. The Company's level of indebtedness will have several important effects
on its future operations, including, without limitation, (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest and principal on its indebtedness, (ii) the Company's
leveraged position will substantially increase its vulnerability to adverse
changes in general economic and industry conditions, as well as to competitive
pressure and (iii) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to general economic
conditions, industry cycles and financial, business and other factors affecting
the operations of the Company, many of which are beyond its control. There can
be no assurance that the Company's business will continue to generate cash flow
at or above current levels. If the Company is unable to generate sufficient cash
flow from operations in the future to service its debt, it may be required,
among other things, to seek additional financing in the debt or equity markets,
to refinance or restructure all or a portion of its indebtedness, including the
Notes, or to sell selected assets or reduce or delay planned capital
expenditures or acquisitions. There can be no assurance that any such measures
would be sufficient to enable the Company to service its debt or that any such
financing, refinancing or sale of assets would be available on economically
favorable terms.
11
<PAGE> 18
EFFECTIVE SUBORDINATION
The Exchange Notes will be unsecured and effectively subordinated in right
of payment to all existing and future secured Indebtedness of the Company and
the Subsidiary Guarantors, which will include any future draws under the
Company's Credit Facility. As of October 31, 1997, after giving pro forma effect
to the DWS/DAMCO Acquisition, the issuance of the Outstanding Notes and the
application of the net proceeds therefrom, the Company would have had no Senior
Indebtedness outstanding and would have up to $15.0 million available under the
Credit Facility which, if borrowed, would be included as Senior Indebtedness.
The Credit Facility is secured by liens on substantially all of the assets of
the Company and the Subsidiary Guarantors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources". Accordingly, lenders under the Credit Facility have claims
with respect to the assets constituting collateral for any indebtedness
thereunder that will be satisfied prior to the unsecured claims of the holders
of the Notes. See "Description of the Notes -- Ranking". In the event of a
default on the Exchange Notes or a bankruptcy, liquidation or reorganization of
the Company, such assets will be available to satisfy obligations with respect
to the indebtedness secured thereby before any payment therefrom could be made
on the Notes. Thus, the Exchange Notes and the Subsidiary Guarantees will be
effectively subordinated to claims of the lenders under the Credit Facility to
the extent of such pledged collateral. At October 31, 1997, pro forma for the
DWS/DAMCO Acquisition, the issuance of the Outstanding Notes and the Exchange
Notes and the application of the net proceeds therefrom, the Exchange Notes and
the Subsidiary Guarantees would have been effectively subordinated to 2.1
million of secured Indebtedness (excluding letters of credit) of the Company or
the Subsidiary Guarantors.
The Exchange Notes are also effectively subordinated to all existing and
future debt and other liabilities of the Company's subsidiaries that do not
guarantee the Exchange Notes. While the Company's subsidiaries do not presently
carry a significant amount of debt, the Indenture permits the existing
subsidiaries to incur additional debt under certain circumstances. In the event
of an insolvency, liquidation or other reorganization of any of the subsidiaries
of the Company, creditors of such subsidiaries, including trade creditors, would
be entitled to payment in full from the assets of such subsidiaries before the
Company, as a stockholder, would be entitled to receive any distribution
therefrom.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Subsidiary Guarantees.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any
present or future creditor or the Subsidiary Guarantor contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (y) a Subsidiary Guarantor did not receive fair consideration
or reasonably equivalent value for issuing its Subsidiary Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the issuance of such Subsidiary Guarantee, (iii) was engaged or about to engage
in a business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could avoid or subordinate
such Subsidiary Guarantee in favor of the Subsidiary Guarantor's creditors.
Among other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Subsidiary
Guarantor as a result of the issuance by the Company of the Notes. The Indenture
contains a savings clause, which generally limits the obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee to the maximum amount as
will, after giving effect to all of the liabilities of such Subsidiary
Guarantor, result in such obligations not constituting a fraudulent conveyance.
To the extent a Subsidiary Guarantee of any Subsidiary Guarantor was avoided as
a fraudulent conveyance or held unenforceable for any other reason, holders of
the Exchange Notes would cease to have any claim against such Subsidiary
Guarantor and would be creditors solely of the Company and any Subsidiary
Guarantor whose Subsidiary Guarantee was not avoided or held unenforceable. In
such event, the claims of the holders of the Exchange Notes against the issuer
of an invalid Subsidiary Guarantee would be subject to the prior payment
12
<PAGE> 19
of all liabilities of such Subsidiary Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Exchange Notes relating to any avoided
portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Subsidiary Guarantor may be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than the fair market value of all
of its assets at a fair valuation or if the present fair market value of its
assets was less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they
become absolute and mature.
Based upon financial and other information, the Company and the Subsidiary
Guarantors believe that the Guarantees are being incurred for proper purposes
and in good faith and that the Company and each Subsidiary Guarantor is solvent
and will continue to be solvent after issuing its Subsidiary Guarantee, will
have sufficient capital for carrying on its business after such issuance and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such standards would agree with the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of the Exchange
Notes -- Subsidiary Guarantees".
RESTRICTIONS IMPOSED BY LENDERS
The Credit Facility and the Indenture contain a number of covenants that
restrict the ability of the Company to dispose of assets, merge or consolidate
with another entity, incur additional indebtedness, create liens, make capital
expenditures, pay dividends or make other investments or acquisitions and
covenants that otherwise restrict corporate activities. The Credit Facility also
contains requirements that the Company maintain certain financial ratios and may
restrict the Company from prepaying the Company's other indebtedness. The
ability of the Company to comply with such provisions may be affected by events
that are beyond the Company's control. The breach of any of these covenants
could result in a default under the Credit Facility and the Indenture and a
subsequent acceleration of such indebtedness. In addition, as a result of these
covenants, the ability of the Company to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
restricted significantly, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of the Exchange Notes -- Certain Covenants".
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date of repurchase. The Indenture requires that prior
to such a repurchase, the Company must either prepay all outstanding Senior
Indebtedness or obtain any required consents to such repurchase. The occurrence
of a Change of Control may result in a default under the Company's existing line
of credit or any future credit facilities. If a Change of Control were to occur,
the Company may not have the financial resources to prepay all of the Senior
Indebtedness, the Notes and the other Indebtedness that would become payable
upon the occurrence of such Change of Control or may be prohibited from
repurchasing the Notes. See "Description of the Exchange Notes -- Change of
Control".
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Outstanding Notes have not been registered under the Securities Act and
are subject to significant restrictions on resale. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to apply for listing of the Outstanding Notes or the
Exchange Notes on any securities exchange or to seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. The Initial Purchaser has informed the Company, that, following the
completion of the Exchange Offer, it currently intends to make a market in the
Notes. However, it is not
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obligated to do so, and any such market making may be discontinued at any time
without notice. In addition, any such market-making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer or the pendency of the Shelf Registration Statement.
See "Description of the Exchange Notes" and "Exchange Offer; Registration
Statement". Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of or
the trading market for the Exchange Notes.
DEPENDENCE ON OIL AND GAS INDUSTRY
Demand for the Company's products and services depends to a large extent
upon the level of exploration and production activity in the oil and gas
industry and the industry's willingness to spend capital on drilling operations,
which in turn depends in part on oil and gas prices, expectations about future
prices, the cost of exploring for, producing and delivering oil and gas, the
discovery rate of new oil and gas reserves, domestic and international
political, military, regulatory and economic conditions and the ability of oil
and gas companies to raise capital. Prices for oil and gas historically have
been extremely volatile and have reacted to changes in the supply of and demand
for oil and natural gas, domestic and worldwide economic conditions and
political instability in oil producing countries. No assurance can be given that
current levels of oil and gas activities and capital expenditures on drilling
operations will be maintained or that demand for the Company's products and
services will reflect the level of such activities. Prices for oil and natural
gas are expected to continue to be volatile and affect the demand for and
pricing of the Company's products and services. A material decline in oil or
natural gas prices or activities could materially adversely affect the demand
for the Company's products and services and, therefore, the Company's results of
operations and financial condition.
COMPETITION
The markets for the Company's products and services are highly competitive
and characterized by continual changes in technology. Many of the Company's
existing and potential competitors have substantially greater marketing,
distribution, financial and technical resources than the Company. There can be
no assurance that the Company's services, rentals and sales will continue at
current volumes or prices if its current competitors or new market entrants
introduce new products or services with better features, performance, prices or
characteristics than the Company's products and services. Competitive pressures
or other factors also may result in significant price competition that could
have a material adverse effect on the Company's results of operations and
financial condition. Furthermore, the competition among energy service companies
to employ the most reputable, qualified and experienced personnel is intense,
especially during times of increased drilling activity. There can be no
assurance that the Company will be able to continue to recruit and retain
highly-qualified personnel. Any difficulty in recruiting or retaining such
personnel could have a material adverse effect on the Company's results of
operations and financial condition. See "Business and
Properties -- Competition".
ASSIMILATION OF ACQUIRED BUSINESSES
The ADI Acquisition and the DWS/DAMCO Acquisition have required the Company
to integrate additional personnel and operations and manage businesses that are
related to, but different from, Dailey's traditional directional drilling and
rental tool business. No assurance can be given that the Company will be
successful in managing and incorporating the acquired businesses into its
existing operations or that such acquired businesses will not require a
disproportionate amount of management's attention. The Company's failure to
successfully incorporate the acquired businesses into its existing operations,
or the occurrence of unexpected costs or liabilities in the acquired businesses,
could have a material adverse effect on the Company's financial condition and
results of operations.
ACQUISITION STRATEGY
The Company is actively seeking strategic acquisitions that will provide
additional and complementary products and services. Nevertheless, there can be
no assurance that attractive acquisitions will be available to the Company at
reasonable prices or that any acquisition achieved will be consummated on
favorable terms to
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<PAGE> 21
the Company or ultimately will prove to be a successful undertaking by the
Company. The Company may be required, to the extent permitted by the Indenture
and the Credit Facility, to incur substantial indebtedness to finance future
acquisitions. Such additional debt service requirements may represent a
significant burden on the Company's results of operations and financial
condition. There also can be no assurance that the Company will successfully
integrate the operations and assets of any acquired business with its own or
that the Company's management will be able to manage effectively the increased
size of the Company or operate a new line of business. Any inability on the part
of the Company to find and acquire attractive businesses and assets and to
integrate and manage such acquired businesses and assets could have a material
adverse effect on the Company's results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the continued services of certain key operating personnel, particularly
James F. Farr, President and Chief Executive Officer of the Company. The
Company's existing employment agreement with Mr. Farr has an initial term
expiring on December 31, 2000. The loss of the services of Mr. Farr could have a
material adverse effect on the Company's business and future prospects. The
Company does not maintain key employee insurance. See "Management".
OPERATING RISKS AND INSURANCE
The operations of the Company's customers are subject to hazards inherent
in the oil and gas industry, such as fires, explosions, craterings, blowouts and
oil spills, which can cause serious personal injury or loss of life, damage to
or destruction of property, equipment, the environment and marine life, and
suspension of operations. Claims for loss of oil and gas production and damages
to formations can occur in drilling and workover operations. If a catastrophic
event were to occur at a location where the Company's products or services are
being provided, the Company could be named as a defendant or third-party
defendant in lawsuits asserting potentially large claims. The Company maintains
insurance coverage that it believes to be customary in the industry against
certain of these hazards, however, such insurance provides for substantial
deductibles and premium adjustments based on claims experience and excludes
coverage for damages resulting from environmental damage and pollution or breach
of contract or claims based on alleged fraud or deceptive trade practices.
Insurance cannot provide complete protection against casualty losses. There can
be no assurance that the Company will be able to maintain adequate insurance in
the future at rates it considers reasonable or that insurance will continue to
be available on terms as favorable as those of its existing arrangements. A
claim or suit against the Company in excess of the coverage limits maintained by
the Company or for which the Company is not insured could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business and Properties -- Operating Risks and Insurance".
RISK OF INTERNATIONAL OPERATIONS
The Company's international operations (including Canada), which
represented approximately 45% of the total pro forma revenues of the Company for
the six months ended October 31, 1997, are subject to special risks inherent in
doing business outside the United States, including governmental instability,
war and other international conflicts, civil and labor disturbances,
requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls, and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation. Although the Company maintains political risk insurance to
protect itself from such risks, such insurance may be insufficient to protect
the Company in all circumstances, and any failure to do so could have a material
adverse effect on the Company's results of operations and financial condition.
In addition, although most of the Company's international revenues are derived
from transactions denominated in United States dollars, the Company has and
likely will continue to conduct some business in currencies other than the
United States dollar. The Company currently does not hedge against foreign
currency fluctuations. Accordingly, its profitability has been and will continue
to be affected by fluctuations in
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<PAGE> 22
foreign exchange rates. The Company believes that revenues from transactions
denominated in foreign currencies will increase as a percentage of total
revenues due to the ADI Acquisition and the DWS/DAMCO Acquisition and continued
expansion of the Company's international operations. In addition, collections
and recovery of rental tools from international customers and agents may prove
more difficult due to the uncertainties of foreign law and judicial procedure.
The Company may therefore experience significant difficulty resulting from the
political or judicial climate in countries in which it operates. From time to
time the United States has passed laws and imposed regulations prohibiting or
restricting trade with certain nations. There can be no assurance that future
laws and regulations will not limit materially the Company's international
business. See "Business and Properties -- International Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Inflation and Foreign Exchange".
TECHNOLOGICAL EVOLUTION AND PRODUCT OBSOLESCENCE
The markets for the Company's specialized services and downhole tools are
characterized by continual technological developments that have resulted in, and
likely will continue to result in, substantial improvements in the scope and
quality of directional drilling and underbalanced drilling services and product
function and performance. Whether the Company can develop and produce
successfully, on a timely basis, new and enhanced downhole tools that embody new
technology, meet evolving industry standards and practice, and achieve levels of
capability and price that are acceptable to its customers will be significant
factors in determining the Company's ability to compete. There can be no
assurance that the Company will not encounter resource constraints or technical
or other difficulties that could delay introduction of new products and services
in the future. If the Company is unable, for technological or other reasons, to
develop and commercialize competitive products in a timely manner in response to
changes in the directional drilling, underbalanced drilling or rental tool
industries, its results of operations and financial condition could be
materially adversely affected.
INTELLECTUAL PROPERTY
Certain features of the Company's products and services have been granted
United States and foreign patent protection, or have patent applications
pending. There can be no assurance that the Company's patents will prove
enforceable, that any patents for which the Company has made application will be
issued or that competitors will not develop functionally similar products
outside the protection of any patents the Company has or may obtain.
Furthermore, after the Company's patents expire, the Company's competitors could
develop products substantially similar to the Company's products and services.
See "Business and Properties -- Intellectual Property".
VENDOR SUPPLY INTERRUPTION
The Company assembles all of, and manufactures a portion of the components
for, its downhole tools. The manufacturing processes performed by the Company
require a ready supply of high-quality, special alloy steel. Consistent with the
recent upturn in the demand for steel and other raw materials used in the oil
and gas industry, the Company has experienced longer lead times for delivery of
raw materials, primarily steel, which requires the Company to predict further in
advance its needs for such materials. While the Company has not experienced
significant supply or quality control problems to date with its various
suppliers of steel and other raw materials, any supply or quality control
problems could significantly affect the Company's ability to meet production
schedules and commitments, which could have a material adverse effect on the
Company's results of operations. See "Business and Properties -- Manufacturing
and Maintenance".
RELIANCE ON CERTAIN SUPPLIERS
Most of the Company's downhole tools incorporate certain products or
technology supplied in part by third parties. Although the Company is not
presently experiencing and does not anticipate any significant supply or quality
control problems with its vendors, such problems, if they were to occur, could
have a material adverse effect on the Company's ability to meet future
production and sales commitments, which could adversely affect the Company's
results of operations. In addition, during the past five years, one vendor has
16
<PAGE> 23
been the Company's only supplier of filters used in the Company's hydraulic
downhole tools. The Company has not identified alternative suppliers for such
filters. To date, the Company has not experienced supply problems with this
vendor; however, any difficulty with such supplier combined with any difficulty
in finding and utilizing alternative sources for these filters could have a
material adverse effect on the Company's results of operations. See "Business
and Properties -- Manufacturing and Maintenance".
The Company purchases all of its MWD units used in connection with its
directional drilling services from a single supplier. The Company believes that
reliable MWD units are available for third-party purchase from only a few
vendors worldwide. Although the Company has not experienced significant supply
or quality control problems to date with its supplier, there can be no assurance
that the Company will be able to purchase reliable, high-quality MWD units from
other vendors at competitive prices and terms. Any difficulty in obtaining MWD
units from its supplier, as a result of manufacturing delays or other reasons,
could have a material adverse effect on the Company's results of operation and
financial condition. See "Business and Properties -- Drilling
Services -- Directional Drilling Services".
RELATIONSHIP WITH LAWRENCE
The Company currently has two classes of voting stock, Class A Common Stock
and Class B Common Stock (together, the "Common Stock"). Each share of Class A
Common Stock is entitled to one vote and each share of Class B Common Stock is
entitled to seven votes, with both classes of Common Stock voting together as a
single class. Lawrence Industries, Inc. ("Lawrence"), which is owned by the
Chairman of the Board of the Company and trusts for his family, beneficially
owns all of the Class B Common Stock, and controls approximately 89% of the
combined voting power of the outstanding Common Stock. Accordingly, Lawrence and
the Company's Chairman of the Board, J.D. Lawrence, will be in a position to
elect the Company's board of directors and otherwise control the business
policies of the Company. See "Certain Relationships and Related Transactions"
and "Securities Ownership of Management and Principal Stockholder".
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<PAGE> 24
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were issued by the Company on February 13, 1998, to
the Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently placed the Outstanding Notes with qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition of the purchase
of the Outstanding Notes by the Initial Purchaser, the Company and the
Subsidiary Guarantors entered into the Registration Rights Agreement with the
Initial Purchaser, which requires, among other things, that the Company file
with the Commission a registration statement under the Securities Act with
respect to an offer by the Company to the holders of the Outstanding Notes to
issue and deliver to such holders, in exchange for Outstanding Notes, a like
principal amount of Exchange Notes. The Company is required to use its best
efforts to cause the Registration Statement relating to the Exchange Offer to be
declared effective by the Commission under the Securities Act and commence the
Exchange Offer and use best efforts to issue, on or prior to the Exchange Date,
the Exchange Notes. The Exchange Notes are to be issued without a restrictive
legend and may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act). A copy of the Registration Rights Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The term
"Holder" with respect to the Exchange Offer means any person in whose name the
Outstanding Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all
Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. On the Exchange Date, the Company will
issue $1,000 principal amount of Exchange Notes in exchange for $1,000 principal
amount of Outstanding Notes accepted in the Exchange Offer. Holders may tender
some or all of their Outstanding Notes pursuant to the Exchange Offer. However,
Outstanding Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (ii) the holders of the Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement. The Exchange Notes
will evidence the same debt as the Outstanding Notes and will be entitled to the
benefits of the Indenture.
As of the date of this Prospectus, $275,000,000 aggregate principal amount
of the Outstanding Notes was outstanding, all of which is registered in the name
of Cede & Co., as nominee for the Depository Trust Company. The Company has
fixed the close of business of , 1998, as the record date for the
Exchange Offer for purposes of determining the person to whom this Prospectus
and the Letter of Transmittal will be mailed initially.
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, including Rule 14e-1
thereunder.
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted
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<PAGE> 25
Outstanding Notes will be returned, without expense, to the tendering Holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses".
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the date of issuance of the
Exchange Notes. Interest on the Outstanding Notes that are tendered in exchange
for the Exchange Notes that has accrued from February 13, 1998, the date of
issuance of the Outstanding Notes, through the Exchange Date will be payable on
or before August 15, 1998. Interest on the Exchange Notes will be payable
semi-annually on each February 15 and August 15, commencing August 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a Holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Outstanding Notes and any other required documents, to the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Outstanding Notes, Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. Delivery of the Outstanding Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "Resale of Exchange Notes".
The tender by a Holder and the acceptance thereof by the Company will
constitute the agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Outstanding Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national
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<PAGE> 26
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered Holder as such registered Holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Exchange Notes at the DTC (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of the Outstanding Notes
by causing such Book-Entry Transfer Facility to transfer such Outstanding Notes
into the Exchange Agent's account with respect to the Outstanding Notes in
accordance with the Book-Entry Transfer Facility's procedures for such transfer.
Although delivery of the Outstanding Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures; provided, however, that a
participant in DTC's book-entry system may, in accordance with DTC's Automated
Tender Offer Program procedures and in lieu of physical delivery to the Exchange
Agent of a Letter of Transmittal, electronically acknowledge its receipt of, and
agreement to be bound by, the terms of the Letter of Transmittal. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Outstanding Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Outstanding Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless other provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Outstanding Notes (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Outstanding Notes to be withdrawn (the
"Depositor"), (ii) identify the Outstanding Notes to be withdrawn (including the
certificate number(s) and principal amount of such Outstanding Notes, or, in the
case of Outstanding Notes transferred by book-entry transfer, the name and
number of the account at the Book-Entry Transfer Facility to be credited), (iii)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Outstanding Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Outstanding Notes register
the transfer of such Outstanding Notes into the name of the person withdrawing
the tender, (iv) specify the name in which any such Outstanding Notes are to be
registered, if different from that of the Depositor and (v) if applicable
because the Outstanding Notes have been tendered pursuant to book-entry
procedures, specify the name and number of the participant's account at DTC to
be credited, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Outstanding Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Outstanding Notes so withdrawn are
validly retendered. Any Outstanding Notes which have been tendered but which are
not accepted for exchange, will be returned to the Holder thereof without cost
to such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Outstanding Notes may be
retendered by following
21
<PAGE> 28
one of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to issue Exchange Notes for, any
Outstanding Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Outstanding Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
that might materially impair the ability of the Company to proceed with the
Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Company or any of its
subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred that might materially impair the ability of the Company to
proceed with the Exchange Offer; or
(c) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted that might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in good faith and in the exercise of its
reasonable discretion that any of the conditions are not satisfied, the Company
may (i) refuse to accept any Outstanding Notes and return all tendered
Outstanding Notes to the tendering Holders, (ii) extend the Exchange Offer and
retain all Outstanding Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Outstanding
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Outstanding Notes which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the waiver and the
manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to 10 business days if the Exchange Offer
would otherwise expire during such five to 10 day period.
22
<PAGE> 29
EXCHANGE AGENT
U.S. Trust Company of Texas, N.A. has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified By Facsimile: By Overnight Delivery:
Mail: (212) 420-6504 United States Trust Company of
United States Trust Company of Texas, N.A.
Texas, N.A. Corporate Trust Municipal
P.O. Box 841 Operations
Peter Cooper Station 770 Broadway, 13th Floor
New York, NY 10276-0841 New York, NY 10003-9598
Confirm by Telephone: By Hand Delivery:
(800) 225-2398 United States Trust Company of
Customer Service Texas, N.A.
Corporate Trust Municipal
Operations
111 Broadway, Lower Level
New York, NY 10006
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
officers and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and registration expenses,
including fees and expenses of the Trustee, filing fees, blue sky fees and
printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Outstanding Notes for the
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be issued in the name of, any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of the Outstanding Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, which is face value as adjusted for original issue discount,
as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be amortized over the term of the Exchange
Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange
23
<PAGE> 30
Notes (other than any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder does not intend to participate and has no arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989) and
Morgan Stanley & Co., Incorporated (June 5, 1991), or similar no-action letters,
but rather must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Outstanding
Notes, where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution".
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder incurring liability
under the Securities Act for which such Holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each Holder that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company will represent to the Company that such Holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
PRIVATE EXCHANGE NOTES
The Registration Rights Agreement provides that if, prior to consummation
of the Exchange Offer, the Initial Purchaser holds any Outstanding Notes
acquired by it and having, or which are reasonably likely to be determined to
have, the status of an unsold allotment in the initial distribution, or any
other holder of Outstanding Notes is not entitled to participate in the Exchange
Offer for certain reasons, the Company upon the request of such Initial
Purchaser or any such holder shall, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchaser
and any such holder, in exchange (the "Private Exchange") for such Outstanding
Notes held by the Initial Purchaser and any such holder, Private Exchange Notes.
Any Private Exchange Notes will be issued pursuant to the same indenture as the
Exchange Notes. The Private Exchange Notes are not covered by the registration
statement of which this Prospectus is a part and are not being offered hereby.
Any Private Exchange Notes will be entitled to all the rights and subject to all
the limitations applicable thereto under the Indenture, and will be subject to
the same restrictions on transfer applicable to untendered Outstanding Notes.
See "-- Consequences of Failure to Exchange". However, pursuant to the
Registration Rights Agreement, holders of Private Exchange Notes have certain
rights to require the Company to file and maintain a shelf registration
statement that would allow resales of such Private Exchange Notes owned by such
holders. See "-- Shelf Registration Statement".
24
<PAGE> 31
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and,
except as described under "-- Shelf Registration Statement", Holders of
Outstanding Notes who do not tender their Outstanding Notes will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Outstanding Notes that does not exchange
that Holder's Outstanding Notes for Exchange Notes will continue to hold the
untendered Outstanding Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture, except to the extent such
rights or limitations that, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
The Outstanding Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Outstanding Notes may be resold only (i) to the Company (upon redemption thereof
or otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the Outstanding Notes are eligible for resale
pursuant to Rule 144A, to a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
Rule 144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder, (v) to an institutional accredited investor that, prior
to such transfer, furnishes to U.S. Trust Company of Texas, N.A., as trustee, a
signed letter containing certain representations and agreements relating to the
restrictions on transfer of the Outstanding Notes evidenced thereby (the form of
which letter can be obtained from such trustee) or (vi) pursuant to another
available exemption from the registration requirements of the Securities Act, in
each case in accordance with any applicable securities laws of any state of the
United States.
Accordingly, to the extent that Outstanding Notes are tendered and accepted
in the Exchange Offer, the trading market for the untendered Outstanding Notes
could be adversely affected.
SHELF REGISTRATION STATEMENT
If (i) the Company is not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by any applicable law or applicable
interpretation of the Commission or the staff of the Commission or (ii) any
holder of an Outstanding Note notifies the Company on or prior to the Exchange
Date that (A) due to a change in law or policy it is not entitled to participate
in the Exchange Offer, (B) due to a change in law or policy it may not resell
the Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this prospectus is not appropriate or available for
such resales by such holder or (C) it is a broker-dealer that owns Outstanding
Notes (including an initial purchaser that holds Outstanding Notes as part of an
unsold allotment from the original offering of the Outstanding Notes) acquired
directly from the Company or an affiliate of the Company or (iii) any holder of
Private Exchange Notes so requests within 120 days after the consummation of the
Private Exchange, the Company has agreed to file and maintain a registration
statement that would allow resales of transfer restricted Outstanding Notes,
Exchange Notes or Private Exchange Notes owned by such holders.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Outstanding Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Outstanding Notes
in open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Outstanding
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Outstanding Notes, except for the
filing, if required, of the Shelf Registration Statement.
25
<PAGE> 32
THE COMPANY
The Company is an integrated provider of specialty services and
technologically-advanced downhole tools to the oil and gas industry on a
worldwide basis. The Company's services include (i) directional drilling
services, (ii) underbalanced drilling services, (iii) electric wireline and
tubing conveyed perforating services, (iv) tubular testing and handling services
and (v) downhole tool rental. The Company has recently expanded its operations
significantly through strategic acquisitions and internal growth. This strategy
has enabled the Company to expand and diversify the range of services and
products it provides to the oil and gas industry and to effect cross marketing
of its service and product lines. Dailey began operations in the fishing tool
business in 1945 as Dailey Oil Tools and changed its name to Dailey Petroleum
Services Corp. in 1984. In October 1997, Dailey changed its name to Dailey
International Inc.
In August 1996, Dailey completed an initial public offering of its Class A
Common Stock (the "1996 IPO") and immediately embarked on a focused growth
strategy aimed at expanding the drilling services and fleet of downhole tools it
offers by increasing its investment in additional downhole tools and acquiring
complementary businesses and assets. To date, this growth strategy has resulted
in the Company increasing its revenues to $120.1 million on a pro forma basis
for the year ended April 30, 1997, from $58.9 million on an historical basis for
the year ended April 30, 1996.
In June 1997, Dailey acquired ADI, a leading worldwide provider of air
drilling services to the oil and gas industry. In January 1998, Dailey acquired
the operating assets and liabilities of DWS/DAMCO, specialized providers of
electric wireline and tubular services in the U.S. Gulf of Mexico region and, to
a lesser extent, in Nigeria. The Company believes these acquisitions provide it
with significant operational benefits, including geographic expansion and
cross-marketing opportunities.
The Company's executive offices are located in Conroe, Texas, approximately
50 miles north of Houston. The Company's address is 2507 North Frazier, P.O. Box
1863, Conroe, Texas 77305, and its telephone number is (281) 350-3399.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Outstanding Notes in
like principal amount, the form and terms of which are the same as the form and
terms of the Exchange Notes (which they replace), except as otherwise described
herein. The Outstanding Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company.
The net proceeds to the Company from the issuance of the Outstanding Notes
were approximately $267.7 million after deducting the estimated fees and
expenses of the issuance of the Outstanding Notes.
The Company used approximately $133.5 million of the net proceeds from the
issuance of the Outstanding Notes to purchase all of the outstanding Old Notes
from the Initial Purchaser and $7.5 million to repay outstanding borrowings
under the Credit Facility. Proceeds from the issuance of the Old Notes were used
to repay debt incurred in connection with the ADI Acquisition and to finance a
substantial portion of the DWS/DAMCO Acquisition and for capital expenditures.
The Old Notes matured on August 15, 2007 and were issued pursuant to an
indenture with covenants similar to those contained in the Indenture. The Credit
Facility provides for borrowings of up to the lesser of $15 million or an amount
calculated utilizing a loan formula based upon the level of eligible accounts
receivable, which was approximately $11.3 million at December 31, 1997. As of
January 31, 1998, the outstanding principal balance of advances made pursuant to
the Credit Facility was $7.5 million, which were utilized to fund a portion of
the purchase price for the DWS/DAMCO Acquisition. Interest on the Credit
Facility is variable and fluctuates based on leverage ratios at a variable
margin over the applicable prime rate or at a LIBOR-based rate.
26
<PAGE> 33
The Company intends to use approximately $26.9 million of the net proceeds
from the issuance of the Outstanding Notes for discretionary capital
expenditures to increase its fleet of downhole tools and for equipment utilized
in its operations. The Company's inventory expansion will focus primarily upon
MWD units, drilling jars and fishing jars, and mud motors, compressors and mist
pumps utilized in the Company's air drilling operations and tongs utilized in
its tubular testing and handling services. Since the equipment utilized in the
Company's operations can be transported cost effectively between its main
geographic markets, the Company intends to utilize its expanded inventory in all
or some of its markets depending on demand for such tools and equipment at any
given time.
The remaining net proceeds from the issuance of the Outstanding Notes are
expected to be used by the Company to fund the expansion of the Company's
products and services through acquisitions of complementary businesses or assets
and for working capital and other general purposes. Pending application of the
net proceeds from the issuance of the Outstanding Notes, the Company has
invested such net proceeds in short-term, interest-bearing, investment grade
securities.
27
<PAGE> 34
CAPITALIZATION
The following table sets forth as of October 31, 1997, the cash and cash
equivalents, current debt and capitalization of the Company on a historical
consolidated and as adjusted basis to reflect the DWS/DAMCO Acquisition and the
issuance of the Outstanding Notes and the application of the net proceeds
therefrom, as if each had occurred on October 31, 1997. This information should
be read in conjunction with "Unaudited Pro Forma Combined Financial Statements",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Dailey, including the
notes thereto, and the combined financial statements of DWS/DAMCO, including the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------
AS
ACTUAL ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 59,611 $135,150
======== ========
Long-term debt:
9 3/4% Senior Notes, net of original issue discount....... $114,116 $ --
Other..................................................... 177 927
9 1/2% Senior Notes....................................... -- 275,000
Capitalized lease obligations (included in other
liabilities, current and non-current).................. 1,130 1,130
-------- --------
Total long-term debt.............................. $115,423 $277,057
-------- --------
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; none issued and outstanding................ -- --
Class A common stock, $.01 par value, 20,000,000 shares
authorized; (4,627,598 issued and 4,483,598
outstanding)........................................... 45 45
Class B common stock, $.01 par value, 10,000,000 shares
authorized; (5,000,000 shares issued and
outstanding)........................................... 50 50
Paid-in capital........................................... 41,213 41,213
Treasury stock............................................ (1,047) (1,047)
Retained earnings......................................... 24,814 7,030
-------- --------
Total stockholders' equity........................ 65,075 47,291
-------- --------
Total capitalization.............................. $180,498 $324,348
======== ========
</TABLE>
28
<PAGE> 35
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The ADI Acquisition was consummated on June 20, 1997 and the DWS/DAMCO
Acquisition was consummated on January 28, 1998. Accordingly, the Unaudited Pro
Forma Combined Statement of Operations for the six months ended October 31, 1997
combines the unaudited operating results for Dailey for the six months ended
October 31, 1997, the unaudited operating results for ADI for the period
beginning on May 1, 1997 and ending on June 20, 1997 and the unaudited operating
results for DWS/DAMCO for the six months ended September 30, 1997. The Unaudited
Pro Forma Combined Statement of Operations for the six months ended October 31,
1997 also reflects the issuance of the Outstanding Notes and the application of
the net proceeds therefrom as if each had occurred on May 1, 1996. The Unaudited
Pro Forma Combined Statement of Operations for the year ended April 30, 1997
combines the audited operating results of Dailey for the year ended April 30,
1997, the unaudited operating results of ADI for the twelve months ended April
30, 1997 and the unaudited combined operating results of DWS/DAMCO for the
twelve months ended March 31, 1997. The Unaudited Pro Forma Combined Balance
Sheet as of October 31, 1997 combines the unaudited balance sheet of Dailey as
of October 31, 1997 and the audited combined balance sheet of DWS/DAMCO as of
September 30, 1997. The unaudited pro forma combined balance sheet as of October
31, 1997 also reflects the issuance of the Outstanding Notes and the application
of the net proceeds therefrom as if such transactions had occurred on October
31, 1997.
The Unaudited Pro Forma Combined Statements of Operations should be read in
conjunction with the notes thereto and the historical financial statements of
Dailey, ADI and DWS/DAMCO, including the notes thereto, included elsewhere
herein.
The pro forma adjustments to give effect to the various events described
above are based upon currently available information and upon certain
assumptions that management believes are reasonable. The ADI Acquisition and the
DWS/DAMCO Acquisition were accounted for by the Company under the purchase
method of accounting, and the assets and liabilities of ADI and DWS/DAMCO have
been recorded at their estimated fair market values at the date of their
respective acquisition. The adjustments included in the Unaudited Pro Forma
Combined Statements of Operations reflect the Company's preliminary
determination of these adjustments based upon available information. There can
be no assurance that the actual adjustments will not vary significantly from the
estimated adjustments reflected in the Unaudited Pro Forma Combined Statements
of Operations.
The unaudited pro forma combined financial information does not purport to
be indicative of the financial position or results of operations that would
actually have occurred if the transactions described had occurred as presented
in such statements or that may be obtained in the future. In addition, future
results may vary significantly from the results reflected in such statements due
to general economic conditions, oil and gas commodity prices, the demand and
prices for contract drilling services and rental tools, the Company's ability to
successfully integrate the operations of ADI and DWS/DAMCO with its current
business and several other factors, many of which are beyond the Company's
control. See "Disclosure Regarding Forward-Looking Statements" and "Risk
Factors".
29
<PAGE> 36
DAILEY INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
OCTOBER 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
OCTOBER 31, 1997 SEPTEMBER 30, 1997 DWS/DAMCO
---------------- ------------------ ACQUISITION PRO FORMA OFFERING
DAILEY DWS/DAMCO(A) ADJUSTMENTS ACQUISITION ADJUSTMENTS PRO FORMA
---------------- ------------------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 59,611 $ 2,679 $(62,290)(B2,C) $ -- $135,150(D) $135,150
Accounts receivable, net.... 36,877 6,844 43,721 43,721
Consumable inventories...... -- 2,407 2,407 2,407
Other current assets........ 3,455 572 4,027 4,027
-------- ------- -------- -------- -------- --------
Total current
assets.............. 99,943 12,502 (62,290) 50,155 135,150 185,305
Revenue-producing tools and
inventory, net.............. 69,961 3,094 17,693(B3) 90,748 90,748
Property and equipment, net... 6,417 1,236 7,653 7,653
Goodwill...................... 21,736 -- 32,000(B4) 53,736 53,736
Intangibles and other
assets...................... 6,025 168 6,193 7,275(D) 9,418
(4,050)(D)
-------- ------- -------- -------- -------- --------
Total assets.......... $204,082 $17,000 $(12,597) $208,485 $138,375 $346,860
======== ======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities............... $ 19,121 $ 1,178 $ 20,299 $ (2,336)(D) $ 17,963
Accounts payable to
affiliates................ 697 -- 697 697
Income taxes payable........ 3,067 -- 3,067 3,067
Current portion of long-term
debt...................... 76 357 433 433
-------- ------- -------- -------- -------- --------
Total current
liabilities......... 22,961 1,535 24,496 (2,336) 22,160
-------- ------- -------- -------- -------- --------
Long-term debt................ 114,217 393 $ 2,389(C) 116,999 275,000(D) 275,494
(116,505)(D)
Other non-current
liabilities................. 1,829 86 -- 1,915 1,915
Stockholders' equity:
Common stock and paid-in
capital................... 40,261 479 (479)(B1) 40,261 40,261
Retained earnings........... 24,814 14,507 (14,507)(B1) 24,814 (17,784)(D) 7,030
-------- ------- -------- -------- -------- --------
Total stockholders'
equity.............. 65,075 14,986 (14,986) 65,075 (17,784) 47,291
-------- ------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity.............. $204,082 $17,000 $(12,597) $208,485 $138,375 $346,860
======== ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
30
<PAGE> 37
DAILEY INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD
BEGINNING
SIX MONTHS MAY 1, 1997 SIX MONTHS
ENDED AND ENDING ENDED
OCTOBER 31, 1997 JUNE 20, 1997 SEPTEMBER 30, 1997
---------------- ------------- ------------------ ACQUISITION PRO FORMA
DAILEY ADI(E) DWS/DAMCO(A) ADJUSTMENTS ACQUISITIONS
---------------- ------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income............................. $31,262 $ -- $ -- $31,262
Sales of products and services............ 11,427 227 15,606 27,260
Underbalanced drilling revenues........... 11,904 3,988 -- 15,892
------- ------ ------- ------- -------
Total revenues...................... 54,593 4,215 15,606 74,414
COSTS AND EXPENSES:
Cost of rentals........................... 21,819 -- -- 21,819
Cost of products and services............. 6,901 168 5,990 $ 1,264(F) 14,323
Cost of underbalanced drilling............ 7,536 2,105 -- 35(F) 9,676
Selling, general and administrative....... 10,224 1,277 4,255 796(F) 16,552
Reorganization costs...................... 2,453 -- -- 2,453
Non-cash compensation..................... 539 -- -- 539
Research and development.................. 162 -- -- 162
------- ------ ------- ------- -------
49,634 3,550 10,245 2,095 65,524
------- ------ ------- ------- -------
Operating income (loss)..................... 4,959 665 5,361 (2,095) 8,890
Interest expense............................ 3,225 15 51 2,544(G) 5,835
Interest income............................. (814) -- -- (814)
Other (income) expense (net)................ 195 23 (288) (70)
------- ------ ------- ------- -------
Income (loss) before income taxes........... 2,353 627 5,598 (4,639) 3,939
Income tax provision (benefit).............. 1,035 41 -- (140)(H) 936
------- ------ ------- ------- -------
Net income (loss) before extraordinary
item...................................... $ 1,318 $ 586 $ 5,598 $(4,499) $ 3,003
======= ====== ======= ======= =======
Earnings (loss) per share before
extraordinary item........................ $ 0.14 $ 0.32
======= =======
<CAPTION>
OFFERING
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
REVENUES:
Rental income............................. $31,262
Sales of products and services............ 27,260
Underbalanced drilling revenues........... 15,892
------- -------
Total revenues...................... 74,414
COSTS AND EXPENSES:
Cost of rentals........................... 21,819
Cost of products and services............. 14,323
Cost of underbalanced drilling............ 9,676
Selling, general and administrative....... 16,552
Reorganization costs...................... 2,453
Non-cash compensation..................... 539
Research and development.................. 162
------- -------
65,524
------- -------
Operating income (loss)..................... 8,890
Interest expense............................ $ 7,390(J) 13,589
364(J)
Interest income............................. (814)
Other (income) expense (net)................ (70)
------- -------
Income (loss) before income taxes........... (7,754) (3,815)
Income tax provision (benefit).............. -- 936
------- -------
Net income (loss) before extraordinary
item...................................... $(7,754) $(4,751)
======= =======
Earnings (loss) per share before
extraordinary item........................ $ (0.51)
=======
</TABLE>
See accompanying notes.
31
<PAGE> 38
DAILEY INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED MARCH 31,
APRIL 30, 1997 1997
----------------- --------------- ACQUISITION PRO FORMA OFFERING
DAILEY ADI(E) DWS/DAMCO(A) ADJUSTMENTS ACQUISITIONS ADJUSTMENTS PRO FORMA
------- ------- --------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental income...................... $49,497 $ -- $ -- $49,497 $ 49,497
Sales of products and services..... 16,954 2,599 27,530 47,083 47,083
Underbalanced drilling revenues.... -- 23,542 -- 23,542 23,542
------- ------- ------- -------- ------- -------- --------
Total revenues............... 66,451 26,141 27,530 120,122 120,122
COSTS AND EXPENSES:
Cost of rentals.................... 37,655 -- -- 37,655 37,655
Cost of products and services...... 8,890 1,270 10,902 $ 2,528(F) 23,590 23,590
Cost of underbalanced drilling..... -- 15,023 -- 250(F) 15,273 15,273
Selling, general and
administrative................... 11,893 5,249 9,044 2,380(F) 28,566 28,566
Non-cash compensation.............. 2,807 -- -- 2,807 2,807
Research and development........... 850 -- -- 850 850
------- ------- ------- -------- ------- -------- --------
62,095 21,542 19,946 5,158 108,741 108,741
------- ------- ------- -------- ------- -------- --------
Operating income (loss).............. 4,356 4,599 7,584 (5,158) 11,381 11,381
Interest expense..................... 833 2,459 59 10,569(G) 13,920 $ 12,428(J) 27,076
728(J)
Interest income...................... (640) -- (118) (758) (758)
Other (income) expense (net)......... 188 (221) 237 439(I) 643 643
------- ------- ------- -------- ------- -------- --------
Income (loss) before income taxes.... 3,975 2,361 7,406 (16,166) (2,424) (13,156) (15,580)
Income tax provision (benefit)....... 1,511 1,041 -- (84)(H) 2,468 -- 2,468
------- ------- ------- -------- ------- -------- --------
Net income (loss) before
extraordinary item................. $ 2,464 $ 1,320 $ 7,406 $(16,082) $(4,892) $(13,156) $(18,048)
======= ======= ======= ======== ======= ======== ========
Earnings (loss) per share before
extraordinary item................. $ 0.30 $ (0.60) $ (2.23)
======= ======= ========
</TABLE>
See accompanying notes.
32
<PAGE> 39
DAILEY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
(A) The unaudited combined statements of operations of DWS/DAMCO for the six
months ended September 30, 1997 and for the twelve months ended March 31,
1997 were derived from the unaudited combined statements of operations of
DWS/DAMCO for the three month periods ended March 31, 1997 and 1996 and the
audited combined statements of operations of DWS/DAMCO for the nine months
ended September 30, 1997 and the year ended December 31, 1996. The audited
combined statements of operations of DWS/DAMCO for the nine months ended
September 30, 1997 and the year ended December 31, 1996 and the audited
combined balance sheet as of September 30, 1997 are included elsewhere in
this Prospectus. Certain reclassifications have been made to conform the
financial statements of DWS/DAMCO to the pro forma presentation. Such
reclassifications have no effect on total stockholders' equity or net
income.
(B) To reflect the purchase of the operating assets and liabilities of DWS/DAMCO
for total consideration of $61 million plus approximately $1 million in
transaction costs. The acquired assets exclude cash and certain
non-operating equipment. For purposes of the unaudited pro forma combined
balance sheet and statement of operations, the purchase price has been
allocated as follows (in thousands):
<TABLE>
<S> <C>
(1) Historical net book value of DWS/DAMCO.................. $14,986
(2) Adjustment for cash and cash equivalents not acquired... (2,679)
(3) Fair value adjustment of revenue producing tools and
inventory............................................... 17,693
(4) Excess of purchase price over the sum of fair value of
net assets acquired..................................... 32,000
-------
$62,000
=======
</TABLE>
(C) For purposes of the unaudited pro forma combined balance sheet, the proceeds
for the DWS/DAMCO Acquisition were assumed to have been provided with
available cash and, to the extent necessary, additional borrowings under the
Credit Facility.
(D) To record (i) proceeds from the issuance of the Outstanding Notes of $275
million, net of debt issuance costs of $7,275,000, (ii) the retirement of
the Old Notes of $114,116,000, net of original issue discount, including a
premium of 11% of principal amount in consideration for the early
extinguishment of such debt of $12,650,000, the write-off of related
unamortized debt issuance costs of $4,050,000, and the payment of accrued
interest of $2,336,000 and expenses of $200,000, (iii) the repayment of the
additional borrowings under the Credit Facility and (iv) the impact on
retained earnings of the resulting extraordinary loss on retirement of debt.
See "-- Extraordinary Loss on Extinguishment of Debt".
(E) The unaudited statement of operations of ADI for the period beginning May 1,
1997 through June 20, 1997 was derived from the unaudited financial
statements of ADI for such period. The unaudited statement of operations of
ADI for the twelve months ended April 30, 1997 was derived from the audited
statement of operations of ADI for the year ended December 31, 1996 and the
unaudited statements of operations of ADI for the four month periods ending
April 30, 1997 and 1996, which are included elsewhere in this Prospectus.
Certain reclassifications have been made to conform the financial statements
to the pro forma presentation. Such reclassifications have no effect on
total stockholders' equity or net income.
33
<PAGE> 40
(F) To record additional depreciation and amortization expense associated with
the purchase price adjustment for DWS/DAMCO assuming a 25-year life for
goodwill ($1.3 million per year, $640,000 for six months), an average life
for fixed assets of seven years ($2.5 million per year, $1.3 million for six
months) and to record additional depreciation and amortization expense
associated with the purchase price adjustment for ADI through June 20, 1997
assuming a 20-year life for goodwill ($1.1 million per year, $156,000 for
the period from May 1, 1997 through June 20, 1997) and an average life for
fixed assets of eight years ($250,000 per year, $35,000 for the period from
May 1, 1997 through June 20, 1997).
(G) To record additional interest expense on (i) the ADI Acquisition for the
period from May 1, 1996 through the date of such acquisition, (ii) the
DWS/DAMCO Acquisition for the period from May 1, 1996 through August 19,
1997, the date of issuance of the Old Notes and (iii) incremental borrowings
of $7.5 million from August 20, 1997 to October 31, 1997 beyond the amount
of the Old Notes, assuming a fixed rate of 9 3/4%. A 1/8% increase in the
assumed interest rate would have increased annual pro forma interest expense
by $136,000 for the twelve months ended April 30, 1997 and $33,000 for the
six-month period ended October 31, 1997.
(H) To adjust consolidated income tax expense for the impact of the pro forma
adjustments and to reflect federal and state income tax expense for
DWS/DAMCO, which historically did not record such expense (having elected S
Corporation status). Because the pro forma adjustments result in Dailey
having net operating losses, and there is no assurance that these net
operating losses will be benefited for tax purposes before they expire,
related income tax benefits were not recognized in the pro forma
adjustments.
(I) To remove the gain on the sale of stock not assumed in the ADI Acquisition.
(J) To record incremental interest expense related to the issuance of the
Outstanding Notes and related income tax expense/benefit. The adjusted
interest amount reflects $275 million of Outstanding Notes outstanding at a
fixed interest rate of 9 1/2% and amortization of debt issuance costs over
the 10-year period of the Notes. All other interest expense is eliminated,
except $223,000 for the twelve months ended April 30, 1997 and $162,000 for
the six months ended October 31, 1997, on other borrowings, to reflect the
partial use of proceeds from the issuance of the Outstanding Notes to
extinguish the Old Notes and other interim financing.
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT
The accompanying unaudited pro forma combined statements of operations for
the twelve months ended April 30, 1997 and the six months ended October 31, 1997
disclose the results of operations and net income (loss) before extraordinary
items. As a result of the issuance of the Outstanding Notes and the use of
proceeds (as discussed above under item (D)), the Company immediately recognized
an extraordinary loss (nonrecurring charge) of approximately $17,784,000 (or
$1.91 per share) on the early retirement of the Old Notes with no related income
tax benefit recognized for financial reporting purposes.
34
<PAGE> 41
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of the fiscal
years in the five-year period ended April 30, 1997 have been derived from the
audited consolidated financial statements of Dailey. The Consolidated Statement
of Operations Data for the years ended April 30, 1995, 1996 and 1997 and the
Consolidated Balance Sheet Data as of April 30, 1996 and 1997 are derived from
the Company's audited consolidated financial statements appearing elsewhere in
this Prospectus. The following selected consolidated financial data for the six
months ended October 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company appearing elsewhere in this Prospectus. The
selected consolidated financial data should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements of the
Company and the related notes and other financial data included elsewhere in
this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations". During 1997, the Company changed its
fiscal year end to December 31, effective December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, OCTOBER 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Rental income...................... $ 28,746 $ 32,393 $ 36,691 $ 42,987 $ 49,497 $ 25,175 $ 31,262
Sales of products and services..... 8,742 11,422 12,172 15,952 16,954 8,736 11,427
Underbalanced drilling revenues.... -- -- -- -- -- -- 11,904
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............... 37,488 43,815 48,863 58,939 66,451 33,911 54,593
Cost of rentals and services:
Cost of rentals.................... 25,078 27,384 29,685 33,019 37,655 18,884 21,819
Cost of products and services...... 4,003 5,124 6,889 7,927 8,890 4,799 6,901
Cost of underbalanced drilling..... -- -- -- -- -- -- 7,536
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of rentals and
services................... 29,081 32,508 36,574 40,946 46,545 23,683 36,256
Selling, general and administrative
expenses........................... 6,783 7,085 9,607 12,083 11,893 5,968 10,224
Reorganization costs(1).............. -- -- -- -- -- -- 2,453
Non-cash compensation expense(2)..... -- -- -- -- 2,807 -- 539
Research and development expenses.... 1,262 736 775 728 850 399 162
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income..................... 362 3,486 1,907 5,182 4,356 3,861 4,959
Interest expense, net................ 285 513 1,001 863 193 345 2,411
Other (income) expense, net.......... (207) (103) 100 278 188 (106) 195
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes........... 284 3,076 806 4,041 3,975 3,622 2,353
Income tax expense................... 898 1,075 838 1,427 1,511 1,342 1,035
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ (614) $ 2,001 $ (32) $ 2,614 $ 2,464 $ 2,280 $ 1,318
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per share............ $ (.11) $ .37 $ (.01) $ .30 $ 0.32 $ 0.14
========== ========== ========== ========== ========== ==========
Pro forma earnings per share......... $ .40
==========
Average common and common equivalent
shares outstanding(3).............. 5,360,000 5,360,000 5,360,000 6,610,000 8,094,880 7,191,532 9,331,627
OTHER FINANCIAL DATA:
Capital expenditures
Maintenance(4)..................... $ 1,206 $ 1,848 $ 2,631 $ 3,049 $ 2,848 $ 1,561 $ 2,537
Discretionary(5)................... 4,042 6,872 8,165 5,103 12,110 5,888 10,683
Depreciation and amortization........ 4,114 4,323 5,428 5,726 6,593 3,055 5,534
Ratio of earnings to fixed
charges(6)......................... 1.4x 3.8x 1.5x 3.4x 3.7x 5.1x 1.5x
PRO FORMA FINANCIAL DATA:
Ratio of earnings to fixed
charges(6)......................... n/a n/a n/a n/a -- n/a --
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, AS OF OCTOBER 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 2,588 $ 10,542 $ 6,405 $ 7,477 $ 21,938 27,050 $ 76,982
Total assets......................... 45,523 53,621 54,408 55,878 82,359 83,162 204,082
Long-term debt, less current
portion............................ 2,814 9,743 8,604 6,866 5,155 6,011 114,217
Long-term debt payable to affiliate,
less current portion............... 2,061 2,420 1,760 1,100 -- -- --
Stockholders' equity................. 31,058 33,059 33,027 35,641 63,327 60,755 65,075
</TABLE>
35
<PAGE> 42
- ---------------
(1) Reorganization costs relate primarily to staff reductions, severance
settlements and various costs associated with a cost reduction program
implemented in June 1997 to flatten Dailey's management structure and
streamline its operations.
(2) Non-cash compensation expense relates to accelerated vesting of restricted
stock that was granted to certain executive officers of Dailey during the
year ended April 30, 1997 and the six months ended October 31, 1997.
(3) The average number of shares outstanding at April 30, 1993 through 1996 has
been adjusted to give pro forma effect to a reorganization and the issuance
of an aggregate of 360,000 restricted shares of Class A Common Stock
contemporaneously with the 1996 IPO. See "Notes to Consolidated Financial
Statements".
(4) Maintenance capital expenditures are primarily comprised of expenditures for
the replacement of downhole tools lost-in-hole or scrapped and for
capitalizable repair of assets.
(5) Discretionary capital expenditures are primarily comprised of expenditures
for additions to the downhole equipment, compressors, boosters and other
property and equipment.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
are computed as income before income taxes and the cumulative effect of a
change in accounting principle, plus fixed charges. Fixed charges consist of
interest expense, whether expensed or capitalized, and amortization of debt
issuance costs. Pro forma earnings were insufficient to cover pro forma
fixed charges by $15.6 million for the pro forma year ended April 30, 1997
and $4.2 million for the pro forma six months ended October 31, 1997.
36
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Issuance of the Outstanding Notes. The issuance of the Outstanding Notes
further increased the Company's debt levels. On a pro forma basis after giving
effect to the issuance of the Outstanding Notes and the DWS/DAMCO Acquisition,
the Company would have had $277.1 million of total debt outstanding on October
31, 1997, compared to actual total debt of $115.4 million on such date. A
portion of the net proceeds of the issuance of the Outstanding Notes was
utilized to repurchase the Old Notes from the Initial Purchaser. The excess of
the purchase price for the Old Notes over their carrying value will be recorded
as an extraordinary loss on the Company's income statement estimated to be
approximately $17.8 million.
DWS/DAMCO Acquisition. The Company's operations and future results will be
significantly impacted by the DWS/DAMCO Acquisition. Dailey acquired the
operating assets and liabilities of DWS/DAMCO for $61 million in cash and
financed the acquisition with remaining proceeds from its offering of the Old
Notes and borrowings under its Credit Facility. As a result of the DWS/DAMCO
Acquisition, the Company became a leading supplier of electric wireline services
and tubular testing and handling services in the U.S. Gulf of Mexico region and
Nigeria.
The Company expects to experience significant growth as a result of the
DWS/DAMCO Acquisition. On a pro forma basis for the six months ended October 31,
1997, the Company had revenues of $74.4 million compared to $54.6 million for
the same period on a historical basis. The DWS/DAMCO Acquisition also will
expand the Company's presence internationally, primarily in Nigeria.
The DWS/DAMCO Acquisition was accounted for under the purchase method of
accounting. As a result, the assets and liabilities of DWS/DAMCO were recorded
at their estimated fair market values as of the date of the DWS/DAMCO
Acquisition. The Company currently estimates that goodwill in connection with
the acquisition will be approximately $32.0 million relating to the excess of
the purchase price paid for the assets over their fair market value, which will
be amortized over 25 years and result in approximately $1.3 million in
annualized amortization expense.
ADI Acquisition. The Company's operations have been and will be
significantly impacted by the ADI Acquisition, which was consummated on June 20,
1997. Dailey acquired ADI for $46.4 million, including the repayment of
approximately $16.8 million in debt. As a result of the ADI Acquisition, Dailey
became a leading worldwide provider of air drilling services for underbalanced
drilling applications.
The Company has experienced significant revenue growth as a result of the
ADI Acquisition. On a pro forma basis for the six months ended October 31, 1997,
Dailey had revenues of $17.4 million relating to ADI's operations. The ADI
Acquisition also significantly expanded Dailey's presence internationally,
primarily in Canada.
The ADI Acquisition was accounted for under the purchase method of
accounting. As a result, the operations of ADI following June 20, 1997 are
reflected in Dailey's historical operations and the assets and liabilities of
ADI were recorded at their estimated fair market values as of the date of the
ADI Acquisition. Dailey recorded goodwill of approximately $22.3 million
relating to the excess of the purchase price paid for the assets over their fair
market value, which is being amortized over 20 years and is resulting in
approximately $1.1 million in annualized amortization expense. Since the
goodwill associated with the ADI Acquisition is not amortized for tax purposes,
the effective tax rate shown on Dailey's financial statements has increased
significantly as a result of the ADI Acquisition.
The ADI Acquisition also significantly increased Dailey's debt levels.
Dailey borrowed approximately $45.5 million under the Credit Facility to finance
the acquisition as well as to repay the outstanding debt of ADI, which
significantly increased Dailey's debt over historical levels at that time. The
debt was subsequently repaid with proceeds from the offering of the Old Notes.
June 1997 Reorganization. Following the ADI Acquisition in June 1997,
Dailey implemented a cost-reduction program to flatten its corporate management
structure and streamline its operations (the "Reorganization"). As a result of
such program, Dailey incurred a $2.5 million restructuring charge during the six
37
<PAGE> 44
months ended October 31, 1997 associated primarily with staff reductions,
severance settlements and various reorganization costs.
1996 Initial Public Offering. Dailey's operations during 1997 reflect the
effects of the 1996 IPO. Dailey's net proceeds of $27.6 million from such
offering were utilized to repay debt to affiliates of Dailey, to acquire certain
business assets and to increase Dailey's inventory of downhole tools.
Utilization of these additional tools increased Dailey's revenues for the year
ended April 30, 1997, primarily during the third and fourth quarters, and is
expected to impact future periods as such tools are utilized in the Company's
business.
RESULTS OF OPERATIONS
The Company derives rental income from its fleet of downhole tools and, to
a lesser extent, from downhole tools owned by third parties. The Company
typically charges its customers a daily rental rate for downhole tools, except
for its downhole drilling motors, which are rented at an hourly rate. In
international markets, the Company also often charges its customers a
refurbishment charge, which is included in rental income.
Revenues from sales of products and services consist of directional
drilling services, lost-in-hole charges and sales of its mechanical drilling
jars and, to a lesser extent, from pipeline testing operations acquired in the
ADI Acquisition. Revenues from the acquired DWS/DAMCO operations also will be
reflected in sales of products and services. Revenues from services of the
Company's directional drillers and MWD technicians are generally billed on a per
person/per day basis for the time on assignment at the customer's drill site.
Although the Company considers rentals of its downhole drilling motors and MWD
equipment to be a significant part of its directional drilling services,
revenues from such rentals are currently recorded as rental income for financial
statement purposes. The Company's lost-in-hole revenues consist of replacement
charges that its customers pay each time a downhole tool is lost-in-hole. The
Company sells mechanical drilling jars in a limited number of international
markets, primarily to state-owned oil and gas companies.
The Company derives underbalanced revenues from rentals of air drilling
equipment used for underbalanced drilling applications, including compressors,
boosters, mist pumps and related equipment, which are typically rented at an
hourly or daily rate. The Company also derives underbalanced revenues by
providing specially-trained personnel, who are typically billed out on a per
person/per day basis, to operate its air drilling equipment.
The operating costs associated with the Company's rentals consist primarily
of expenses associated with depreciation, transportation, maintenance and repair
and related direct overhead. The costs associated with the Company's sales of
products and services consist primarily of the undepreciated portion of the
capitalized cost of its downhole tools sold or lost-in-hole and the salaries and
related costs associated with the Company's directional drillers and MWD
technicians and, to a lesser extent, costs associated with its pipeline testing
operations.
With respect to allowances for bad debts, the Company's policy is to
specifically identify at-risk receivables and reserve for any balances which, in
the opinion of management, are probable or reasonably possible of not being
collected. The Company's bad debt allowance primarily consists of reserves for
receivables from customers that are in bankruptcy, receivables from sales to
agents (based on billings to their customers) that the agent has identified as
potentially uncollectible and receivables from extremely slow-paying domestic
customers. The allowance also contains a reserve for slower-paying, higher-risk
international customers, which have become an increasingly larger percentage of
the Company's customer base in recent years. Similarly, the Company identifies
inventory that, due to changes in demand, is not expected to generate revenue in
the immediate future and establishes a reserve for that inventory.
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED OCTOBER 31,
1996
Rental Income. Rental income for the six months ended October 31, 1997 was
$31.3 million, an increase of 24% from $25.2 million for the same six months
last year. This increase in revenue was due to the introduction of additional
directional drilling equipment acquired with proceeds from the 1996 IPO and
38
<PAGE> 45
increased demand for these products and services primarily in the U.S. Gulf
Coast region and the Gulf of Mexico. This increase in demand resulted in a $3.0
million increase in rentals. In addition, revenue from the rental of drilling
jars and related products in the United States increased $1.5 million primarily
due to increased demand as the average domestic rig count in the United States
increased 24% during the period compared to the same period last year.
Internationally, the rental of drilling jars and related products increased $1.7
million, primarily in Indonesia, Australia and Saudi Arabia, as the result of
increased drilling activity.
Sales of Products and Services. Sales of products and services for the six
months ended October 31, 1997 were $11.4 million, an increase of 31% from $8.7
million for the same six months last year. This increase in revenue was
primarily the result of $1.3 million of ADI pipeline testing revenue being
included in operating results since June 20, 1997, an increase in tools
lost-in-hole of $742,000 and increased revenue from directional drilling
services of $1.1 million primarily in the U.S. Gulf Coast region, the Gulf of
Mexico and Venezuela. This increase in revenue was partially offset by a
decrease in sales of mechanical jars of $541,000.
Underbalanced Drilling Services Revenue. Underbalanced drilling services
revenue for the six months ended October 31, 1997 was $11.9 million resulting
from ADI revenue being included in operating results for the first time.
Cost of Rentals. Cost of rentals for the six months ended October 31, 1997
was $21.8 million, an increase of 16% from $18.9 million for the same six months
last year. This increase in cost was due primarily to increased variable costs,
primarily tool repair costs and commissions, associated with increased rental
activity in regions where Dailey had an existing operating and administrative
infrastructure. As a result, gross margins increased from 25% for the six months
ended October 31, 1996 to 30% for the six months ended October 31, 1997 due to
the primarily fixed nature of Dailey's cost base.
Cost of Products and Services. Cost of products and services for the six
months ended October 31, 1997 was $6.9 million, representing a $2.1 million
increase from the same six months last year, including a $633,000 increase due
to ADI being included in operating results for the first time. The gross profit
margin on sales of products and services for the six months ended October 31,
1997 was 40% compared to 45% for the same six months last year. This decrease in
margin was primarily due to a decrease in higher margin export sales of
mechanical jars combined with increased revenues from lower margin directional
drilling services.
Cost of Underbalanced Drilling Services. Cost of underbalanced drilling
services for the six months ended October 31, 1997 was $7.5 million resulting
from ADI being included in operating results for the first time.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended October 31, 1997 were $10.2
million compared to $6.0 million for the same six months last year. This
increase was primarily the result of increased compensation expense related to
salary increases and incentive compensation programs, costs related to Dailey's
acquisition program, amortization of costs related to the ADI Acquisition and
the inclusion of ADI in operating results for the first time. Cost savings from
the Reorganization partially offset this increase.
Reorganization Costs. Reorganization costs for the six months ended October
31, 1997 were $2.5 million. In June 1997, a cost-reduction program was
implemented to flatten the corporate management structure and streamline
operations. The reorganization costs primarily consist of the cost of staff
reductions, severance settlements and various restructuring costs.
Non-cash Compensation Expense. Non-cash compensation for the six months
ended October 31, 1997 was $539,000, which related to restricted stock that had
been granted to certain executive officers of Dailey in connection with the 1996
IPO and the Company's 1997 Long-Term Incentive Plan (the "1997 Plan").
Interest Income. Interest income for the six months ended October 31, 1997
was $814,000 compared to $207,000 for the same six months last year. This
increase in interest income was the result of interest earned on temporary,
short-term investments utilizing funds from the issuance of the Old Notes.
39
<PAGE> 46
Interest Expense -- Nonaffiliate. Interest expense for the six months ended
October 31, 1997 was $3.2 million compared to $380,000 for the same six months
last year. This increase was due to the issuance of the Existing Notes.
Income Tax Provision. The provision for income taxes for the six months
ended October 31, 1997 was $1.0 million, a decrease from $1.3 million of expense
for the same six months last year. The decrease in tax expense was due to a
decrease in income before income taxes of $1.3 million partially offset by a
change in the effective tax rate from 37% to 44% due to increased state income
taxes and the non-deductibility of goodwill recorded in connection with the ADI
Acquisition.
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
Rental Income. Rental income for the year ended April 30, 1997 was $49.5
million, an increase of 15% from $43.0 million for the year ended April 30,
1996. This increase was due primarily to increased demand for directional
drilling services and related products in Latin America, the Gulf of Mexico and
the U.S. Gulf Coast region, which resulted in a $5.8 million increase in rentals
from MWD equipment, downhole motors and other directional drilling tools. In
addition, domestic rental income from drilling and fishing jars and slingers
increased $1.3 million which was partially offset by decreased foreign rental
income from drilling and fishing jars and slingers of $892,000.
Sales of Products and Services. Sales of products and services for the year
ended April 30, 1997 were $17.0 million, an increase of 6% from $16.0 million
for the year ended April 30, 1996. This increase was due primarily to increased
demand for directional drilling services and related products in Latin America,
the Gulf of Mexico and the U.S. Gulf Coast region, which resulted in a $1.4
million increase in directional services revenue. In addition, revenues from
license fees related to a proprietary directional drilling method increased by
$300,000. This was partially offset by decreased sales of tools and parts of
$684,000.
Cost of Rentals. Cost of rentals for the year ended April 30, 1997 was
$37.7 million, an increase of 14% from $33.0 million for the year ended April
30, 1996. This increase was due primarily to the variable costs associated with
an increase in rental activity, such as tool repair costs and third-party tool
charges. As a percentage of rental income, cost of rentals decreased from 77% in
fiscal 1996 to 76% in fiscal 1997, which reflects the fixed nature of the cost
base.
Cost of Products and Services. Cost of products and services for the year
ended April 30, 1997 was $8.9 million, an increase of 12% from $7.9 million for
the year ended April 30, 1996. The increase was due primarily to higher
personnel costs associated with an increase in directional drilling services in
the Gulf of Mexico, the U.S. Gulf Coast region and Venezuela. The gross profit
margin on sales of products and services for fiscal 1997 was 48% compared to 50%
for fiscal 1996. This decrease in gross profit margin was due to a decrease in
higher margin export sales of mechanical jars.
Selling, General and Administrative Expenses. For the year ended April 30,
1997, selling, general and administrative expenses, including a $2.8 million
non-cash compensation expense, were $14.7 million, an increase of 22% from the
$12.1 million for the year ended April 30, 1996. The non-cash compensation
expense was the result of non-cash stock awards granted to certain officers
pursuant to the 1996 Key Employee Stock Plan. Exclusive of these non-cash
changes, selling, general and administrative expenses were $11.9 million, a 2%
decrease from fiscal 1996.
Research and Development Expenses. Research and development expenses for
the year ended April 30, 1997, were $850,000, compared to $728,000 for the year
ended April 30, 1996, which reflects a relatively constant level of research and
development activity.
Interest Income. Interest income for the year ended April 30, 1997 was
$640,000, an increase of $536,000 from the year ended April 30, 1996. This was
the result of interest earned on short-term investments utilizing net proceeds
from the 1996 IPO.
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Interest Expense -- Nonaffiliates. Interest expense to nonaffiliates for
the year ended April 30, 1997 was $671,000, a decrease of 15% from $785,000 for
the year ended April 30, 1996. This decrease was primarily the result of
scheduled payments of principal and interest on bank debt.
Interest Expense -- Affiliate. Interest expense to affiliate for the year
ended April 30, 1997 was $162,000, a 11% decrease from $182,000 for the year
ended April 30, 1996. This decrease was primarily the result of the repayment of
a term loan to an affiliate with proceeds from the 1996 IPO, partially offset by
interest paid on a promissory note to an affiliate that was issued in connection
with a dividend on June 27, 1996 and repaid with proceeds from the 1996 IPO.
Foreign Exchange (Gain) Loss. Foreign exchange loss for the year ended
April 30, 1997 was $19,000 compared to a loss of $239,000 for the year ended
April 30, 1996. This decrease was due primarily to favorable fluctuations in the
British pound exchange rate relative to the U.S. dollar.
Income Tax Expense. Income tax expense for the year ended April 30, 1997
was $1.5 million, an increase of 6% from $1.4 million for the year ended April
30, 1996. This increase was primarily the result of an increase in the effective
tax rate to 38% for fiscal 1997 from 35% for fiscal 1996 due to the full
utilization of the state net operating loss carryforwards in fiscal 1996.
YEAR ENDED APRIL 30, 1996 COMPARED TO THE YEAR ENDED APRIL 30, 1995
Rental Income. Rental income for the year ended April 30, 1996 was $43.0
million, an increase of 17% from $36.7 million for the year ended April 30,
1995. This increase was due primarily to increased demand for Dailey's
directional drilling services and related products in the Gulf of Mexico, the
U.S. Gulf Coast region and Venezuela, which resulted in a $4.2 million increase
in rentals from MWD equipment, downhole motors and other directional drilling
tools. During fiscal 1996, Dailey purchased MWD equipment for use in Venezuela.
Dailey also experienced increased demand for its directional drilling services
in the Gulf of Mexico and the U.S. Gulf Coast region due to escalating gas
prices and a corresponding increase in drilling activity. In addition, rental
income from Dailey's drilling jars and slingers increased $1.4 million due
primarily to increased demand in Latin America and to a slight increase in
pricing worldwide. Also in fiscal 1996, Dailey increased its distribution of
fishing jars in the U.S. Gulf Coast region and expanded distribution of fishing
jars into the North Sea, which resulted in an increase in rental income of $1.0
million.
Sales of Products and Services. Sales of products and services for the year
ended April 30, 1996 were $16.0 million, an increase of 31% from $12.2 million
for the year ended April 30, 1995. This increase was due primarily to an
increase in export sales of mechanical drilling jars of approximately $1.6
million and to an increase in lost-in-hole revenues of $1.2 million. The
increase in lost-in-hole revenues was consistent with increased rental activity
during the year. The increase also was attributable to increased demand for
Dailey's directional drilling services in the Gulf of Mexico, the U.S. Gulf
Coast region and Venezuela.
Cost of Rentals. Cost of rentals for the year ended April 30, 1996 was
$33.0 million, an increase of 11% from $29.7 million for the year ended April
30, 1995. This increase was due primarily to the variable costs associated with
an increase in rental activity, such as tool repair costs, agent commissions and
third-party tool charges. The increase also was attributed to an increase in
import duties and fees of $709,000 associated with the importation of downhole
tools to Venezuela. Dailey expenses import duties and fees as incurred instead
of capitalizing them as part of the cost of the tool. As a percentage of rental
income, cost of rentals decreased from 81% in fiscal 1995 to 77% in fiscal 1996,
which reflects the fixed nature of Dailey's cost base.
Cost of Products and Services. Cost of products and services for the year
ended April 30, 1996 was $7.9 million, an increase of 15% from $6.9 million for
the year ended April 30, 1995. This increase was due primarily to higher
personnel costs associated with an increase in directional drilling services in
the Gulf of Mexico, the U.S. Gulf Coast region and Venezuela. The increase also
was attributable to the write-off of the net book value of products lost-in-hole
and the cost of drilling jars sold during the year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $12.1 million for the year ended April 30, 1996, an
increase of 26% from $9.6 million for the year ended April 30, 1995. This
increase was due primarily to an increase in personnel costs associated with
bonuses and
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raises paid during the year as well as additional personnel, an increase in
travel and business development costs associated with higher levels of
international business and an increase in legal expenses associated with
litigation involving Dailey's enforcement of its intellectual property.
Research and Development Expenses. Research and development expenses for
the year ended April 30, 1996 were $728,000, a decrease of 6% from $775,000 for
the year ended April 30, 1995, as the level of Dailey's research and development
activity remained relatively constant between the two years.
Interest Expense -- Nonaffiliates. Interest expense to nonaffiliates for
the year ended April 30, 1996 was $785,000, a decrease of 7% from $841,000 for
the year ended April 30, 1995. The decrease was due primarily to the repayment
throughout fiscal 1996 of an aggregate of $1.3 million in principal on Dailey's
bank debt, which was partially offset by advances in the second half of fiscal
1996 of $1.3 million against the revolving line of credit associated with
Dailey's bank debt.
Interest Expense -- Affiliate. Interest expense to affiliate for the year
ended April 30, 1996 was $182,000, a decrease of 17% from $220,000 for the year
ended April 30, 1995. The decrease was due to the repayment of $660,000 of
principal during the year.
Foreign Exchange (Gain) Loss. Foreign exchange losses of $239,000 in fiscal
1996 compared to gains of $90,000 for the year ended April 30, 1995 were due
primarily to unfavorable exchange fluctuations during fiscal 1996 with the
British pound and the Dutch guilder.
Other (Income) Expense, net. Other expense for the year ended April 30,
1996 was $39,000 compared to $190,000 for the year ended April 30, 1995. This
decrease was due primarily to the write-off of $60,000 of unusable fixed assets
in fiscal 1995.
Income Tax Expense. Provision for income taxes for the year ended April 30,
1996 was $1.4 million compared to $838,000 for the year ended April 30, 1995.
The increase was due primarily to an increase in income in countries in which
Dailey was subject to income or withholding taxes, which resulted in the
effective tax rate decreasing from 104% to 35% from fiscal 1995 to fiscal 1996.
In fiscal 1996, Dailey recorded a deferred tax asset related to net operating
loss carryforwards, which resulted in a decrease in the effective tax rate. This
decrease was predominantly offset by a gain for tax purposes related to the
dissolution of a real estate partnership, which resulted in an increase in the
effective tax rate.
INFLATION AND FOREIGN EXCHANGE
Inflation has not had a significant impact on Dailey's comparative results
of operations. For the year ended April 30, 1997, transactions conducted in
United States dollars accounted for approximately 74% of the Company's total
revenues. The Company believes that the percentage of its total revenues
relating to transactions conducted in foreign currencies will increase due to
continued expansion of the Company's international operations and the DWS/DAMCO
Acquisition. The Company currently does not engage in hedging transactions to
protect itself against foreign currency fluctuations, but rather seeks to
protect itself from fluctuations in foreign currencies by accelerating
conversion of such currencies into United States dollars and by continual
evaluation of the Company's level of operations in such markets.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. Cash provided by operating activities was $845,000 during
the six months ended October 31, 1997. Additional sources of cash included net
proceeds from the issuance of debt of $159.6 million, $1.5 million from
revenue-producing tools lost-in-hole, abandoned and sold, $704,000 from stock
options exercised and $607,000 of proceeds from the sale of property and
equipment. Principal uses of cash for the six months ended October 31, 1997 were
to fund acquisitions (net of cash acquired) of $46.2 million, to repay bank debt
of $52.9 million, to purchase treasury stock of $813,000, to pay financing costs
relating to the issuance of the Old Notes of $4.1 million and to fund capital
expenditures of $14.8 million. During the past several years, working capital
requirements have been funded through cash generated from operations, credit
facilities and asset sales.
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Credit Facility. The Company currently has no outstanding borrowings under
the Credit Facility. Borrowings under the Credit Facility currently are limited
to the lesser of $15 million or an amount calculated utilizing a loan formula
based upon the level of eligible accounts receivable, which was $11.3 million as
of December 31, 1997. The Credit Facility is collateralized by substantially all
of the Company's and its domestic subsidiaries' assets. It contains restrictive
covenants and events of defaults customary in loan transactions of that type.
The Company currently is renegotiating the terms and conditions of the Credit
Facility following the issuance of the Outstanding Notes. The Company is
prohibited from borrowing funds under the Credit Facility until such
renegotiation is complete.
Capital Expenditures. Capital expenditures of approximately $14.8 million
were made during the six months ended October 31, 1997. Of this amount, $10.4
million were invested in downhole tools, primarily MWD and other directional
equipment, hydraulic drilling jars, hydraulic fishing jars and related
inventory. Capital expenditures for downhole tools and other equipment during
the next twelve months, assuming consummation of this Offering, are expected to
be approximately $34.9 million. The Company believes it will have available
resources from the net proceeds from the issuance of the Outstanding Notes,
internally generated cash flow and availability under the Credit Facility to
fund operations for at least the next twelve months. In addition, as part of its
business strategy, the Company is continuing to analyze potential acquisitions
of complementary businesses and assets. The Company expects to fund any future
acquisitions utilizing a portion of its availability under the Credit Facility
and a portion of the net proceeds from the issuance of the Outstanding Notes;
however, depending upon the size of any future acquisition, the Company may need
additional financing to fund such acquisitions.
Future Acquisitions. As consolidation of the oil and gas services industry
continues in response to increased demand for companies offering a broad range
of services, the Company intends to continue expanding its products and services
through strategic acquisitions. The Company continuously evaluates potential
acquisition candidates in the drilling, completion and workover segments of the
industry, including companies providing directional drilling, underbalanced
drilling, fishing and enhanced recovery services, as well as companies supplying
specialized downhole tools and other equipment to the oil and gas industry. In
connection with any future acquisition, the Company may be required to incur
substantial indebtedness to finance such acquisition and may also issue equity
securities or convertible securities. The Company is reviewing several
attractive acquisition opportunities that, if consummated, would allow it to
continue to expand the breadth and geographic scope of the products and services
it offers as well as create additional cross-marketing opportunities for
internal growth.
Old Notes. On August 19, 1997, Dailey issued the Old Notes in a private
placement at a discount of 0.785%. The net proceeds from the issuance of the Old
Notes of approximately $109.6 million were used to repay $45.5 million then
outstanding under Dailey's credit facility incurred primarily in connection with
the ADI Acquisition. A portion of the proceeds also were utilized to fund
planned capital expenditures. The remaining proceeds were utilized to finance a
substantial portion of the DWS/DAMCO Acquisition. The Old Notes bore interest at
a rate of 9 3/4%, payable semi-annually on February 15 and August 15 of each
year, commencing February 15, 1998, and matured August 15, 2007 but were
redeemable at the option of the Company on or after August 15, 2002. The Company
repurchased all of the Old Notes from the Initial Purchaser utilizing a portion
of the net proceeds from the issuance of the Outstanding Notes.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. This statement establishes new standards for computing and presenting
earnings per share requiring the presentation of "basic" and "diluted" earnings
per share as compared to "primary" and "fully diluted" earnings per share. The
Company is required to adopt SFAS No. 128 in the first quarter of calendar 1998.
Earlier adoption is not permitted and restatement of all prior period earnings
per share data is required. The Company believes that the "diluted" disclosure
required under SFAS No. 128 will not differ materially from historical "primary"
earnings per share amounts for the 1996 and 1997 periods presented.
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In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which is effective for years beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and, therefore,
the Company will adopt the new requirements retroactively in 1998. Management
has not completed its review of SFAS No. 131, but does not anticipate that the
adoption of this statement will have a significant effect on the Company's
reported operations.
IMPACT OF YEAR 2000
Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. If not corrected, this could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company currently is in the process of converting its information
systems as part of a total business knowledge management process conversion,
which will include all operating systems, for a total estimated cost of
approximately $3.5 million. The system conversion is estimated to be completed
no later than December 31, 1998; however, it is possible that certain efforts
will be delayed into 1999. The greatest Year 2000 compliance risk is that system
conversion will be delayed beyond the anticipated completion date and the severe
shortage of qualified information systems personnel, both internally and
externally, could affect compliance efforts. The Company believes that with
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems.
The estimated cost and the anticipated date of system implementation are
based on management's best estimates; however, there can be no assurance that
these estimates will be achieved, and actual results could differ materially
from those anticipated.
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BUSINESS AND PROPERTIES
GENERAL
The Company is an integrated provider of specialty services and
technologically-advanced downhole tools to the oil and gas industry on a
worldwide basis. The Company's services include (i) directional drilling
services, (ii) underbalanced drilling services, (iii) electric wireline and
tubing conveyed perforating services, (iv) tubular testing and handling services
and (v) downhole tool rental. The Company has recently expanded its operations
significantly through strategic acquisitions and internal growth. In January
1998, the Company acquired the operating assets and liabilities of DWS/DAMCO,
specialized providers of electric wireline and tubular services in the U.S. Gulf
of Mexico region and, to a lesser extent, in Nigeria. The Company believes the
DWS/DAMCO Acquisition provides it with significant operational benefits,
including geographic expansion and cross-marketing opportunities.
BUSINESS STRATEGY
The Company's strategy is to expand and diversify the geographic
distribution and range of products and services it provides to the drilling,
completion and workover segments of the upstream oil and gas industry through
internal growth and acquisitions. The Company expects to continue to effect
internal growth primarily by cross marketing its product and service lines and
expanding its recently acquired operations to additional locations within the
Company's worldwide infrastructure.
In addition, as consolidation of the oil and gas services industry
continues in response to increased demand for companies offering a broad range
of services, the Company intends to continue expanding its products and services
through strategic acquisitions. The Company continuously evaluates potential
acquisition candidates in the drilling, workover and completion segments of the
oilfield services industry, including companies providing directional drilling,
underbalanced drilling, fishing and enhanced recovery services, as well as
companies supplying specialized downhole tools and other equipment to the oil
and gas industry. The company is reviewing several acquisition opportunities
that, if consummated, would allow it to continue to expand the breadth and
geographic scope of the products and services it offers as well as create
additional cross-marketing opportunities for internal growth.
RECENT DEVELOPMENTS
Consistent with its strategy, since April 1997, Dailey has completed four
acquisitions, all of which expand Dailey's scope of operations and geographic
presence and add long-term earnings capacity.
- Four Corners Air Service. In February 1998, the Company acquired the
operating assets of Four Corners Air Service, Inc., an air drilling
service company based in Farmington, New Mexico, for approximately $3.4
million.
- DWS/DAMCO. In January 1998, Dailey acquired of the operating assets and
liabilities of DWS/DAMCO for $61 million in cash, subject to adjustment
based on levels of working capital.
- ADI. In June 1997, Dailey acquired ADI for $46.4 million, including the
repayment of approximately $16.8 million of indebtedness.
- Great Southern Drilling. In April 1997, Dailey acquired the assets of
Great Southern Drilling Services, Inc., a directional drilling company
operating in the U.S. mid-continent region, for approximately $1.6
million and a contingent cash payment of up to $740,000.
DRILLING SERVICES
Directional Drilling Services
Directional drilling services involve assisting oil and gas operators in
the controlled drilling of a wellbore to a prescribed bottomhole location.
Directional drilling can be used to develop a field with multiple wells drilled
from the same offshore platform or, in environmentally sensitive areas, from
fewer surface facilities
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than conventional drilling would require. In addition, drilling horizontally
through a formation characterized by multiple vertical fractures can result in
substantial reductions in drilling costs and improved well productivity because
fewer wells are required compared to a vertical development program. Recent
developments in multilateral technology, which allows two or more wells to be
drilled from the same vertical wellbore, have further enhanced well productivity
and development efficiency.
Based on published industry sources, the number of oil and gas wells
drilled in the United States using directional and horizontal technology
increased 120% from 2,110 in 1990 to 4,649 in 1997, and, as a percentage of
total oil and gas wells drilled in the United States, wells drilled using
directional and horizontal technology increased from 7% in 1990 to 17% in 1997.
This growth has been driven primarily by the substantial cost savings,
improvements to drilling efficiency and enhancements to reservoir production
that such techniques can provide to operators as well as increased offshore
drilling activity.
Dailey began offering directional drilling services in 1984, primarily
along the Texas and Louisiana Gulf Coast, and has since expanded both its
directional drilling technical capabilities and the geographic areas in which
its services are regularly offered. In fiscal 1995, Dailey began providing its
drilling services in international markets by expanding into Venezuela.
The Company provides skilled personnel to manage the drilling of
directional wells. The directional drilling services offered by the Company
consist of well planning, on-site supervisory services to maximize drilling
efficiency, MWD services and related equipment rentals, downhole motor rentals
and post-well analysis. The Company also derives revenue from its directional
drilling services by renting MWD units, thrusters, downhole motors and
nonmagnetic stabilizers.
The skill, experience and reputation of a service company's directional
drillers are the primary competitive factors in the directional drilling
services market. Because of this, the competition among directional drilling
service companies to employ the most reputable, qualified and experienced
directional drilling personnel is intense. In addition, the scope of services
offered as well as price are important competitive factors. The Company believes
that the quality and experience of its directional drillers provide it with a
competitive advantage and also believes that it is able to recruit and retain
highly-qualified directional drillers because it has a reputation in the
industry for stability and quality, offers competitive compensation and provides
a reliable, experienced support staff. As of January 31, 1998, Dailey employed
44 directional drillers.
The guidance instruments used by directional drillers typically consist of
either wireline steering tools or more advanced MWD units. MWD units provide a
directional driller with extensive and advanced information to guide the
drillstring, including inclination, azimuth, tool face and temperature plus
magnetic tool face updates in steering or rotary drilling modes. MWD units also
can provide gamma ray logging information. Reliable MWD units currently are
available for third-party purchase worldwide from only a few independent
suppliers. The Company began purchasing MWD units from its current supplier and
offering such systems and services to its customers in fiscal 1994. The
Company's MWD units compete favorably with respect to reliability and
performance with MWD units developed in-house by more fully-integrated service
companies and other reliable MWD units currently available for third-party
purchase. Directional drilling typically is conducted using a downhole drilling
motor attached to the drill bit and powered by the circulation of drilling
fluids from the surface. The Company manufactures and uses its own downhole
motor.
Underbalanced Drilling Services
Underbalanced drilling involves maintaining the pressure in a well at less
than that of the surrounding formation using air, nitrogen, mist, foam or
lightweight drilling fluids as the circulation medium instead of mud. As a
result of the ADI Acquisition, the Company is a worldwide leader in providing
air drilling services, which are used in underbalanced drilling applications,
and, since the acquisition, has developed internally the ability to provide
other services utilized in underbalanced drilling applications. The Company
provides underbalanced drilling equipment packages consisting of compressors,
boosters, mist pumps and related equipment along with specially trained
personnel to operate the equipment. Underbalanced drilling techniques
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can lead to substantial increases in rates of penetration and drill bit life
resulting in substantially less time and cost for a drilling program and can
reduce substantially the risks of formation damage.
Horizontal and directional wells frequently are drilled using underbalanced
drilling technology to reduce the risk of formation damage and improve the flow
of hydrocarbons in low pressure or depleted reservoirs. In addition, the Company
believes that the geothermal industry will be a major source of growth in demand
for underbalanced drilling services, especially in South America, Central
America and the Pacific Rim. The use of underbalanced drilling in geothermal
wells often avoids the problem of losing drilling fluids in porous geothermal
formations or, in certain cases, causing the formation to be plugged.
A typical package of equipment used in an underbalanced drilling job
consists of two compressors, a booster and a mist pump. Compressors are used to
force air into the borehole. Depending on the pressure and air volume
requirements, additional compressors may be needed. Boosters are used to
increase the pressure of air exiting a compressor and can increase the air
pressure up to five-fold. Mist pumps are used to mix and distribute water, soaps
and other fluids in underbalanced drilling applications.
ELECTRIC WIRELINE AND TUBING CONVEYED PERFORATING SERVICES
As a result of the acquisition of DWS/DAMCO, the Company is a leading
provider of electric wireline and TCP services in the U.S. Gulf of Mexico region
and Nigeria. The Company's electric wireline services are utilized in both the
exploration and production phases of an oil and gas well and include pipe
recovery, cased hole logging, electric wireline perforating services and other
cased hole services such as installation of bridge plugs, packers, retainers,
pressure control equipment and thru-tubing bridge plugs.
TCP services involve the use of tubing string to lower and retrieve
perforating charges from the wellbore. The Company believes operating synergies
exist between its electric wireline and TCP services and its downhole tool
rental business as such products and services can be effectively marketed in a
single package. The Company intends to expand its electric wireline and TCP
services by marketing these services through its established distribution
networks for its other products and services.
TUBULAR TESTING AND HANDLING SERVICES
As a result of the acquisition of DWS/DAMCO, the Company is a leading
provider of tubular testing and handling services to the onshore and offshore
oil and gas industry in the U.S. Gulf of Mexico region. The Company's tubular
testing services consist of hydrostatic and gas pressure testing services that
detect leaks and flaws in tubulars as they are run into the wellbore. The
Company believes operators prefer to incur testing charges to avoid incurring
costly downtime and the expense of pulling a defective tubular string.
The Company's tubular handling services include assembling production pipe
and tubing, dual completion strings, premium threaded connectors and ultra-high
torque tubulars. The Company believes that mistakes in torquing tubulars can be
costly in terms of downtime and damaged equipment, and therefore, operators rely
on experienced tubular companies for handling services.
DOWNHOLE TOOLS
The Company currently offers an array of technologically-advanced downhole
tools, which it selectively markets in every major oil and gas exploration and
production region in the world. Dailey began renting downhole tools in 1945 and
introduced the first drilling jar to the oil and gas industry in 1965. The
Company is currently the leading supplier of drilling jars to the rental tool
market worldwide. In addition to drilling jars, the Company rents other
proprietary downhole tools including hydraulic fishing jars, coiled tubing jars,
drilling shock absorbers, drilling thrusters and drilling slingers.
The Company's line of drilling jars and related products include mechanical
and hydraulic drilling jars and jar slingers. A drilling jar is an impact tool
that is placed in the lower section of a drillstring as part of the bottomhole
assembly. Activated from the surface, the drilling jar delivers a sharp,
powerful impact to free the drillstring should it become lodged in the hole. The
potential risks of the drillstring becoming stuck in the hole include
interruption of the drilling process, loss of drillstring components and loss of
the well. Drilling jars
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must be capable of reliably delivering frequent and consistent impacts to the
drillstring, sometimes over a period of many days. As a result, reliability and
consistent performance and service by qualified personnel are key criteria in a
customer's selection of drilling jars.
Drilling jars and jar slingers generally are used in drilling applications
where there is significant risk of, or cost associated with, the bottomhole
assembly of the drillstring becoming stuck in the wellbore. As the risk or
potential cost of a stuck drillstring increases, the likelihood that the
operator of the well will employ a drilling jar typically increases. Drilling
applications where drilling jars are used regularly include high-cost wells,
wells drilled using directional, horizontal or underbalanced techniques, deeper
wells, and wells penetrating unstable geologic formations that increase the risk
of well bore collapse. Drilling jars generally are considered essential
components in most directional drilling bottomhole assemblies. The Company
believes that the proprietary designs of its drilling jars deliver superior
performance over competing jars for longer periods of time in their intended
operating environments and are compatible with virtually any drilling condition
a customer may encounter.
In addition to drilling jars, the Company rents other proprietary downhole
tools including hydraulic fishing jars, coiled tubing jars, drilling shock
absorbers, drilling thrusters and drilling slingers. The Company also derives
revenues from the sale of mechanical drilling jars and from downhole tools that
are lost-in-hole by the operator.
OTHER SERVICES
The Company is one of the largest fully-integrated pipeline testing
companies in Canada and is the leading provider of hydrostatic testing services
to major Canadian pipeline construction companies that lack the capability to
perform such testing in-house. The Company believes that the planned addition of
new pipeline capacity in Canada over the next few years, as well as increased
environmental concerns relating to existing pipelines, should result in
increased demand for the Company's pipeline testing services.
MARKETING AND DISTRIBUTION
The Company markets its products and services primarily to major oil
companies, independent oil and gas exploration companies, drilling contractors
and drilling services consultants. In international markets, state-owned oil and
gas companies also are a significant customer group. Domestic marketing of the
Company's products and services is conducted by the Company's direct sales
force. International marketing of the Company's products and services is
conducted through the Company's direct sales force or through independent
international agents and also through cooperative marketing arrangements with
local companies. Dailey traditionally has marketed its array of proprietary
downhole tools directly to the end-user through its direct sales force and
agents, rather than rely on third-party distribution of its products and
subcontracting of its services. The Company believes this strategy results in
higher profit margins. Additionally, this direct interaction with the end-user
assists the Company in identifying demand for new and improved products and
better enables it to design and develop such products in a timely manner.
INTERNATIONAL OPERATIONS
Dailey's international operations (including Canada) accounted for
approximately 39%, 42%, 39% and 51% of total revenues for fiscal 1995, 1996 and
1997 and the six months ended October 31, 1997, respectively. As of January 31,
1998, Dailey had operations in approximately 39 foreign countries. See Note 14
of the Notes to Consolidated Financial Statements of Dailey contained elsewhere
in this Prospectus for additional information regarding foreign and domestic
revenues.
The Company's international agents are responsible for international
marketing of the Company's downhole tools in certain of its markets.
International agents also perform maintenance of the Company's downhole tools in
their custody at their own facilities. International marketing and distribution
is organized into four major regions: Europe/West Africa, the Middle East,
Southeast Asia and Latin America. Each region is further divided into multiple
and sometimes overlapping territories, generally based on political boundaries.
Regional supervisors are assigned by the Company to oversee international
operations, particularly
48
<PAGE> 55
with respect to proper maintenance and redressing of tools and to provide sales
support and technical assistance to customers.
The Company's international operations are subject to special
considerations inherent in doing business outside the United States, including
political instability, war, civil disturbances and governmental activities,
which may limit or disrupt markets, restrict the movement of funds or result in
the deprivation of contract rights or the taking of property without fair
compensation. Government-owned petroleum companies located in some of the
countries in which the Company operates have adopted, or are subject to,
policies that mandate that preference be given to companies that are
majority-owned by local nationals. In addition, the Company conducts a portion
of its international operations in currencies other than the United States
dollar and, as such, is subject to certain risks associated with exchange rate
fluctuations. Although the Company maintains political risk insurance to protect
itself from such risks, such insurance may be insufficient to protect the
Company in all circumstances, and any failure to do so could have a material
adverse effect on the Company's results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
MANUFACTURING AND MAINTENANCE
The manufacturing processes generally required to produce the Company's
downhole tools are machining, fabrication, assembly of components manufactured
by the Company or outside suppliers, and quality control testing. The Company
attempts to outsource those manufacturing processes that can be performed more
efficiently and cost effectively by outside third parties. The Company believes
that its manufacturing capabilities and arrangements are sufficient in order to
meet the demand and timing needs of the Company's customers for the next twelve
months. Machining of larger components and spare parts, including the most
complex components, is done by the Company at its manufacturing plant in Conroe,
Texas. Fabrication, assembly and packaging of the Company's wireline units,
compression equipment and tubular handling equipment are performed at the
Company's Houma, Louisiana, Casper, Wyoming and Edmonton, Canada locations. The
manufacturing processes performed in-house by the Company require a ready supply
of high-quality, special alloy steel and other raw materials. The Company
purchases its raw materials from various vendors, none of which supplied a
majority of Dailey's supply of such materials during fiscal 1997. Consistent
with the recent upturn in the demand for steel and other raw materials used in
the oil and gas industry, the Company has experienced longer lead times for
delivery of raw materials, primarily steel, which requires the Company to
predict further in advance its needs for such materials. Although the Company
typically places orders for its steel at least three months in advance and
usually stores with a third party a reserve supply of steel adequate to cover
the Company's demand for steel for at least one month, any prolonged disruption
in steel supply could affect the Company's ability to meet production schedules
and commitments, which could have a material adverse effect on the Company's
financial condition and results of operations.
Maintenance of the Company's downhole tools is conducted in the United
States at six of the Company's facilities, each of which is specially equipped
for that purpose. In the United Kingdom, Colombia and Venezuela, maintenance is
conducted by Company personnel, and elsewhere by the Company's international
agents who are subject to periodic quality control inspection and supervision by
Company personnel.
INTELLECTUAL PROPERTY
The Company believes that the proprietary aspects of many of its products
and services provide it with certain competitive advantages. In particular, the
Company believes that the trademarks and servicemarks protecting the Dailey name
in domestic and international markets are of primary importance. The Company
relies on a combination of patents, trade secrets, trademarks and servicemarks
and copyrights to protect its proprietary technologies and intellectual
properties. Patents protect features of the Dailey Hydraulic Jar and Dailey
Hydraulic Fishing Jar, as well as other of the Company's products and services.
Although the Company does not consider its business to be wholly dependent on
any single patent or trademark, the unexpected loss of patent protection for the
Dailey Hydraulic Jar or Dailey Hydraulic Fishing Jar could have a material
adverse effect on the Company.
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<PAGE> 56
OPERATING RISKS AND INSURANCE
The operations of the Company's customers are subject to hazards inherent
in the oil and gas industry, such as blowouts, explosions, craterings, fires and
oil spills, that can cause personal injury or loss of life, damage to or
destruction of property, equipment, the environment and marine life, and
suspension of operations. Claims for loss of oil and gas production and damage
to formations can occur in the workover process. Additionally, the Company often
is required to indemnify major customers pursuant to master service agreements.
If a serious accident were to occur where the Company's downhole tools are used
or its directional drilling services are being provided, the Company could be
named as a defendant in lawsuits asserting potentially large claims.
As protection against operating hazards, the Company maintains insurance
coverage that it believes to be customary in the industry against these hazards
and, whenever possible, obtains agreements from customers providing for
indemnification against liability. The Company maintains general liability
insurance to cover its buildings, equipment and other property as well as
worker's compensation, maritime employer, auto, crime and political risk
insurance. The Company also is insured under an umbrella liability policy. Most
of the Company's policies provide for coverage on a per-occurrence basis, rather
than a claim basis. The Company's policies generally exclude coverage for losses
and liabilities relating to environmental damage or pollution, breach of
contract or fraud or deceptive practices. The Company does not maintain
professional liability insurance.
Historically the Company's insurance coverage has greatly exceeded the
amount of its claims and management believes that the Company's insurance
coverage is adequate for its present operations. However, a successful liability
claim for which the Company is underinsured or uninsured could have a material
adverse effect on the Company.
COMPETITION
All of the Company's products and services are offered in
highly-competitive markets in which many of the Company's competitors are
divisions or subsidiaries of larger, better capitalized corporations. The
Company believes that its leading competitors are fully-integrated service
companies, but it also competes on a regional basis with numerous smaller,
independent companies that offer only relatively limited lines of products and
services compared to fully-integrated competitors.
Management expects competition and customer price pressures to continue for
the foreseeable future with respect to its specialty services and downhole
tools.
EMPLOYEES
At January 31, 1998, the Company had 716 employees, approximately 75% of
whom were located in the United States. The Company has never experienced a work
stoppage and considers its employee relations to be excellent. The Company has
no collective bargaining agreements.
REGULATION
Various federal, state and local laws and regulations covering the release
of materials into the environment, or otherwise relating to the protection of
the public health and the environment, affect the Company's and its customers'
domestic operations, expenses and costs. The trend in environmental regulation
has been to place more restrictions and limitations on activities that may
impact the environment, such as emissions of pollutants, generation and disposal
of wastes, and use and handling of chemical substances. Increasingly strict
environmental restrictions and limitations, as well as the obligation to
remediate existing contamination, have resulted in increased operating costs for
the Company and other similar businesses throughout the United States. The costs
of compliance with environmental laws and regulations may continue to increase,
both for the Company and its customers. In this regard, the Resource
Conservation and Recovery Act ("RCRA"), a federal statute governing the disposal
of solid and hazardous wastes, includes a statutory exemption that allows oil
and gas exploration and production wastes to be classified as nonhazardous
waste. A
50
<PAGE> 57
similar exemption is contained in many of the state counterparts to RCRA. If oil
and gas exploration and production wastes were required to be managed and
disposed of as hazardous waste, either as a result of a change in RCRA or the
imposition of more stringent state regulations, domestic oil and gas producers,
including many of the Company's customers, could be required to incur
substantial obligations with respect to such wastes. Because of the potential
impact on the Company's customers, any regulatory changes that impose additional
restrictions or requirements on the disposal of oil and gas wastes could
adversely affect demand for the Company's products and services. In addition,
the Company is subject to laws and regulations concerning occupational health
and safety. The Company's international operations also are subject to
international laws respecting environmental and worker safety matters in the
countries in which they operate. The Company believes that it is in substantial
compliance with the requirements of environmental and occupational health and
safety laws and regulations, but inasmuch as such laws and regulations are
frequently changed, the Company is unable to predict the ultimate impact of such
laws and regulations on the Company's business. Any violation of such laws could
subject the Company to fines, penalties or other liabilities.
Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal 1997 were not material. Based on the Company's
experience to date, the Company currently does not anticipate any material
adverse effect on its results of operations or financial condition as a result
of future compliance with existing environmental laws and regulations
controlling the discharge of materials into the environment. However, future
events, such as changes in existing laws and regulations or their
interpretation, more vigorous enforcement policies of regulatory agencies, or
stricter or different interpretations of existing laws and regulations, may
require additional expenditures by the Company, which may be material.
PROPERTIES
The following table summarizes the Company's significant owned and leased
properties as of January 31, 1998.
<TABLE>
<CAPTION>
LOCATION OF FACILITY PROPERTY INTEREST USES
-------------------- ----------------- ----
<S> <C> <C>
Conroe, Texas.................. Leased(1) Corporate Offices, Sales,
Manufacturing, Maintenance, R&D
Aberdeen, Scotland............. Leased Sales, Maintenance
Alice, Texas................... Leased Wireline Services,
Tubular Testing, Handling Office
Anchorage, Alaska.............. Owned Sales, Maintenance
Anaco, Venezuela............... Leased Sales, Maintenance
Bakersfield, California........ Leased Sales
Bogota, Colombia............... Leased Sales, Maintenance
Cabimas, Venezuela............. Leased Directional Drilling Office,
Sales, Maintenance
Corpus Christi, Texas.......... Owned Sales, Maintenance
Houma, Louisiana............... Owned Sales, Maintenance
Houma, Louisiana............... Leased/Owned Wireline Services,
Tubular Testing, Handling Office
Houston, Texas................. Owned Directional Drilling Office,
Sales, Maintenance
Lafayette, Louisiana........... Owned Directional Drilling Office,
Sales, Maintenance
Englewood, Colorado............ Leased ADI Corporate Offices
Casper, Wyoming................ Leased Air Drilling Office
Casper, Wyoming................ Leased Directional Drilling Office
Nisku, Alberta, Canada......... Leased Air Drilling Office
</TABLE>
- ---------------
(1) Leased from Lawrence. See "Certain Relationships and Related Transactions".
51
<PAGE> 58
LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any pending legal proceedings, other than ordinary routine litigation incidental
to its business, including litigation relating to the Company's intellectual
property. Each of such matters is believed to be either covered by insurance or
not material in amount. The Company knows of no pending or threatened legal
proceedings, or judgments entered against, any director or officer of the
Company in his capacity as such.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Restated Certificate of Incorporation provides for the
classification of the Board of Directors into three classes of directors, with
the term of each class expiring at successive annual stockholders' meetings. Set
forth below is the name, age as of the date of this Offering Circular and
position of each of the directors and executive officers of the Company, and,
with respect to each director, the year of expiration of his current 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 1999
Directors
James F. Farr(2)................ 41 President, Chief Executive 1999
Officer and Director
William D. Sutton(1)(2)......... 44 Senior Vice President, General 2000
Counsel, Secretary and
Director
David T. Tighe(2)............... 46 Senior Vice 2000
President -- Finance, Chief
Financial Officer, Treasurer
and Director
Bernard J. Duroc-Danner(1)(3)... 43 Director 1998
Al Kite(1)(3)................... 64 Director 1998
John W. Sinders, Jr.(4) ........ 44 Advisory Director 1998
</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.
(4) Mr. Sinders 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.
All officers of the Company are elected by the Board of Directors of the
Company and hold office until the earlier of their resignation, removal or other
termination. All of the executive officers listed above have entered into
employment agreements with the Company pursuant to which they hold their current
positions. See "-- Employment Agreements".
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 the President and 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 Dailey's products and services, and developing and
maintaining Dailey's
52
<PAGE> 59
relationships with its agents. From August 1988 to October 1989, Mr. Farr served
as Managing Director of Dailey Energy Services, Inc., the Company's wholly-owned
subsidiary, and as Regional Manager for Europe/ West Africa, with responsibility
for the Dailey's facilities in the United Kingdom as well as marketing
operations in Europe/West Africa. From 1975 to August 1988, he served Dailey 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 Dailey 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. 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 of Tandem Industries, Inc. from 1980
to 1982.
Bernard J. 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 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. 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. and Forman Petroleum Corporation. See
"Certain Relationships and Related Transactions".
COMMITTEES
Pursuant to the Company's Bylaws, the Board has established standing Audit,
Executive and Compensation committees. The Audit Committee recommends to the
Board the selection and discharge of the Company's independent auditors, reviews
the professional services performed by, and the independence of, the auditors,
reviews the plan and results of the auditing engagement and the amount of fees
charged for audit services performed by the auditors, and evaluates the
Company's system of internal accounting controls. The Compensation Committee
recommends to the Board the compensation to be paid to the Company's directors,
executive officers and key employees and administers the compensation plans for
the Company's executive officers. The Executive Committee acts on behalf of the
Board between regularly scheduled meetings of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to September 1996, compensation levels were determined by the
Company's Board of Directors, each of the members of which are officers of the
Company. Following the 1996 IPO, the Compensation Committee has determined
compensation levels and other benefits payable to the Company's executive
officers, other than compensation pursuant to employment agreements entered into
prior to the 1996 IPO.
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<PAGE> 60
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 will be reserved for grant of options to
purchase Class A Common Stock. To date, options to acquire 20,000 shares of
Class A Common Stock at an exercise price equal to the fair market value of the
Class A Common Stock 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.
54
<PAGE> 61
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth information with
respect to the President and Chief Executive Officer of the Company and the
other four most-highly compensated officers of the Company for each of the
fiscal years ended April 30, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, 1997
---------------------------------------------------------------------------
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------------- RESTRICTED SECURITIES
OTHER STOCK UNDERLYING ALL OTHER
ANNUAL AWARDS 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 1996 IPO, Mr. Lawrence's annual 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 $22,208 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.
(6) Includes $17,308 related to accrued vacation cashed rather than taken during
the year and $18,367 related to a Company auto allowance.
(7) Includes $16,618 related to accrued vacation cashed rather than taken during
the year and $5,105 related to a Company automobile.
(8) Mr. Percle was not employed by the Company during the year ended April 30,
1996. Mr. Percle ceased to be employed by the Company effective June 23,
1997.
(9) Relates to payments for a Company automobile.
55
<PAGE> 62
The following chart summarizes information relating to options granted to
the named executive officers during the year ended April 30, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/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 chart summarizes certain information relating to the value of
options held by the named executive offices at April 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997 AND VALUE TABLE AT
APRIL 30, 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED 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.
EMPLOYMENT AGREEMENTS
Each of Messrs. Lawrence, Farr, Sutton and Tighe (collectively, the
"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, 2000, except the
Executive Employment Agreement with Mr. Lawrence, which has an initial term
through December 31, 1999. The Executive Employment Agreements provide for a
minimum annual salary during the term of the Executive Employment Agreements of
approximately $100,000, $336,000, $273,000 and $216,000 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 cause (as hereinafter defined) or by the Executive Officer at any
time for any reason.
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<PAGE> 63
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 the greater of his
total base salary for the remainder of the employment period (as defined in the
Executive Employment Agreement) or 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, (i) to pay an amount equal to the Executive Officer's
most recent annual bonus and (ii) to cause the Executive Officer to become fully
vested in any stock options and stock grants held by him. If the Company
terminates the Executive Employment Agreement with Mr. Lawrence for any reason
other than for "cause" and such termination occurs within one year of a change
in control, or if Mr. Lawrence 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 Mr.
Lawrence 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. If the Company
terminates the Executive Employment Agreement of Messrs. Farr, Sutton or Tighe
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 of control, the Company is
required (i) to pay the Executive Officer 2.99 times his annualized base salary
in effect upon the occurrence of the change in control, (ii) to pay the
Executive Officer an amount equal to 2.99 times the greater of his most recent
annual bonus or a target bonus of $243,000, $50,000 and $50,000 for Messrs.
Farr, Sutton and Tighe, respectively, and (iii) to cause the Executive Officer
to become fully vested in any stock options and stock grants held by him.
EMPLOYEE STOCK PLANS
The Company has established its 1996 Key Employee Stock Plan (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
are available for future grants. Under the 1996 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 Compensation Committee. As of the
date of this Prospectus, the Company less than 1,000 shares available for grant
under such plan. In addition, the Company has adopted the 1997 Plan pursuant to
which incentive and non-qualified options, restricted shares, stock appreciation
rights and other performance-based awards may be granted to key employees of the
Company. The 1997 Plan initially has 720,000 shares of Class A Common Stock
available for issuance. The number of shares of Class A Common Stock available
for issuance under the 1997 Plan is subject to adjustment as of January 1 of
each year if the total number of shares of Class A Common Stock issued and
outstanding exceeds the number of shares of Class A Common Stock outstanding as
of January 1 of the preceding year. In such case, the number of shares available
for issuance will be increased by an amount such that the total number of shares
available for issuance under the 1997 Plan equals 7.85% of the total number of
shares of Class A Common Stock outstanding, not including shares issued pursuant
to the 1997 Plan. To date, the Company has granted under the 1997 Plan options
to purchase 150,000 shares of Class A Common Stock and 236,000 shares of
restricted Class A Common Stock.
401(k) PLAN
The Company's domestic employees are eligible to participate in a defined
contribution retirement plan that complies with Section 401(k) of the Internal
Revenue Code (the "Code") and that was adopted by Lawrence prior to the 1996 IPO
for its employees and the employees of its subsidiaries. Pursuant to the plan,
the Company provides matching contributions equal to 50% of the employee's
contribution, subject to a maximum matching contribution equal to 3% of the
employee's compensation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL STOCKHOLDER
Prior to the 1996 IPO, Dailey had funded certain of its working capital
requirements through advances from Lawrence, which had been evidenced by a note
to Lawrence. Dailey repaid the full amount of principal of such note with $1.6
million of the net proceeds from the 1996 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 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 Dailey. The remaining $5.0 million principal plus
accrued interest was repaid utilizing a portion of the net proceeds from the
1996 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 International, Inc. During fiscal 1995, 1996 and 1997, the
Company incurred rent expense of $1,244,000, $1,306,000 and $915,000,
respectively, relating to such properties. Prior to completion of the 1996 IPO,
Dailey entered into a new lease agreement with Lawrence International, Inc.
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 Dailey and Lawrence International, Inc. 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 1996 IPO
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 1996 IPO, the Company was included in the consolidated federal
income tax returns filed by Lawrence as the common 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 is 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 "Lawrence 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
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<PAGE> 65
of a minimum of 500,000 shares and up to all 5,000,000 shares of Class B Common
Stock beneficially owned by Lawrence that Lawrence (or such assignees) requests
to be registered under the Securities Act and applicable state securities laws.
The Company will become obligated to register the sale of the Class B Common
Stock on one additional occasion if Mr. Lawrence dies during the term of the
Lawrence 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 Class B Common Stock owned
by it 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 Services, Inc. leases its Casper, Wyoming property from Melodi
Lane Investments, L.L.C. ("Melodi Lane"), a limited liability company in which
Mr. Chaman Malhotra, an employee of the Company, is a member. The lease is for a
term of ten years, expiring in June 2006, and provides for monthly rental
payments of $4,250, subject to adjustment beginning July 2001. The lease also
provides Air Drilling Services, Inc. with a right to purchase the property at
its fair market value on or before May 31, 2001. Air Drilling Services, Inc.
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 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.
A subsidiary of ADI also leases real property in Nisku, Alberta from
Malhotra Enterprises Ltd. ("Malhotra Enterprises"), a Canadian corporation in
which both Mr. Malhotra and Mr. Tommy Ramsay, an employee of the Company, are
shareholders. Lease payments for this real property aggregate CDN $8,470 per
month. The lease expires in December 2005. A subsidiary of 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 1986, Dailey purchased the design, patents and rights to certain
hydraulic tools and entered into a royalty agreement with the seller that
expires in 1999 and 2003 as to the covered hydraulic drilling and fishing jars,
respectively. Royalty agreements were executed between Dailey and the royalty
owner in fiscal 1993 and fiscal 1994 on newly issued methods and apparatus
patents related to a double-acting drilling accelerator and improvements to
hydraulic drilling jars. In March 1994, the royalty agreements were amended to
cap royalties at 5% of annual net rental revenues derived from the hydraulic
drilling and fishing jars and double-acting drilling accelerators through
December 1999, with the royalty percentage decreasing to 4% from January 2000 to
expiration of the applicable patents. Upon expiration of the patents, no
royalties will be required. The amended agreement also revised the 1% royalty
paid on net lost-in-hole revenue for the original hydraulic drilling jar patent
to the 2% provided in subsequent royalty agreements. In consideration for the
execution of the amendment to the royalty agreement, Dailey agreed to pay the
owner of the royalty $250,000 in royalties. The $250,000, net of imputed
interest, was recorded as an expense at April 30, 1994, and subsequent to that
date, Dailey arranged for the payment of this amount through a note payable. For
the years ended April 30, 1997, 1996 and 1995, the accompanying consolidated
statements of operations include royalty expense of $879,000, $843,000 and
$826,000, respectively, excluding the $250,000 related to the amended royalty
agreement. The owner of the royalty was an officer of Dailey until October 1994.
During fiscal 1996, the Company's Chairman of the Board repaid
approximately $87,000 relating to a loan made by Dailey in June 1994. Such loan
was evidenced by a promissory note in the principal amount of $75,000, accrued
interest at a rate of 8.0% and was repayable on demand. During the year ended
April 30,
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<PAGE> 66
1996, Dailey paid a salary of $206,406, including bonuses, to Melissa Lawrence,
the daughter of the Chairman of the Board. This employment arrangement was
terminated on April 30, 1996, and the Company does not anticipate paying any
salaries or bonuses to Ms. Lawrence in the future. In addition, during the
fiscal years ended April 30, 1995, 1996 and 1997, Dailey purchased office
supplies totaling $136,588, $114,041 and $24,521, respectively, from a company
owned and controlled by the Chairman's wife.
In August 1997, John W. Sinders, Jr., and Executive Vice President of
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 cash compensation for his position as a non-voting advisory director, he
has been granted options to purchase 10,000 shares of Common Stock and the
Company may offer him additional compensation in the future. Jefferies has
provided investment banking services to the Company in the past, including
serving as lead underwriter in the 1996 IPO and as the initial purchaser in the
sale and issuance of the Old Notes, for which Jefferies has received usual and
customary fees. Jefferies sold the Old Notes to the Company contemporaneously
with the closing of the issuance of the Outstanding Notes at an aggregate price
of 111% of their principal amount, plus accrued and unpaid interest up to, but
not including, the date of payment. Jefferies acquired the Old Notes in
privately negotiated transactions with qualified institutional buyers and
institutional accredited investors. Pursuant to a letter agreement between the
Company and Jefferies, 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. Except for usual and
customary fees paid in connection with the DWS/DAMCO Acquisition and $1.0
million in connection with other financial advisory services, the Company has
not paid Jefferies and is not obligated to pay Jefferies any compensation for
services rendered under this agreement to otherwise to date. Jefferies may
provide additional investment banking and financial advisory services to the
Company in the future.
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SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Class A Common Stock and Class B Common Stock as of January 30,
1998, by (i) each director 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(2)
NAME AND ADDRESS OF COMMON PERCENT COMMON PERCENT VOTING
BENEFICIAL OWNER STOCK CLASS A STOCK CLASS B POWER
------------------- ------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Lawrence(3).............................. -- -- 5,000,000 100% 88%
J.D. Lawrence(3)......................... -- -- 5,000,000 100% 88%
Robertson, Stephens & Co. Investment
Management L.P.(4)..................... 292,400 6.5% -- -- *
James F. Farr............................ 247,912(5) 5.4% -- -- *
William D. Sutton........................ 217,912(5) 4.8 -- -- *
David T. Tighe........................... 234,912(5) 5.2% -- -- *
Bernard J. Duroc-Danner.................. 20,000(6) * -- -- *
Al Kite.................................. 20,000(6) * -- -- *
John W. Sinders.......................... --(7) -- -- -- --
------- ---- --------- --- ---
All executive officers and directors as a
group (7 Persons)...................... 740,736(8) 15.8% 5,000,000 100% 90%
</TABLE>
- ---------------
* Less than 1%.
(1) The 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) Based solely on a Schedule 13D and all amendments thereto (the "Schedule
13D") filed on behalf of the Robertson Stephens Orphan Fund, Robertson,
Stephens & Company Investment Management, L.P. ("RS&Co., L.P."), Bayview
Investors, Ltd., The Robertson Stephens & Company Global Natural Resources
Fund (the "Natural Resources Fund"), The Robertson Stephens Partners Fund
(the "Partners Fund"), Robertson, Stephens & Company, Inc. ("RS&Co. Inc.")
and RS&Co., Inc.'s five shareholders, Messrs. Sanford R. Robertson, Paul H.
Stephens, Michael G. McCaffery, G. Randy Hecht, and Kenneth R. Fitzsimmons
(collectively, the "Robertson Shareholders"). Based on the Schedule 13D,
RS&Co., L.P., as general partner of the Natural Resources Fund and the
Partners Fund, beneficially owns the 161,400 shares and 131,000 shares of
Class A Common Stock owned by the Natural Resources Fund and Partners Fund,
respectively. RS&Co, Inc., as general partner of RS&Co., L.P. is deemed to
beneficially own the 292,400 shares of Class A Common Stock beneficially
owned by RS&Co., L.P. Based on the Schedule 13D, the Robertson Shareholders
disclaim any ownership of the shares of Common Stock beneficially owned by
RS&Co., Inc.
(5) Includes presently exercisable options to purchase 97,912 shares of Class A
Common Stock.
(6) Represents options exercisable within 60 days to purchase 20,000 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.
(7) Excludes options to purchase 10,000 shares that are not exercisable within
60 days.
(8) Includes options, exercisable within 60 days, to purchase 333,736 shares of
Class A Common Stock.
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<PAGE> 68
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued under an indenture (the "Indenture")
dated as of February 13, 1998, among the Company, the Subsidiary Guarantors and
U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"). Upon the issuance
of the Exchange Notes or the effectiveness of the Exchange Offer Registration
Statement, the Indenture will be subject to and governed by the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indenture, including the definition of certain terms contained
therein and those terms that are made a part of the Indenture by reference to
the Trust Indenture Act. Copies of the Indenture and Registration Rights
Agreement have been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Capitalized terms not otherwise defined below or
elsewhere in this Prospectus have the meanings given to them in the Indenture.
The definitions of certain capitalized terms used in the summary are set forth
below under "-- Certain Definitions".
The Indenture provides for the issuance of up to $275 million of
Outstanding Notes and an equal aggregate principal amount of Exchange Notes that
may be issued in exchange for Outstanding Notes pursuant to the Exchange Offer.
The Indenture also provides the Company the flexibility of issuing additional
Notes in the future in an unlimited amount; however, any issuance of such
additional Notes would be subject to the covenant described in the first
paragraph under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness". The Outstanding Notes, the Exchange Notes and any additional
Notes are collectively referred to as the "Notes" in this "Description of the
Exchange Notes".
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be unsecured senior general obligations of the
Company, will mature on February 15, 2008 (the "Maturity Date") and will be
limited in aggregate principal amount to $275,000,000. The Exchange Notes will
be issued in denominations of $1,000 and integral multiples thereof. Subject to
certain exceptions, the Exchange Notes will be initially sold to Qualified
Institutional Buyers in book-entry form, registered in the name of a nominee of
the Depository Trust Company ("DTC"), the transfers of which will be effected
through records maintained by DTC and its participants in registered
certificated form. See "-- Book Entry; Delivery and Form".
The Exchange Notes will accrue interest at the rate per annum shown on the
cover page of this Prospectus from the date of issuance of the Exchange Notes,
or from the most recent interest payment date to which interest has been paid or
for which interest has been duly provided. Interest on the Outstanding Notes
that are tendered in exchange for the Exchange Notes that has accrued from
February 13, 1998, the date of issuance of the Outstanding Notes, through the
Exchange Date will be payable on or before August 15, 1998. Outstanding Notes
that are accepted for exchange will cease to accrue interest on and after the
date on which interest on the Exchange Notes will begin to accrue. Accrued and
unpaid interest will be payable semi-annually on February 15 and August 15 of
each year, commencing August 15, 1998. Interest will be paid to the Person in
whose name the Exchange Note is registered at the close of business on the
February 1 or August 1 next preceding such interest payment date. Interest will
be computed on the basis of a 360-day year of twelve 30-day months. The Exchange
Notes will be payable both as to principal and interest at the office or agency
of the Company maintained for such purpose within the City and State of New York
and in the case of Exchange Notes not in book-entry form, interest may be paid,
at the option of the Company, by check mailed to the holders of the Notes
("Holders") at their respective addresses set forth in the register of Holders.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. Any
Outstanding Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
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<PAGE> 69
RANKING
The Exchange Notes will be unsecured, senior general obligations of the
Company, ranking pari passu in right of payment with all other Indebtedness of
the Company that is not subordinated by its terms to other Indebtedness of the
Company and senior to all Indebtedness of the Company that by its terms is so
subordinated.
The holders of secured Indebtedness of the Company (including Indebtedness
under the Company's Credit Facility, which is secured by substantially all
property, equipment, inventory, intellectual property and receivables of the
Company and the Subsidiary Guarantors), will have claims with respect to the
assets constituting collateral for such Indebtedness that are prior to claims of
Holders. In the event of a default on the Notes or a bankruptcy, liquidation or
reorganization of the Company, such assets will be available to satisfy
obligations with respect to the Indebtedness secured thereby before any payment
therefrom could be made on the Notes. To the extent that the value of such
collateral is not sufficient to satisfy the Indebtedness secured thereby,
amounts remaining outstanding on such Indebtedness would be entitled to share
with the Notes and their claims with respect to any other assets of the Company.
The Exchange Notes will be effectively subordinated to claims of creditors
and preferred stockholders of the Company's Subsidiaries (other than the Company
and any Subsidiary Guarantor) and the claims of secured creditors of the
Subsidiary Guarantors. Claims of creditors and preferred stockholders of such
subsidiaries (other than the Company and any Subsidiary Guarantor), including
trade creditors, tort claimants, secured creditors, taxing authorities and
creditors holding guarantees, will generally have priority as to assets of such
subsidiaries over the claims and equity interests of the Company and, thereby
indirectly, the holders of the Indebtedness of the Company, including the Notes.
At October 31, 1997, on a pro forma basis after giving effect to the DWS/DAMCO
Acquisition, the issuance of the Outstanding Notes and the application of the
net proceeds therefrom, the Notes and Subsidiary Guarantees would have been
effectively subordinated to $2.1 million of secured Indebtedness (excluding
letters of credit) of the Subsidiary Guarantors.
REDEMPTION AND REPURCHASE
Optional Redemption. The Exchange Notes will be redeemable at the option of
the Company, at any time or in part from time to time, on and after February 15,
2003 at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the twelve-month period commencing on
February 15 of the year set forth below, plus, in each case, accrued interest
thereon to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ 104.750%
2004........................................................ 103.167%
2005........................................................ 101.583%
2006 and thereafter......................................... 100.000%
</TABLE>
In the event of a redemption of less than all of the Notes, the Notes will
be selected for redemption by the Trustee in multiples of $1,000 pro rata, by
lot or by any other method that the Trustee considers fair and appropriate, and,
if the Exchange Notes are listed on any securities exchange, by a method that
complies with the requirements of such exchange. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder of Notes to be redeemed at such Holder's registered address. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption (unless the Company shall default in the payment
of the redemption price or accrued interest).
In addition, at any time or from time to time on or prior to February 15,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes originally issued at 109 1/2% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of redemption with the Net
Proceeds of one or more Public Equity Offerings; provided that, immediately
after giving effect to such redemption, at
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<PAGE> 70
least 65% of the aggregate principal amount of the Notes originally issued
remains outstanding immediately after such redemption and that such redemption
occurs within 60 days following the closing of such Public Equity Offering.
Offers to Purchase. As described below, (i) upon the occurrence of a Change
of Control, the Company will be obligated to make an offer to purchase all
outstanding Notes at a purchase price in cash equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase and (ii) upon certain sales or other dispositions of assets, the
Company may be obligated to make offers to purchase Notes with a portion of the
Net Available Proceeds of such sales or other dispositions at a purchase price
in cash equal to 100% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase. See "-- Change of Control" and
"-- Certain Covenants -- Limitation on Assets Sales".
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer to purchase all of the then-outstanding Notes (a "Change of
Control Offer") and shall purchase, on a Business Day (the "Change of Control
Purchase Date"), not more than 60 nor less than 30 days following the Change of
Control, all or any part of the then-outstanding Notes validly tendered pursuant
to such Change of Control Offer, at a purchase price (the "Change of Control
Purchase Price") in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date. The
Change of Control Offer is required to remain open for at least 20 Business Days
and until the close of business on the fifth Business Day prior to the Change of
Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than 30 days after the Change of Control, mail to the Trustee and to each
Holder of the Notes notice of the Change of Control Offer, which notice shall
govern the terms of the Change of Control Offer and shall state, among other
things, the procedures that Holders of the Notes must follow to accept the
Change of Control Offer.
The Company, to the extent applicable and if required by law, will comply
with Sections 13 and 14 of the Exchange Act and the provisions of Rule 14e-1 of
the Exchange Act and any other tender offer rules under the Exchange Act and any
other federal and state securities laws, rules and regulations which may then be
applicable to any offer by the Company to purchase the Notes pursuant to the
Change of Control covenant.
Should a Change of Control occur and a substantial amount of the Notes be
presented for purchase, there can be no assurance that the Company would have
sufficient financial resources to enable it to purchase such Notes. In the event
the Company is required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Company expects that it would seek third-party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing. The Credit Facility may provide that certain change of control events
with respect to the Company would constitute an event of default thereunder and
permit the agent or lenders thereunder to terminate the commitment of the
lenders under the Credit Facility and declare all amounts outstanding thereunder
to be due and payable. Any future credit agreements or other arrangements
relating to Senior Indebtedness to which the Company or any of its Subsidiaries
becomes a party may contain similar restrictions and provisions. In the event
that a Change of Control occurs at a time when the Company is prohibited from
purchasing the Notes, the Company could seek the consent of its lenders to
purchase the Notes or could attempt to repay or refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company will remain prohibited from purchasing the Notes.
The Indenture provides that a default in the payment of the Change of
Control Purchase Price when due would constitute an Event of Default under the
Indenture.
The Change of Control provisions of the Indenture, as well as the
restrictions in the Indenture on the ability of the Company and its Subsidiaries
to incur additional Indebtedness, to grant Liens on their property, to make
Restricted Payments and to make Asset Sales, may make more difficult or
discourage a takeover of
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<PAGE> 71
the Company, whether favored or opposed by current management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that the
Company or the acquiring party will have sufficient financial resources to
effect such redemption or repurchase. Such restrictions and the restrictions on
transactions with Related Persons may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
permit the Holders of the Notes to require that the Company repurchase or redeem
the Notes in the event of a takeover, a recapitalization or similar
restructuring.
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control.
One of the events that constitutes a Change of Control under the Indenture
is a sale, conveyance, transfer or lease of all or substantially all of the
assets of the Company and the Subsidiaries, taken as a whole to any Person other
than the Company or a Subsidiary Guarantor that is a Wholly-Owned Subsidiary.
The Indenture will be governed by New York law, and there is no established
quantitative definition under New York law of "substantially all" of the assets
of a corporation. Accordingly, if the Company were to engage in a transaction in
which it disposed of less than all of its assets, a question or interpretation
could arise as to whether such disposition was of "substantially all" of its
assets and whether the Company was required to make a Change of Control Offer.
The provisions of the Indenture may not afford Holders protection in the
event of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction affecting the Company that may adversely affect Holders,
if such transaction is not the type of transaction included within the
definition of Change of Control. A transaction involving the management of the
Company or its Affiliates, or a transaction involving a recapitalization of the
Company, will result in a Change of Control only if it is the type of
transaction specified in such definition.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors, which consist of all of the Company's
Subsidiaries as of the Issue Date other than any Exempt Foreign Subsidiary, as
designated by the Company, will unconditionally guarantee, jointly and
severally, to each Holder and the Trustee, the full and prompt performance of
the Company's obligations under the Indenture and the Notes, including the
payment of principal of, premium, if any, and interest on the Notes. In addition
to the initial Subsidiary Guarantors, the Company will cause each Person (other
than an Unrestricted Subsidiary and any Exempt Foreign Subsidiary) that shall
become a Material Subsidiary after the Issue Date to execute and deliver a
supplement to the Indenture pursuant to which such Person will guarantee the
payment of the Notes on the same terms and conditions as the Subsidiary
Guarantees by the Subsidiary Guarantors. As described below under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness", no Subsidiary
that is not already a Subsidiary Guarantor shall incur any Indebtedness with
respect to Indebtedness of the Company or another Subsidiary unless such
Subsidiary becomes a guarantor of the Notes. As a result, claims of creditors
against Unrestricted Subsidiaries, Exempt Foreign Subsidiaries and Subsidiaries
that have not delivered Guarantees, including their trade creditors and tort
claimants, will effectively have priority to the property and earnings of such
Subsidiaries over claims of creditors of the Company, including Holders.
The Exempt Foreign Subsidiaries as of February 6, 1998 accounted for 17% of
the Company's revenues for the six months ended October 31, 1997. In addition,
such Exempt Foreign Subsidiaries represented approximately 8% of the Company's
total assets as of October 31, 1997.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness of
such Subsidiary Guarantor) of such Subsidiary Guarantor and after giving effect
to any collections from or
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payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to a contribution
from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted
Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its properties and assets to
the Company or another Subsidiary Guarantor without limitation, except to the
extent any such transaction is subject to the "Merger, Consolidation or Sale of
Substantially All Assets" covenant of the Indenture. Each Subsidiary Guarantor
may consolidate with or merge into or sell or otherwise dispose of all or
substantially all of its properties and assets to a Person other than the
Company or another Subsidiary Guarantor that is a Wholly-Owned Subsidiary
(whether or not affiliated with the Subsidiary Guarantor that is a Wholly-Owned
Subsidiary), provided that (i) if the surviving Person is not the Subsidiary
Guarantor, the surviving Person agrees to assume such Subsidiary Guarantor's
Subsidiary Guarantee and all its obligations pursuant to the Indenture (except
to the extent the following paragraph would result in the release of such
Subsidiary Guarantor) and (ii) such transaction does not (a) violate any of the
covenants described below under "-- Certain Covenants" or (b) result in a
Default or Event of Default immediately thereafter that is continuing.
Upon the sale or other disposition (by merger or otherwise) of a Subsidiary
Guarantor or all or substantially all of its properties and assets pursuant to a
transaction that is otherwise in compliance with the Indenture (including as
described in the foregoing paragraph), such Subsidiary Guarantor shall be deemed
released from its Subsidiary Guarantee and the related obligations set forth in
the Indenture; provided, however, that any such termination shall occur only to
the extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, other Indebtedness of the Company or any Subsidiary
shall also terminate or be released upon such sale or other disposition. Each
Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Subsidiary Guarantee
and related obligations set forth in the Indenture for so long as it remains an
Unrestricted Subsidiary.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness
The Company will not, and will not permit any of the Subsidiaries to,
directly or indirectly, issue, incur, assume, guarantee, become liable,
contingently or otherwise, with respect to or otherwise become responsible for
the payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default with
respect to the Notes shall have occurred and be continuing at the time or as a
consequence at the incurrence of such Indebtedness, the Company may incur
Indebtedness and any Subsidiary may incur Indebtedness, if on the date of the
incurrence or issuance, the Company's Consolidated EBITDA Coverage Ratio would
have been greater than 2.0 to 1.0.
For purposes of determining any particular amount of Indebtedness under
this covenant, guarantees by the Company or any of the Subsidiaries of
Indebtedness of the Company or any of the Subsidiaries otherwise included in the
determination of such amount shall not also be included.
Notwithstanding anything to the contrary in this covenant, no Subsidiary
that is not already a Subsidiary Guarantor shall incur any Indebtedness with
respect to any Indebtedness of the Company or any other Subsidiary unless such
Subsidiary, the Company and the Trustee execute and deliver a supplemental
indenture evidencing such Subsidiary's Subsidiary Guarantee of the Notes, such
Subsidiary Guarantee to be a senior unsecured obligation of such Subsidiary on
the same terms as the Subsidiary Guarantees by the other Subsidiary Guarantors.
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For purposes of determining any particular amount of Indebtedness incurred
under this covenant, any Indebtedness of the Company or any Subsidiary incurred
for, or related to, a Person other than another Subsidiary or the Company, as
applicable, shall be deemed to be in an amount equal to the greater of (i) the
lesser of (a) the full amount of the Indebtedness of such other Person or (b)
the fair market value of the assets and properties of the Company or such
Subsidiary, as to which the holder or holders of such Indebtedness are expressly
limiting the obligations of the Company or such Subsidiary, the value of which
assets and properties of the Company or any Subsidiary will be as determined in
good faith by the Board of Directors of the Company or such Subsidiary, as
applicable (which determinations shall be evidenced by a resolution of the Board
of Directors of the applicable Person), and (ii) the amount of the Indebtedness
of such other Person as has been expressly contractually assumed or guaranteed
by the Company or such Subsidiary.
In addition, neither the Company nor any Subsidiary Guarantor may, directly
or indirectly, in any event incur any Indebtedness that by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be,
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Notes or the
Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated pursuant
to subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Limitation on Restricted Payments
The Company will not, and will not permit any of the Subsidiaries to,
directly or indirectly, make any Restricted Payment, if at the time of such
Restricted Payment, and on a pro forma basis after giving effect thereto:
(i) a Default or an Event of Default under the Indenture has occurred and
is continuing;
(ii) the aggregate amount expended for all Restricted Payments subsequent
to the Issue Date exceeds the sum of (without duplication):
(a) 50% of aggregate Consolidated Net Income of the Company (or if
such Consolidated Net Income is a loss, minus 100% of such loss) earned on
a cumulative basis during the period beginning on the first day of the
month containing the Issue Date and ending on the last date of the
Company's fiscal quarter immediately preceding such Restricted Payment;
plus
(b) 100% of the aggregate Net Proceeds received by the Company from
any Person other than a Subsidiary from the issuance and sale subsequent to
the Issue Date of Qualified Capital Stock (excluding (1) any Qualified
Capital Stock paid as a dividend on any Capital Stock or as interest on any
Indebtedness, (2) the issuance of Qualified Capital Stock upon the
conversion of, or in exchange for, any Qualified Capital Stock and (3) any
Qualified Capital Stock with regard to issuances and sales financed
directly or indirectly using funds borrowed from the Company or any
Subsidiary, until and to the extent such borrowing is repaid); plus
(c) to the extent not otherwise included in Consolidated Net Income,
dividends, repayments of loans or advances, or other transfers of assets,
in each case to the Company or a Subsidiary after the date of the Indenture
from any Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Subsidiary (valued in each case as provided in
the definition of Investment) other than amounts constituting Permitted
Unrestricted Subsidiary Investments; plus
(d) $5.0 million; and
(iii) the Company would not be able to incur $1.00 of additional
Indebtedness (excluding Permitted Indebtedness) as provided in the first
paragraph of "-- Limitation on Incurrence of Additional Indebtedness".
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The foregoing provisions of this covenant will not prevent the payment of
any dividend within 60 days after the date of its declaration if the dividend
would have been permitted on the date of declaration; provided, however,
payments made in accordance with this paragraph shall be counted for purposes of
computing amounts expended pursuant to subclause (ii) in the immediately
preceding paragraph.
Limitation on Assets Sales
The Company may not, and may not permit any of its Subsidiaries to, engage
in an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee for an Asset Sale or series of
related Asset Sales involving assets of the Company or its Subsidiaries having
an aggregate value of more than $5.0 million) of the assets or Capital Stock
issued or sold or otherwise disposed of and (ii) the consideration therefor
received by the Company or such Subsidiary is in the form of cash and Cash
Equivalents or Permitted Industry Investments; provided that the amount of any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet) of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or the Subsidiary
Guarantees) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Subsidiary from
further liability shall be deemed to be cash for purposes of this provision (but
shall not be deemed to be "Excess Proceeds" as defined below); and provided
further, that the Company or such Subsidiary may accept proceeds from such Asset
Sale in other than cash, and Cash Equivalents or Permitted Industry Investments
or any combination of the foregoing if the aggregate amount of all proceeds from
all Asset Sales after the Issue Date that are other than cash and Cash
Equivalents or Permitted Industry Investments after such Asset Sale, does not
exceed 15% of Consolidated Net Tangible Assets at the date of such Asset Sale.
Within 365 days after the receipt of any Net Available Proceeds from any
Asset Sale, the Company (or the Subsidiary, as the case may be) may (i) apply
all or any part of the Net Available Proceeds therefrom to repay Senior
Indebtedness of the Company or Guarantor Senior Indebtedness of a Subsidiary
Guarantor or (ii) invest all or any part of the Net Available Proceeds thereof
in Permitted Industry Investments made by the Company or a Subsidiary or, to the
extent not so applied during such 365-day period, to such investments
specifically identified during such 365-day period reasonably anticipated in
good faith by the Board of Directors of the Company to be expended within 180
days after being specifically identified (such 180-day period, the "Project
Period"). Pending the final application of any such Net Available Proceeds, the
Company may temporarily reduce borrowings under any revolving credit facility or
otherwise invest such Net Available Proceeds in any manner that is not
prohibited by the Indenture. Any Net Available Proceeds from Asset Sales
occurring on or after the Issue Date that are not applied or invested within 365
days of the receipt thereof (or if later, within 35 Business Days following an
applicable Project Period) as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds". When the aggregate amount of
Excess Proceeds equals or exceeds $10.0 million, the Company will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of such Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon to the date of purchase
in accordance with the procedures set forth in the Indenture and liquidated
damages as set forth in the Registration Rights Agreement; provided, however,
that, if the Company is required to apply such Excess Proceeds to repurchase, or
to offer to repurchase, any Pari Passu Indebtedness, the Company shall only be
required to offer to repurchase the maximum principal amount of Notes that may
be purchased out of the amount of such Excess Proceeds multiplied by a fraction,
the numerator of which is the aggregate principal amount of Notes outstanding
and the denominator of which is the aggregate principal amount of Notes
outstanding plus the aggregate principal amount of Pari Passu Indebtedness
outstanding. To the extent that the aggregate amount of Notes and Pari Passu
Indebtedness tendered pursuant to an Asset Sale Offer is less than the amount
that the Company is required to repurchase, the Company may use any of such
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount that
the Company is required to repurchase, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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The Credit Facility and any future credit agreements or other amendments
relating to other Senior Indebtedness to which the Company or any of its
Subsidiaries becomes a party may contain limitations on the ability of the
Company or any such Subsidiary to make or consummate an Asset Sales Offer. In
the event that an Asset Sales Offer occurs at a time when the Company is
prohibited from purchasing the Notes, the Company could seek the consent of its
lenders to the purchase of the Notes or could attempt to repay or refinance the
borrowings containing such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company may be prohibited from purchasing
the Notes.
The Company will not permit any Subsidiary to enter into or suffer to exist
any agreement that would place any restriction of any kind (other than pursuant
to law or regulation) on the ability of the Company to make an Asset Sale Offer
following any Asset Sale. The Company will comply with Rule 14e-1 under the
Exchange Act, and any other securities laws and regulations thereunder, if
applicable, in the event that an Asset Sale occurs and the Company is required
to make an Asset Sale Offer.
Limitation on Liens Securing Indebtedness
The Company will not, and will not permit any of the Subsidiaries to,
create, incur, assume or suffer to exist any Liens (other than Permitted Liens)
upon any of their respective Properties securing (i) any Indebtedness of the
Company, unless the Notes are equally and ratably secured or (ii) any
Indebtedness of any Subsidiary Guarantor, unless the Notes or the Subsidiary
Guarantees are equally and ratably secured; provided that if such Indebtedness
is expressly subordinated to the Notes or the Subsidiary Guarantees, the Lien
securing such Indebtedness will be subordinated and junior to the Lien securing
the Notes or the Subsidiary Guarantees, with the same relative priority as such
subordinated Indebtedness will have with respect to the Notes or the Subsidiary
Guarantees, as the case may be.
Limitation on Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create or suffer to exist or allow to become effective any
consensual encumbrance or restriction of any kind (i) on the ability of any of
the Subsidiaries (a) to pay dividends or make other distributions on its Capital
Stock or make payments on any Indebtedness owed to the Company or any other
Subsidiary, (b) to make loans or advances to the Company or any other Subsidiary
or (c) to transfer any of its Property to the Company or any other Subsidiary or
(ii) on the ability of such Person or any other subsidiary of such Person to
receive or retain any such (a) dividends, distributions or payments, (b) loans
or advances or (c) transfers of Property (any such restriction being referred to
herein as a "Payment Restriction"), except for such encumbrances or restrictions
existing under or by reason of (1) the Credit Facility as in effect from time to
time, (2) customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Company or any Subsidiary, (3) any
instrument governing Indebtedness of a Person acquired by the Company or a
Subsidiary at the time of such acquisition, which encumbrance or restriction is
not applicable to any Person, other than the Person, or the Property of the
Person, so acquired, provided that such Indebtedness was not incurred in
anticipation of such acquisition, (4) with respect to clauses (i)(c) and (ii)(c)
above, Purchase Money Obligations for Property acquired in the ordinary course
of business, (5) Indebtedness existing pursuant to a written agreement in effect
on the date of the Indenture, (6) Indebtedness under the Indenture or (7)
Indebtedness incurred to refinance, refund, extend or renew Indebtedness
referred to in clause 1, 3, 4 or 5 above, provided that the Payment Restrictions
contained therein are not materially more restrictive than those provided for in
the Indebtedness being refinanced, refunded, extended or renewed.
Limitation on Transactions with Related Persons
Neither the Company nor any of the Subsidiaries will (i) sell, lease,
transfer or otherwise dispose of any of its Property to, (ii) purchase any
property from, (iii) make any Investment (other than Permitted Unrestricted
Subsidiary Investments and other Investments that do not breach the covenant
described under the caption "-- Limitation on Restricted Payments") in, or (iv)
enter into any contract or agreement with or for the benefit of, a Related
Person of the Company or any Subsidiary (other than the Company or any such
Subsidiary in which no Related Person (other than the Company or another
Wholly-Owned Subsidiary)
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owns, directly or indirectly, an equity interest) (a "Related Party
Transaction"), unless (a) such Related Party Transaction or series of associated
Related Party Transactions is on terms that are no less favorable to the Company
or such Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's length transaction with an unrelated third party, (b) with
respect to any Related Party Transaction or series of associated Related Party
Transactions involving aggregate payments in excess of $1.0 million, the Company
delivers, within 30 days of such Related Party Transaction or series of
associated Related Party Transactions, an Officers' Certificate to the Trustee
certifying that such Related Party Transaction or series of associated Related
Party Transactions complies with the immediately preceding clause (a), and (c)
with respect to a Related Party Transaction or series of associated Related
Party Transactions involving payments of $5.0 million or more, the Company
delivers, within 30 days of such Related Party Transaction or series of
associated Related Party Transactions, an Officers' Certificate to the Trustee
certifying that (1) such Related Party Transaction or series of associated
Related Party Transactions complies with clause (a) above and (2) such Related
Party Transaction or series of associated Related Party Transactions has been
approved by a majority of the independent directors of the Company.
Notwithstanding anything to the contrary in the foregoing, the foregoing
restrictions shall not apply to (A) Related Party Transactions that are approved
by the Board of Directors of the Company and such Subsidiary, if applicable, as
in the best interests of the Company or such Subsidiary, which transactions
together with all other Related Party Transactions in a related series involve
or have an aggregate value not exceeding $1.0 million in each fiscal year; (B)
fees and compensation paid to or agreements with officers, directors, employees
or consultants of the Company or any Subsidiary in each case that are
reasonable, as determined by the Board of Directors or senior management thereof
in good faith; (C) Employee Stock Repurchases, (D) transactions described in
"Certain Relationships and Related Transactions" and (E) Restricted Payments
that are not prohibited by the covenants described under the caption
"-- Limitation on Restricted Payments".
Limitation on Conduct of Business
The Company and the Subsidiaries will be operated in a manner such that
their business activities will be in the oilfield services business and related
products and services, including, but not limited to, (i) rental of downhole
tools, general oil field equipment, petrochemical equipment and industrial and
other equipment (which may include equipment not used in the oil and gas
industry), (ii) drilling services, (iii) pipeline testing services, and (iv)
such other businesses as are reasonably necessary or desirable to facilitate the
conduct and operations of the foregoing businesses.
Reports
The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15 of the Exchange Act. The Company is also
required (i) to file with the Trustee (with exhibits), and provide to each
Holder of Notes or, upon request, to a prospective Holder of Notes (without
exhibits), without cost to such Holder or prospective Holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required and (ii) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, to
supply at its cost copies of such reports and documents (including any exhibits
thereto) to any Holder of Notes promptly upon written request.
Future Designation of Restricted and Unrestricted Subsidiaries
The foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "-- Certain Definitions" describes the
circumstances under which a
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Subsidiary of the Company may be designated as an Unrestricted Subsidiary by the
Board of Directors of the Company.
Sale-and-Leaseback Transactions
The Company will not, and will not permit any Subsidiaries to, enter into
any sale-and-leaseback transaction; provided that the Company or any Subsidiary,
as applicable, may enter into a sale-and-leaseback transaction if (i) the
Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to such sale-and-leaseback transaction
pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Limitation on
Incurrence of Additional Indebtedness" and (b) created a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption
"-- Limitation on Liens Securing Indebtedness", (ii) the fair market value of
the consideration of such sale-and-leaseback transaction is at least equal to
the fair market value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Trustee) of the Property
that is the subject of such sale-and-leaseback transaction and (iii) the
transfer of assets in such sale-and-leaseback transaction is permitted by, and
the Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "-- Limitation on Asset Sales".
Issuances and Sales of Capital Stock of Wholly-Owned Subsidiaries
The Company (i) may not, and may not permit any Wholly-Owned Subsidiary to
transfer, convey, sell or otherwise dispose of any Capital Stock of any
Wholly-Owned Subsidiary to any Person (other than the Company or a Wholly-Owned
Subsidiary), unless (a) such transfer, conveyance, sale or other disposition is
of all the Capital Stock of such Wholly-Owned Subsidiary and (b) the cash Net
Available Proceeds from such transfer, conveyance, sale or other disposition are
applied in accordance with the covenant described above under the caption
"-- Limitation on Asset Sales", and (ii) may not permit any Wholly-Owned
Subsidiary of the Company to issue any of its Capital Stock or any warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock) to any
Person other than to the Company or a Wholly-Owned Subsidiary; except, in the
case of both clauses (i) and (ii) above, with respect to dispositions or
issuances by a Wholly-Owned Subsidiary of the Company as contemplated in clauses
(i) and (ii) of the definition of "Wholly-Owned Subsidiary".
MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The Company will not consolidate with or merge with any other Person or
convey, transfer or lease all or substantially all of its Property to any
Person, unless: (i) the Company survives such merger or the Person formed by
such consolidation or into which the Company is merged or that acquires by
conveyance or transfer, or which leases, all or substantially all of the
Property of the Company is a Person organized and existing under the laws of the
United States of America or any State thereof or the District of Columbia and
expressly assumes, by supplemental indenture, the due and punctual payment of
the principal of, and premium, if any, and interest on all the Notes and the
performance of every other covenant and obligation of the Company under the
Indenture; (ii) immediately before and after giving effect to such transaction,
no Default or Event of Default exists; (iii) immediately after giving effect to
such transaction on a pro forma basis, the Consolidated Net Worth of the Company
(or the surviving entity if the Company is not continuing) is equal to or
greater than the Consolidated Net Worth of the Company immediately before such
transaction and (iv) immediately after giving effect to such transaction on a
pro forma basis, the Company (or the surviving entity if the Company is not
continuing) would be able to incur $1.00 of additional Indebtedness (excluding
Permitted Indebtedness) under the tests described in the first paragraph of
"-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness".
Upon any such consolidation, merger, conveyance, lease or transfer in accordance
with the foregoing, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, lease or transfer is
made will succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture with the same effect as if such
successor had been named as the Company therein, and thereafter (except in the
case of a lease) the
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predecessor corporation will be relieved of all further obligations and
covenants under the Indenture and the Notes.
EVENTS OF DEFAULT
The following constitute Events of Default under the Indenture:
(i) default in the payment of principal of, or premium, if any, on the
Notes when due at maturity, upon repurchase, upon acceleration or otherwise,
including failure of the Company to repurchase the Notes required to be
repurchased, at the required purchase price, upon a Change of Control or an
Asset Sale Offer and failure to make, when due, any optional redemption payment;
(ii) default in the payment of any installment of interest on the Notes
when due (including any interest payable in connection with optional redemption
payments) and continuance of such default for 30 days;
(iii) default on any other Indebtedness of the Company, any Subsidiary
Guarantor or any other Subsidiary if either (a) such default results from the
failure to pay principal of, premium, if any, or interest on any such
Indebtedness when due in excess of $5.0 million and continuance of such default
beyond any applicable cure, forbearance or notice period, or (b) as a result of
such default, the maturity of such Indebtedness has been accelerated prior to
its scheduled maturity, without such default and acceleration having been
rescinded or annulled within a period of 10 days, and the principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness in default, or the maturity of which has been so accelerated,
aggregates $5.0 million or more;
(iv) default in the performance, or breach, of any other covenant of the
Company or any Subsidiary Guarantor in the Indenture and failure to remedy such
default within a period of 45 days after written notice thereof from the Trustee
or Holders of 25% in principal amount of the outstanding Notes;
(v) the entry by a court of one or more judgments or orders against the
Company, any Subsidiary Guarantor or any other Subsidiary in an aggregate amount
in excess of $5.0 million and which are not covered by insurance written by
third parties that has not been vacated, discharged, satisfied or stayed pending
appeal within 60 days from the entry thereof;
(vi) certain events of bankruptcy, insolvency or reorganization in respect
of the Company or any Material Subsidiary; or
(vii) a Subsidiary Guarantee by a Subsidiary Guarantor that is a Material
Subsidiary shall cease to be in full force and effect (other than a release of a
Subsidiary Guarantor by designation of such Subsidiary Guarantor as an
Unrestricted Subsidiary or as otherwise provided under the Indenture in
connection with the sale, liquidation or other transfer of such Subsidiary
Guarantor) or any Subsidiary Guarantor shall deny, disaffirm or seek to revoke
its obligations with respect thereto.
If any Event of Default (other than an Event of Default specified in clause
(vi) above) occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Notes then
outstanding may declare the unpaid principal of (or the Change of Control
Purchase Price if the Event of Default includes failure to pay the Change of
Control Purchase Price), and accrued and unpaid interest on, all the Notes then
outstanding to be due and payable, by a notice in writing to the Company (and to
the Trustee, if given by Holders) and upon any such declaration such principal
amount, premium, if any, and accrued and unpaid interest shall become
immediately due and payable, notwithstanding anything contained in the Indenture
or the Notes to the contrary. If an Event of Default specified in clause (vi)
above occurs, all unpaid principal of, premium, if any, and accrued interest on,
the Notes then outstanding will become due and payable, without any declaration
or other act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of Notes then outstanding, by
written notice to the Company, the Subsidiary Guarantors and the Trustee, may
rescind and annul a declaration of acceleration and its consequences if (i) the
Company or any Subsidiary Guarantor has paid or deposited with such Trustee a
sum sufficient to pay (a) all overdue installments of interest on all the Notes,
(b) the principal of, and premium, if any, on, any Notes that have become due
otherwise than by such declaration of acceleration and
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interest thereon at the rate or rates prescribed therefor in the Notes, (c) to
the extent that payment of such interest is lawful, interest on the defaulted
interest at the rate or rates prescribed therefor in the Notes and (d) all money
paid or advanced by the Trustee thereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel;
(ii) all Events of Default, other than the non-payment of the principal of any
Notes that have become due solely by such declaration of acceleration, have been
cured or waived as provided in the Indenture; and (iii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. No
such rescission will affect any subsequent Event of Default or impair any right
consequent thereon.
Except as described in the next paragraph, no Holder of any of the Notes
will have any right to institute any proceeding, judicial or otherwise, or for
the appointment of a receiver or trustee or pursue any remedy under the
Indenture, unless (i) such Holder has previously given notice to the Trustee of
a continuing Event of Default, (ii) the Holders of not less than 25% in
principal amount of the outstanding Notes have made written request to such
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee under the Indenture, (iii) such Holder or Holders have offered
to such Trustee reasonable indemnity against the costs, expenses and liabilities
to be incurred in compliance with such request, (iv) such Trustee for 30 days
after its receipt of such notice, request and offer of indemnity has failed to
institute any such proceeding and (v) no direction inconsistent with such
written request has been given to such Trustee during such 30-day period by the
Holders of a majority in principal amount of the outstanding Notes.
The Holder of any Note will have the right, which is absolute and
unconditional, to receive payment of the principal of, premium, if any, and
interest on such Note on the stated maturity therefor and to institute suit for
the enforcement of any such payment, and such right may not be impaired without
the consent of such Holder.
The Holders of a majority in principal amount of the Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
such Trustee, provided that (i) such direction is not in conflict with any rule
of law or with the Indenture and (ii) the Trustee may take any other action
deemed proper by such Trustee that is not inconsistent with such direction.
MODIFICATIONS AND WAIVERS
The Company and the Trustee may amend the Indenture or rights thereunder
may be waived with the consent of the Subsidiary Guarantors and the Holders of
at least a majority of the principal amount of Notes then outstanding, provided
that, without the consent of each Holder of Notes affected thereby, no such
modification or waiver will be made with regard to: (i) a default in the payment
of principal or premium, if any, or interest on the Notes; (ii) a reduction of
the interest rate on or principal amount of the Notes, an extension of the
maturity schedule of the Notes or a modification of the redemption or repurchase
provisions of the Notes; (iii) contractual subordination in the right of payment
of the Notes in a manner that is adverse to the Holders; (iv) a change in the
currency in which the Notes are payable; (v) a change in the percentage required
by this provision; or (vi) a change in any Holder's right to receive payment of
the proceeds of, premium, if any, and interest on the Notes and to institute
suit for the enforcement of such payment.
Notwithstanding the foregoing, without the consent of a Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the
Subsidiary Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders of Notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of Notes or
that does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
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SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may at any time terminate its Obligations under the Notes and
the Indenture, and the Subsidiary Guarantors may, at such times, terminate their
corresponding obligations under the Subsidiary Guarantees and the Indenture,
with certain exceptions specified in the Indenture, by irrevocably depositing in
trust cash or obligations of the United States government and its agencies for
payment of principal of, and interest on, the Notes to redemption or maturity,
subject to the satisfaction of certain conditions.
Subject to the conditions described below, at the Company's option, either
(i) the Company and the Subsidiary Guarantors will be deemed to have been
discharged from their obligations with respect to the Notes and Subsidiary
Guarantees and the provisions of the Indenture on the 91st day after the
applicable conditions set forth below have been satisfied or (ii) the Company
and the Subsidiary Guarantors will cease to be under any obligation to comply
with certain restrictive covenants, including those described under "-- Certain
Covenants", at any time after the applicable conditions set forth below have
been satisfied: (a) the Company or any Subsidiary Guarantor has deposited or
caused to be deposited irrevocably with the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders (1) money or (2) United States government obligations, which through
the payment of interest and principal in respect thereof in accordance with
their terms will provide (without any reinvestment of such interest or
principal), not later than one day before the due date of any payment, money or
(3) a combination of (1) and (2), in an amount sufficient, in the opinion (with
respect to (2) and (3)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee at or prior to the time of such deposit, to pay and discharge each
installment of principal of, premium, if any, and interest on, the outstanding
Notes on the dates such installments are due; (b) no Default or Event of Default
has occurred or is continuing on the date of such deposit or will occur as a
result of such deposit and such deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which the Company or
a Subsidiary Guarantor or any Subsidiary is a party or by which any of them is
bound, as evidenced to the Trustee in an Officers' Certificate delivered to the
Trustee concurrently with such deposit; (c) the Company has delivered to the
Trustee an opinion of tax counsel reasonably acceptable to the Trustee (which
counsel may be an employee of the Company) to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option described above and will be subject to
federal income tax on the same amount and in the same manner and at the same
time as would have been the case if such option had not been exercised; provided
that in the case of the Notes being discharged pursuant to clause (i) above,
such opinion shall be based upon and shall identify a ruling by the Internal
Revenue Service or a change in law to that effect (it being understood that (1)
such opinion will also state, if applicable, that such ruling or change in law
is consistent with the conclusions reached in such opinion and (2) the Trustee
will be under no obligation to investigate the basis or correctness of such
opinion); (d) the Company has delivered to the Trustee an opinion of counsel
(which counsel may be an employee of the Company) to the effect that the
Company's exercise of its option described above will not result in any of the
Company, the Trustee or the trust created by the Company's deposit of funds
hereunder becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended; (e) the Company or any Subsidiary
Guarantor has paid or duly provided for payment of all amounts then due to the
Trustee pursuant to the terms of the Indenture; and (f) the Company has
delivered to the Trustee an Officers' Certificate and an opinion of counsel
(which counsel may be an employee of the Company), each stating that all
conditions precedent provided for in the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees will be governed by,
and construed in accordance with, the laws of the State of New York, but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee need perform only those duties that are specifically set
forth (or incorporated by reference) in the Indenture and no others. During the
existence of an Event of Default, the Trustee will exercise such rights and
powers vested in it by the Indenture, and use the same degree of care and skill
in such exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payments of claims in
certain cases or to realize on certain property received in respect of any such
claims as security or otherwise.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by a single, permanent global certificate in definitive,
fully registered form (the "Global Note"). The Global Note will be deposited on
the Exchange Date with, or on behalf of, DTC and registered in the name of a
nominee of DTC. The Global Note will be subject to certain restrictions on
transfer set forth therein and will bear the legend regarding such restrictions
set forth under "Transfer Restrictions".
Exchange Notes (i) originally purchased by Institutional Accredited
Investors or transferred to Institutional Accredited Investors or "foreign
purchasers" who are not Qualified Institutional Buyers or (ii) held by Qualified
Institutional Buyers who elect to take physical delivery of their certificates
instead of holding their interest through the Global Note (and which are thus
ineligible to trade through DTC) (collectively referred to herein as the
"Non-Global Purchasers") will be issued in registered certificated form
("Certificated Securities"). Upon the transfer to a Qualified Institutional
Buyer of any Certificated Security initially issued to a Non-Global Purchaser,
such Certificated Security will, unless the transferee requests otherwise or the
Global Note has previously been exchanged in whole for Certificated Securities,
be exchanged for an interest in the Global Note. For a description of the
restrictions on the transfer of Certificated Securities and any interest in the
Global Note, see "Transfer Restrictions".
The Global Note
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Note to the respective accounts
for persons who have accounts with DTC and (ii) ownership of beneficial
interests in the Global Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Ownership of beneficial interests in the Global Note will be limited to persons
who have accounts with DTC ("participants") or persons who invest through
participants. Qualified Institutional Buyers will hold their interests in the
Global Note directly through DTC, if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC or its nominee is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture. No beneficial owners of an interest in any
Global Note will be able to transfer that interest except in accordance with
DTC's procedures in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on, the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent of the
Company will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Exchange Notes to persons in states which require physical
delivery of the Certificated Securities, or to pledge such securities, such
holder must transfer its interest in the Global Note in accordance with the
normal procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Outstanding Notes (including the presentation of
Outstanding Notes for exchange pursuant to the Exchange Offer) only at the
direction of one or more participants to whose account the interests in the
Outstanding Global Note are credited and only in respect of such portion of the
aggregate principal amount of Outstanding Notes as to which such participant or
participants have given such direction. However, if there is an Event of Default
under the Indenture, DTC will exchange the Global Note for Certificated
Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser or the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Certificated Securities
If (i) DTC is at any time unwilling or unable to continue as a depositary
for the Global Note and a successor depositary is not appointed by the Company
within 90 days, (ii) an Event of Default has occurred and is continuing and the
registrar has received a request from DTC to issue Certificated Securities in
lieu of all or a portion of the Global Note (in which case the Company shall
deliver Certificated Securities within 30 days of such request) or (iii) the
Company determines not to have the Exchange Notes represented by the Global Note
and notifies DTC and the registrar thereof, Certificated Securities will be
issued in exchange for the Global Note.
CERTAIN DEFINITIONS
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (i) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at such
date and (ii) the present fair saleable value of the assets of such Subsidiary
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Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Subsidiary Guarantor in respect of the obligations of such Subsidiary under the
Subsidiary Guarantee), excluding debt in respect of the Subsidiary Guarantee, as
they become absolute and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Asset" means each of the assets that are owned by the Company or a
Subsidiary on the Issue Date or that are acquired by the Company or a Subsidiary
after the Issue Date.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
exchange or other disposition to any Person (including, without limitation, by
means of a sale-and-leaseback transaction or a merger or consolidation)
(collectively, for purposes of this definition, a "transfer "), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary held by the Company or any other Subsidiary, (ii) all or
substantially all of the properties and assets of any division or line of
business of the Company or any of its Subsidiaries or (iii) any other properties
or assets of the Company or any of its Subsidiaries other than transfers of
cash, Cash Equivalents, accounts receivable or properties or assets in the
ordinary course of business; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the properties or assets of the
Company and its Subsidiaries, taken as a whole, will be governed by the
provisions of the Indenture described above under the caption " -- Change of
Control" and/or the provisions described above under the caption " -- Merger,
Consolidation or Sale of Substantially All Assets" and not by the provisions of
the "Limitation on Asset Sales" covenant. For the purposes of this definition,
the term "Asset Sale" also shall not include any of the following: (a) any
transfer of properties or assets to an Unrestricted Subsidiary, if such transfer
is not prohibited under the "Restricted Payments" covenant described above; (b)
any transfer of properties or assets by the Company to a Subsidiary or by a
Subsidiary to the Company or a Subsidiary (in the case of a transfer to a
Subsidiary that is not a Wholly Owned Subsidiary, dispositions shall be excluded
pursuant to clause (b) only to the extent of the Company's interest in such
Subsidiary after giving effect to such transfer); (c) sales of damaged, worn-out
or obsolete equipment or assets that, in the Company's reasonable judgment, are
either (1) no longer used or (2) no longer useful in the business of the Company
or its Subsidiaries; (d) any lease of any property entered into in the ordinary
course of business and with respect to which the Company or any Subsidiary is
the lessor, except any such lease that provides for the acquisition of such
property by the lessee during or at the end of the term thereof for an amount
that is less than the fair market value thereof at the time the right to acquire
such property is granted; or (e) any transfer that but for this clause (e) would
be an Asset Sale, if (1) the Company elects to designate such transfers as not
constituting Asset Sales and (2) after giving effect to such transfers, the
aggregate fair market value of the properties or assets transferred in such
transaction or any such series of related transactions so designated by the
Company does not exceed $5.0 million.
"Attributable Indebtedness" in respect of a sale-and-leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale-and-leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payments" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease that is terminable by the lessee upon
payment of penalty, such net rental payment shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date to the date of each successive scheduled
principal payment of such Indebtedness multiplied by (b) the amount of such
principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person duly authorized to act on behalf of the board of directors of such
Person.
"Business Day" means any day on which the New York Stock Exchange is open
for trading and which is not a legal holiday.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock and any and all warrants, options and rights with respect thereto,
including each class of common stock and preferred stock of such Person.
"Capitalized Lease Obligation" means the discounted present value of the
rental obligations of any Person under any lease of Property, which in
accordance with GAAP, is required to be capitalized on the balance sheet of such
Person.
"Cash Equivalents" means (a) the following kinds of investments if, in the
case of instruments referred to in clauses (i)-(iv) below, on the date of
purchase or other acquisition of any such instrument by the Company or any
Subsidiary, the remaining term to maturity is not more than one year: (i)
readily marketable obligations issued or unconditionally guaranteed as to
principal and interest by the United States of America or by any agency or
authority controlled or supervised by and acting as an instrumentality of the
United States of America; (ii) repurchase obligations for instruments of the
type described in clause (i) for which delivery of the instrument is made
against payment; (iii) obligations (including, but not limited to, demand or
time deposits, bankers' acceptances and certificates of deposit) issued by a
depository institution or trust company incorporated or doing business under the
laws of the United States of America, any state thereof or the District of
Columbia or a branch or subsidiary of any such depository institution or trust
company operating outside the United States; provided that such depository
institution or trust company has, at the time of the Company's or such
Subsidiary's investment therein or contractual commitment providing for such
investment, capital, surplus or undivided profits (as of the date of such
institution's most recently published financial statements), in excess of $100.0
million; and (iv) commercial paper issued by any Person, if such commercial
paper has, at the time of the Company's or any Subsidiary's investment therein
or contractual commitment providing for such investment, credit ratings of A-1
by S&P and P-1 by Moody's; and (b) money market mutual or similar funds having
assets in excess of $100.0 million.
"Change of Control" means (i) an event or series of events by which any
Person or other entity or group of Persons or other entities acting in concert
as a partnership or other group (a "Group of Persons") other than the Lawrence
Group or any member thereof shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 40% or more of the combined voting power of the then
outstanding Voting Stock of the Company, (ii) during any period of two
consecutive years, Continuing Directors cease for any reason to constitute a
majority of the Board of Directors then in office, (iii) the direct or indirect
sale, lease, exchange or other transfer of all or substantially all of the
assets of the Company and the Subsidiaries, taken as a whole to any Person or
Group of Persons other than the Company or any Subsidiary Guarantor that is a
Wholly-Owned Subsidiary, or (iv) the liquidation or dissolution of the Company.
"Commission" means the Securities and Exchange Commission.
"Company Properties" means all Properties, and equity, partnership or other
ownership interests therein, that are related or incidental to, or used or
useful in connection with, the conduct or operation of any business activities
of the Company or the Subsidiaries, which business activities are not prohibited
by the terms of the Indenture.
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"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period increased (to the extent
deducted in determining Consolidated Net Income) by the sum of: (i) all income
taxes of such Person and its subsidiaries paid or accrued according to GAAP for
such period (other than income taxes attributable to extraordinary, unusual or
non-recurring gains or losses), (ii) all interest expense of such Person and its
subsidiaries paid or accrued in accordance with GAAP for such period (including
amortization of original issue discount and the interest portion of deferred
payment obligations), (iii) depreciation and depletion of such Person and its
subsidiaries, (iv) amortization of such Person and its subsidiaries including,
without limitation, amortization of capitalized debt issuance costs and (v) any
other non-cash charges to the extent deducted from Consolidated Net Income.
"Consolidated EBITDA Coverage Ratio" means, with respect to any Person, the
ratio of (1) Consolidated EBITDA of such Person for the period (the "Pro Forma
Period") consisting of the most recent four full fiscal quarters for which
financial information in respect thereof is available immediately prior to the
date of the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed
Charges which such Person will accrue during the fiscal quarter in which the
Transaction Date occurs and the three fiscal quarters immediately subsequent to
such fiscal quarter (the "Forward Period") on the aggregate amount of
Indebtedness outstanding on the Transaction Date, including any Indebtedness
proposed to be incurred on such date and excluding any Indebtedness repaid with
the proceeds of such Indebtedness (as though all such Indebtedness was incurred
or repaid on the first day of the quarter in which the Transaction Date
occurred). In addition to, but without duplication of, the foregoing, for
purposes of this definition, "Consolidated EBITDA" shall be calculated after
giving effect (without duplication), on a pro forma basis for the Pro Forma
Period (but no longer), to (i) any Investment, during the period commencing on
the first day of the Pro Forma Period to and including the Transaction Date (the
"Reference Period"), in any other Person that, as a result of such Investment,
becomes a subsidiary of such Person, (ii) the acquisition, during the Reference
Period (by merger, consolidation or purchase of stock or assets) of any business
or assets, which acquisition is not prohibited by the Indenture, including but
not limited to Permitted Industry Investments, as if such acquisition had
occurred on the first day of the Reference Period, (iii) any sales or other
dispositions of assets occurring during the Reference Period, in each case as if
such incurrence, Investment, repayment, acquisition or asset sale had occurred
on the first day of the Reference Period and (iv) interest income reasonably
anticipated by the Company to be received during the Pro Forma Period from
Investments in Cash Equivalents, which Investments exist on the Transaction Date
or will exist as a result of the transaction giving rise to the need to
calculate the Consolidated EBITDA Coverage Ratio. For purposes of this
definition, "Fixed Charges" shall be calculated after giving effect (without
duplication), on a pro forma basis for the Forward Period, to any Indebtedness
incurred or repaid on or after the first day of the Forward Period and prior to
the Transaction Date. For purposes of calculating the Company's Consolidated
EBITDA Coverage Ratio, Indebtedness of a Subsidiary that is not a Wholly-Owned
Subsidiary (which Indebtedness is nonrecourse to the Company or any other
Subsidiary or any of their assets) shall be included only to the extent of the
Company's pro rata ownership interest in such Subsidiary.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP, provided
that (i) the net income of (a) any Unrestricted Subsidiary and (b) any other
Person in which such Person or any subsidiary thereof has an interest (which
interest, in the case of those Persons referred to in clause (b), does not cause
the net income of such other Person to be consolidated with the net income of
such Person in accordance with GAAP) will be included only to the extent of the
amount of dividends or distributions actually paid in cash or Cash Equivalent to
such Person or its subsidiaries that are Subsidiary Guarantors by such other
Person in such period; (ii) the net income of any subsidiary of such Person that
is subject to any Payment Restriction will be excluded to the extent of such
Payment Restriction; and (iii) (a) the net income (or loss) of any other Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (b) any net gain (but not loss) on the sale or other
disposition by such Person or any of its subsidiaries of assets and of the
Capital Stock of any subsidiary of such Person, (c) items which are
extraordinary, and (d) the cumulative effect of a change in accounting
principles, will each be excluded.
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"Consolidated Net Tangible Assets" as of any date means with respect to any
Person the Consolidated Net Worth of such Person and its consolidated
Subsidiaries as of such date less (i) all write-ups subsequent to the date of
the Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person (other than purchase accounting
adjustments made, in connection with any acquisition of any entity that becomes
a consolidated Subsidiary of such Person after the date of the Indenture to the
book value of the assets of such entity), (ii) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), (iii) all unamortized goodwill,
trademarks, trade names, service marks, brand names, copyrights, patents and
other intangible assets in accordance with GAAP, and (iv) unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the forgoing determined in accordance with GAAP.
"Consolidated Net Worth" as of any date means with respect to any Person
the amount by which the assets of such Person and its subsidiaries on a
consolidated basis exceed (i) the total liabilities of such Person and its
subsidiaries on a consolidated basis, plus (ii) Disqualified Capital Stock of
such Person or Disqualified Capital Stock of any subsidiary of such Person
issued to any Person other than such Person or another wholly-owned subsidiary
of such Person, in each case determined in accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors of the
Company on the Issue Date, any director elected since the date thereof in any
annual meeting of the stockholders upon the recommendation of the Board of
Directors of the Company and any other member of the Board of Directors of the
Company who will be recommended or elected to succeed a Continuing Director by a
majority of Continuing Directors who are then members of the Board of Directors
of the Company.
"Credit Facility" means one or more credit facilities without limitation as
to amount that now is or are or hereafter may be entered into among the Company
or one or more of its Subsidiaries or the Company and one or more of its
Subsidiaries, as the case may be, and the lenders parties thereto, including any
related notes, guarantees, collateral documents, and other instruments and
agreements executed in connection therewith without limitation as to amount,
which term, as of the Issue Date, initially consists of the Third Amended and
Restated Loan Agreement by and among Company, the financial institutions party
thereto and Wells Fargo Bank (Texas), National Association, as agent, and in
each case as amended, modified, supplemented, renewed, extended, refunded,
replaced, restated or refinanced from time to time in whole or part in one or
more credit agreements, loan agreements, instruments or similar agreements
without limitation as to amount, as such may be further amended, modified,
supplemented, extended, refunded, restated, replaced, renewed or refinanced from
time to time.
"Currency Agreement" means the obligations of any Person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such Person or any of its subsidiaries against
fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person or its subsidiaries that, by its terms, by the terms of any
agreement related thereto or by the terms of any security into which,
mandatorily or at the option of the holder, it is convertible or exchangeable,
is, or upon the happening of an event or the passage of time would be, required
to be redeemed or repurchased by such Person or its subsidiaries, including at
the option of the holder, in whole or in part, or has, upon the happening of an
event or the passage of time would have, a redemption or similar payment due, in
each such case on or prior to the Maturity Date.
"Employee Stock Repurchases" means purchases by the Company of any of its
Capital Stock from officers and other employees for the purpose of enabling such
employees to pay personal income tax obligations with the proceeds; provided
that the aggregate amount of all such purchases shall not exceed $500,000 during
any fiscal year of the Company.
"Equity Interests" means Capital Stock or other equity interests and all
warrants, options or other rights to acquire Capital Stock or other equity
interests.
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"Exempt Foreign Subsidiary" means (i) any Subsidiary engaged in business
permitted under the Indenture exclusively outside the United States of America,
irrespective of its jurisdiction of incorporation and (ii) any other Subsidiary
whose assets (excluding any cash and Cash Equivalents) consist exclusively of
Capital Stock or Indebtedness of one or more Subsidiaries described in clause
(i) of this definition, that, in any case, is so designated by the Company in an
Officers' Certificate delivered to the Trustee and (a) is not a guarantor of,
and has not granted any Lien to secure, the Credit Facility or any other
Indebtedness of the Company or any Subsidiary other than another Exempt Foreign
Subsidiary and (b) does not have total assets that, when aggregated with the
total assets of any other Exempt Foreign Subsidiary, exceed 25% of the Company's
consolidated total assets, as determined in accordance with GAAP, as reflected
on the Company's most recent quarterly or annual balance sheet. The Company may
revoke the designation of any Exempt Foreign Subsidiary by notice to the
Trustee.
"Fixed Charges" means, with respect to any Person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such Person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness and (b) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, in each case to the
extent attributable to such period) and (ii) dividend requirements on
Disqualified Capital Stock of such Person and its consolidated subsidiaries
(whether in cash or otherwise (except dividends payable in shares of Qualified
Capital Stock) (non-cash dividends being valued as determined in good faith by
the Board of Directors of such Person, as evidenced by a resolution of the Board
of Directors)) paid, accrued or scheduled to be paid or accrued during such
period (except to the extent accrued in a prior period) and excluding items
eliminated in consolidation; provided, however, in no event shall the term
"Fixed Charges" include any original issue discount or premium paid on the Old
Notes or any notes issued in exchange for the Old Notes as contemplated by the
registration rights agreement entered into in connection with the Old Notes.
For purposes of the definition of Fixed Charges, (i) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Board of Directors of such Person (as evidenced by
a resolution of the Board of Directors) to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP; (ii) interest on
Indebtedness that is determined on a fluctuating basis shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest of such
Indebtedness in effect on the date Fixed Charges are being calculated, subject
to the proviso in clause (iii); (iii) interest on Indebtedness that may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate, (provided that, for
the period following the date on which the rate actually chosen ceases to be in
effect, the Company may designate an optional rate other than that actually
chosen, which optional rate shall be deemed to accrue at a fixed per annum equal
to the rate of interest on such optional rate in effect on the date Fixed
Charges are being calculated); and (iv) Fixed Charges shall be increased or
reduced by the net cost (including amortization of discount) or benefit
associated with obligations under Interest Rate Agreements attributable to such
period.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of any date of determination.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (present and future) created, incurred, assumed or guaranteed by the
Subsidiary Guarantor (and all renewals, extensions, increases or refundings
thereof) (including the principal of, interest on and fees, premiums, expenses
(including costs of collection), indemnities and other amounts payable in
connection with such Indebtedness, and including any Post-Commencement Amounts),
unless the instrument governing such Indebtedness expressly provides that such
Indebtedness is not senior or superior in right of payment to the Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness does not
include (i) any Indebtedness of the Subsidiary Guarantor to the Company or any
Subsidiary or any Unrestricted Subsidiary or (ii) any amounts payable or other
liabilities to trade creditors.
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"Indebtedness" means, with respect to any Person, without duplication, any
liability, contingent or otherwise, of such Person (i) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures
or similar instruments, (iii) representing the deferred and unpaid balance of
the purchase price of any property or interest therein (other than any such
balance that represents an account payable or any other monetary obligation to a
trade creditor created, incurred, assumed or guaranteed by such Person in the
ordinary course of business of such Person in connection with obtaining goods,
materials or services and due within twelve months (or such longer period for
payment as is customarily extended by such trade creditor) of the incurrence
thereof, which account is not overdue by more than 150 days, according to the
original terms of sale, unless such account payable is being contested in good
faith or has been extended), (iv) for the payment of a Capitalized Lease
Obligation of such Person, (v) with respect to the reimbursement of any letter
of credit, banker's acceptance or similar credit transaction, (vi) with respect
to Indebtedness (as otherwise defined in this definition) of another Person
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person (provided that if the obligations so secured have not
been assumed in full by such Person or are not otherwise such Person's legal
liability in full, then such obligations shall be deemed to be in an amount
equal to the greater of (a) the lesser of (1) the full amount of such
obligations and (2) the fair market value of such assets, as determined in good
faith by the Board of Directors of such Person, which determination shall be
evidenced by a Board Resolution, and (b) the amount of obligations as have been
assumed by such Person or which are otherwise such Person's legal liability),
(vii) to the extent not otherwise included, under Currency Agreements and
Interest Rate Agreements entered into other than in the ordinary course of such
Person's business, (viii) in the case of such Person, the liquidation preference
and any mandatory redemption payment obligations in respect of Disqualified
Capital Stock, and, in the case of a subsidiary of such Person, the liquidation
preference and any mandatory redemption payment obligations in respect of
preferred stock of such subsidiary, and (ix) in respect of all Indebtedness of
others which such Person has guaranteed, endorsed with recourse (otherwise than
for collection, deposit or other similar transactions in the ordinary course of
business), agreed to purchase or repurchase or in respect of which such Person
has agreed contingently to supply or advance funds or for which such Person has
otherwise become liable; provided, however, Indebtedness arising pursuant to
clause (iii) of this definition as a result of such account payable becoming
overdue by more than 150 days shall only be deemed to be incurred at a time when
Indebtedness, other than such Indebtedness, is incurred.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization proceeding or other similar case or proceeding,
relative to such Person or to its creditors, as such, or its assets, (b) any
liquidation, dissolution, or reorganization proceeding of such Person, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of such Person.
"Interest Rate Agreement" means the obligations of any Person pursuant to
any interest swap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates.
"Investment" means, in respect of any Person, any investment in another
Person, whether by means of a share purchase, capital contribution, loan,
advance (other than advances to employees for moving and travel expenses,
drawing accounts and similar expenditures made in the ordinary course of
business) or similar credit extension constituting Indebtedness of such other
Person and any guaranty of Indebtedness of any other Person provided that the
following shall not constitute Investments: (a) extension of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
obligations under Interest Rate Agreements and Currency Agreements, but only to
the extent that the same constitute Permitted Indebtedness, (c) endorsements of
negotiable instruments and documents in the ordinary course of business, (d) an
acquisition of assets, Capital Stock or other securities by the Company or any
of its Subsidiaries for consideration consisting of Capital Stock or other
common equity securities of the Company or any of its Subsidiaries, and (e)
stock, obligations and other securities received in settlement of debts owing to
the Company or any of its Subsidiaries as a result
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of collection efforts or proceedings or upon the foreclosure or enforcement of
any Lien in favor of the Company or any such Subsidiary, in each case, as to
debt owing to the Company or any such Subsidiary that arose in the ordinary
course of business of the Company or any such Subsidiary. For purposes of the
"Limitation on Restricted Payments" covenant and the definition of Permitted
Unrestricted Subsidiary Investments, (i) an "Investment" in an Unrestricted
Subsidiary shall be deemed to include and be valued at the fair market value of
the net assets of any Subsidiary at the time that such Subsidiary is designated
an Unrestricted Subsidiary and (ii) any Investment in an Unrestricted Subsidiary
shall be valued at fair market value at the time of such Investment (except,
however, when such Investment consists of a loan or advance by a Person to
another Person that is of an intercompany or similar nature between such Persons
and arises pursuant to an agreement or understanding in the ordinary course of
business relating to tax sharing, administrative or other similar arrangements,
then such Investment shall be valued at fair market value at the time that the
investing Person shall have paid monies or transferred other consideration to
another Person for the benefit of the Person with whom the agreement to make
such loan or advance was made), in each case as determined by the Board of
Directors of the Company and such Subsidiary, as applicable, in good faith.
"Issue Date" means the first date on which the Outstanding Notes were
issued under the Indenture.
"Lawrence Group" means Lawrence Industries, Inc., J. D. Lawrence and any
Person related to J. D. Lawrence within the second degree of consanguinity, any
trust for the benefit of one or more such Persons, and any Person controlled
directly or indirectly by any such Person.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction).
"Material Subsidiary" means any Subsidiary of the Company which, as of the
relevant date of determination, would be a "significant subsidiary" as defined
in Reg. sec. 230.405 promulgated pursuant to the Securities Act as in effect on
the Issue Date, assuming the Company is the "registrant" referred to in such
definition, except that the 10% amounts referred to in such definition shall be
deemed to be 5%.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash proceeds received upon the sale or other
disposition of, or payments or collections on, any non-cash consideration
received in any Asset Sale, provided that such sale or other disposition was
contemplated by the Company or its applicable Subsidiary in connection with, and
was consummated incident to, such Asset Sale, and in respect to each of the
foregoing receipts of cash proceeds only as and when received, and excluding any
other consideration until such time as such consideration is converted into, and
received by the Company or any of its Subsidiaries as, cash), net of all (i)
legal, accounting and investment banking fees and expenses, sales commissions,
relocation, transportation, handling and storage expenses, title, recording and
if applicable, release expenses and other fees and expenses incurred as a result
of such Asset Sale, (ii) taxes paid or payable as a result of such Asset Sale or
required to be accrued as a liability as a consequence thereof (after taking
into account any available and applicable tax credits or deductions and any
applicable tax sharing arrangements), (iii) amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that were
the subject of such Asset Sale, (iv) amounts required to be paid to any Person
(other than the Company or any Subsidiary) owning a beneficial interest in the
asset or assets that were the subject of such Asset Sale, (v) amounts required
to be paid in order to obtain a necessary consent to such Asset Sale or by
applicable law, and (vi) reserves for adjustments in respect of the sale price
of such asset or assets established in accordance with GAAP.
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"Net Proceeds" means (i) in the case of any sale by the Company of
Qualified Capital Stock, the aggregate net cash proceeds received by the
Company, after payment of expenses, commissions and the like incurred in
connection therewith, and (ii) in the case of any exchange, exercise, conversion
or surrender of any outstanding securities or Indebtedness of the Company for or
into shares of Qualified Capital Stock of the Company, the net book value of
such outstanding securities or Indebtedness as adjusted on the books of the
Company on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness or
securities to the Company upon such exchange, exercise, conversion or surrender
and less any and all payments made to the holders of such Indebtedness or
securities, and all other expenses incurred by the Company in connection
therewith).
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the
Company nor any of its Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a Subsidiary Guarantor
or otherwise), or (c) constitutes the lender unless otherwise permitted under
the indenture; and (ii) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Subsidiaries to
declare pursuant to the express terms governing such Indebtedness a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Obligations" mean the due and punctual payment of principal of and
interest on the Notes when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Company under
the Indenture and the Notes and the due and punctual performance of all other
obligations of the Company under the Indenture and the Notes.
"Pari Passu Indebtedness" means, with respect to any Net Available Proceeds
from Asset Sales, Indebtedness of the Company and its Subsidiaries the terms of
which require the Company or such Subsidiary to apply such Net Available
Proceeds to offer to repurchase such Indebtedness.
"Permitted Indebtedness" means (i) Indebtedness under the Outstanding
Notes, any Exchange Notes, the Subsidiary Guarantee and the Indenture; (ii)
Indebtedness from time to time outstanding under the Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed the greater
of (a) the sum of (1) 85% of accounts receivable (net of any related reserves)
of the Company and its Subsidiaries plus (2) 50% of the revenue-producing tools
and inventory of the Company and its Subsidiaries, as such amounts are
determined on a consolidated basis in accordance with GAAP and reflected on the
Company's most recent balance sheet prepared in accordance with GAAP, or (b)
$30.0 million, plus all interest and fees under such agreements and any
guarantee of any such Indebtedness; (iii) the Subsidiary Guarantees of the Notes
(and any assumption of the obligations guaranteed thereby); (iv) Permitted
Refinancing Indebtedness; (v) Indebtedness of the Company to any Wholly-Owned
Subsidiary and any Indebtedness of any Wholly-Owned Subsidiary to the Company or
to any other Wholly-Owned Subsidiary; provided, that in each case, such
Indebtedness has not been incurred in contemplation of any subsequent issuance
or transfer of any Capital Stock or any other event which would result in any
such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any
other subsequent transfer of any such Indebtedness (except to the Company or a
Wholly-Owned Subsidiary), and if incurred in contemplation of any of the
foregoing events, then such Indebtedness shall be deemed to be incurred and
shall be treated as an incurrence of Indebtedness for purposes of the
"Limitation on Incurrence of Additional Indebtedness" covenant at the time the
Wholly-Owned Subsidiary in question ceased to be a Wholly-Owned Subsidiary; (vi)
Permitted Operating Obligations; (vii) other Indebtedness outstanding at any
time in an aggregate principal amount not to exceed $10.0 million; (viii)
Indebtedness outstanding on the Issue Date; and (ix) Indebtedness under the
notes issued in exchange for the Old Notes of equal principal amount, as such
exchange is contemplated by the registration rights agreement entered into in
connection with the Old Notes, and the related guarantees of Subsidiaries of
such exchange notes. Permitted Refinancing Indebtedness that constitutes a
refinancing of amounts referred to in clauses (ii) and (vii) shall be deemed to
be incurred pursuant to and subject to the limitations in clauses (ii) and
(vii), respectively. The Company may elect at any time that amounts of
Indebtedness incurred under clauses (ii) or (vii) be deemed to be incurred
pursuant
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to the first paragraph of the "Limitation on Incurrence of Additional
Indebtedness" covenant (if then permitted to be so incurred), in which event
such amounts so incurred shall be deemed not to be incurred under clause (ii) or
(vii); provided, however, any such Indebtedness deemed not to be incurred under
clause (ii) shall still be treated as Indebtedness under and governed by the
Credit Facility for purposes of all other provisions of the Indenture.
"Permitted Industry Investments" means (i) capital expenditures, including,
without limitation, acquisitions of Company Properties and interests therein;
(ii) exchanges of Company Properties for other Company Properties of at least
equivalent value as determined in good faith by the Board of Directors of the
Company; (iii) Investments by the Company or any Subsidiary in any Subsidiary
(or in any Person that becomes a Subsidiary as a result of such Investment) that
are not subject to any Payment Restriction; and (iv) Investments by the Company
or any Subsidiary in any Person of which less than 50% of the issued and
outstanding Equity Interests is owned by the Company or another Subsidiary of
the Company; provided that the aggregate of all Investments by the Company and
any Subsidiary pursuant to this clause (iv) shall at no time exceed 15% of the
Consolidated Net Tangible Assets of the Company.
"Permitted Investments" means Cash Equivalents and Permitted Industry
Investments (in each case, other than Investments in Unrestricted Subsidiaries).
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges not yet delinquent or being contested in good faith and for such
adequate reserves have been established to the extent required by GAAP, (ii)
landlord's, carriers, warehouseman's, storage, mechanics', workmen's,
materialmen's, operator's or similar Liens arising in the ordinary course of
business, (iii) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of Company Properties or minor imperfections in title thereto which, in the
aggregate, are not material in amount and which do not in any case materially
detract from the Company Properties subject thereto or interfere with the
ordinary conduct of the business of the Company or the Subsidiaries, (iv) Liens
on Company Properties which arise out of operation of law, (v) judgment and
attachment Liens not giving rise to an Event of Default or Liens created by or
existing from any litigation or legal proceeding that are currently being
contested in good faith by appropriate proceedings and for which adequate
reserves have been made, (vi) (a) Liens upon any Property of any Person existing
at the time of acquisition thereof by the Company or any of its Subsidiaries,
(b) Liens upon any Property of a Person existing at the time such Person is
merged or consolidated with the Company or any Subsidiary or existing at the
time of the sale or transfer of any such Property of such Person to the Company
or any Subsidiary or (c) Liens upon any Property of a Person existing at the
time such Person becomes a Subsidiary; provided that in each case such Lien has
not been created in contemplation of such sale, merger, consolidation, transfer
or acquisition, and provided further that in each such case no such Lien shall
extend to or cover any Property of the Company or any Subsidiary other than the
Property being acquired and improvements thereon, (vii) Liens existing on the
Issue Date, (viii) Liens on deposits made in the ordinary course of business,
including, without limitation, pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation and deposits to
secure the performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a similar nature incurred in the ordinary course of
business, (ix) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or instruments of
the Company or any Subsidiary on deposit with or in possession of such bank, (x)
Liens upon any Property which were created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including the cost of construction) of such Property; provided that (A) no such
Lien shall extend to or cover any Property of the Company or any Subsidiary
other than the Property so acquired and improvements thereon and (B) the Lien
securing any such Indebtedness shall be created within 90 days of such
acquisition, (xi) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (i), (ii), (iii), (iv) (but only to the extent
secured at the time of such renewal, extension, refunding or repurchase and no
such Lien shall extend to any other Property of the Company or any Subsidiary),
and (vi) of the definition of Permitted Indebtedness, (xii) any interest or
title of
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a lessor under any Capital Lease Obligation or operating lease, and (xiii) Liens
securing obligations under or in respect of either Currency Agreements or
Interest Rate Agreements.
"Permitted Operating Obligations" means Indebtedness of the Company or any
Subsidiary in respect of one or more standby letters of credit, bid, performance
or surety bonds, or other reimbursement obligations, issued for the account of,
or entered into by, the Company or any Subsidiary in the ordinary course of
business, or in lieu of any thereof or in addition to any thereto, guarantees
and letters of credit supporting any such obligations and Indebtedness (in each
case, other than for an obligation for borrowed money, other than borrowed money
represented by any such letter of credit, bid, performance or surety bond, or
reimbursement obligation itself, or any guarantee and letter of credit related
thereto).
"Permitted Refinancing Indebtedness" means (i) Senior Indebtedness of the
Company or any Subsidiary, the net proceeds of which are used solely to renew,
extend, refinance, refund or repurchase outstanding Notes, including the amount
of reasonable fees and expenses and premium, if any, incurred by the Company or
such Subsidiary in connection therewith or (ii) Indebtedness of the Company or
any Subsidiary, the net proceeds of which are used to renew, extend, refinance,
refund or repurchase (including, without limitation, pursuant to a Change of
Control Offer as required by the terms of the Notes) outstanding Indebtedness of
the Company or any Subsidiary, provided that (a) if the Indebtedness (including
the Notes) being renewed, extended, refinanced, refunded or repurchased is pari
passu with or subordinated in right of payment to either the Notes or the
Subsidiary Guarantees, then such Indebtedness is pari passu with or subordinated
in right of payment to, as the case may be, the Notes or the Subsidiary
Guarantees at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (b) such Indebtedness is
scheduled to mature no earlier than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased and (c) such Indebtedness has an Average
Life at the time such Indebtedness is incurred that is greater than the Average
Life of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased; provided, further, that such Indebtedness (to the extent that such
Indebtedness constitutes Permitted Refinancing Indebtedness) is in an aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if
the Indebtedness being renewed, extended, refinanced, refunded or repurchased
was issued at a price less than the principal amount thereof, then not in excess
of the amount of liability in respect thereof determined in accordance with
GAAP) plus the amount of reasonable fees and expenses and premium, if any,
incurred by the Company or such Subsidiary in connection therewith.
"Permitted Unrestricted Subsidiary Investments" means Investments in
Unrestricted Subsidiaries in a cumulative aggregate amount (in cash or the fair
market value of property other than cash, as determined in good faith by the
Board of Directors of the Company) not to exceed the sum of (i) $10.0 million
and (ii) cash or cash equivalent distributions made from any Unrestricted
Subsidiary and received, after the Issue Date, as such by the Company, provided
that any amount included in this clause (ii) shall be deducted from any amounts
referred to in clause (ii)(c) of the "Limitation on Restricted Payments"
covenant. Notwithstanding the foregoing, Permitted Unrestricted Subsidiary
Investments shall also include any Investments in Unrestricted Subsidiaries to
the extent such Investment consists of (a) Qualified Capital Stock of the
Company or (b) amounts referred to in clause (ii)(b) of the "Limitation on
Restricted Payments" covenant, which Investments shall be excluded from the sum
in the previous sentence, provided that the amount of any Investments pursuant
to clause (b) shall be deducted from amounts referred to in clause (ii)(b) of
the "Limitation on Restricted Payments" covenant.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Post-Commencement Amounts" means all interest and fees accrued or accruing
after the commencement of any Insolvency or Liquidation Proceeding in accordance
with and at the contract rate (including, without limitation, any nonusurious
rate applicable upon default) and all premiums, expenses (including costs of
collection), indemnities and other amounts that would have accrued or been
incurred after the commencement of any Insolvency or Liquidation Proceeding in
any case as specified in any agreement or instrument
86
<PAGE> 93
creating, evidencing, or governing any Senior Indebtedness or any Guarantor
Senior Indebtedness, as the case may be, whether or not, pursuant to applicable
law or otherwise, the claim for such interest, fees, premiums, expenses,
indemnities or other amounts is allowed and non-avoidable as a claim in such
Insolvency or Liquidation Proceeding.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act, as amended.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock, partnership
interests and other equity or ownership interests in any other Person.
"Public Equity Offering" means an underwritten public offer and sale of
common stock (that is Qualified Capital Stock) of the Company pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-8
or otherwise relating to equity securities issuable under any employee benefit
plan of the Company).
"Purchase Money Obligations" means indebtedness evidenced by a note,
debenture, bond or other security or investment (whether or not secured by any
lien or other security interest) issued to or assumed in favor of a vendor as
all or part of the purchase price of property acquired by the Company or any
Subsidiary; provided, however, that such term shall not include any account
payable or any other indebtedness incurred, created or assumed in the ordinary
course of business in connection with the obtaining of material, products or
services.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Related Person" means (i) any Affiliate of the Company, (ii) any
individual or other Person who directly or indirectly holds 10% or more of the
combined voting power of the then outstanding Voting Stock of the Company, (iii)
any relative of any individual referred to in clauses (i), (ii) and (iv) hereof
by blood, marriage or adoption not more remote than first cousin and (iv) any
officer or director of the Company.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Indebtedness of the Company or any Subsidiary that is subordinate in right to
the Notes or the Subsidiary Guarantees; provided, however, that any such
acquisition shall be deemed not to be a Restricted Debt Prepayment to the extent
it is made (i) in exchange for or with the proceeds from the substantially
concurrent issuance of Qualified Capital Stock or (ii) in exchange for or with
the proceeds from the substantially concurrent issuance of Indebtedness, in a
principal amount (or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon the acceleration thereof,
with an original issue price) not to exceed the lesser of (a) the principal
amount of Indebtedness being acquired in exchange therefor (or with the proceeds
therefrom) and (b) if such Indebtedness being acquired was issued at an original
issue discount, the original issue price thereof plus amortization of the
original issue discount at the time of the incurrence of the Indebtedness being
issued in exchange therefor (or the proceeds of which will finance such
acquisition), and provided further that any such Indebtedness shall have an
Average Life not less than the Average Life of the Indebtedness being acquired,
and shall contain subordination and default provisions no less favorable, in any
material respect, to holders of the Notes than those contained in such
Indebtedness being acquired.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than Permitted Investments and other than Permitted Unrestricted Subsidiary
Investments) or (iii) Restricted Debt Prepayment.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Senior Indebtedness" means all Indebtedness of the Company (present and
future) created, incurred, assumed or guaranteed by the Company (and all
renewals, extensions or refundings thereof) (including the principal of,
interest on and fees, premiums, expenses (including costs of collection),
indemnities and other
87
<PAGE> 94
amounts payable in connection with such Indebtedness, and including any
Post-Commencement Amounts), unless the instrument governing such Indebtedness
expressly provides that such Indebtedness is not senior or superior in right of
payment to the Notes. Notwithstanding the foregoing, Senior Indebtedness of the
Company does not include (i) any Indebtedness of the Company to any Subsidiary
or any Unrestricted Subsidiary or (ii) any amounts payable or other liabilities
to trade creditors.
"Stock Payment" means, with respect to any Person, (a) the declaration or
payment by such Person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in Qualified
Capital Stock of the Company), or the making by such Person or any of its
subsidiaries of any other distribution in respect of, such Person's Capital
Stock or any warrants, rights or options to purchase or acquire shares of any
class of such Capital Stock (except for the issuance of Qualified Capital Stock
pursuant to the exercise thereof), or (b) the redemption, repurchase, retirement
or other acquisition for value by such Person or any of its subsidiaries,
directly or indirectly, of such Person's or any of its subsidiaries' Capital
Stock or any warrants, rights or options to purchase or acquire shares of any
class of such Capital Stock other than, in the case of the Company, through the
issuance in exchange therefor solely of Qualified Capital Stock of the Company;
provided, however, that in the case of a Subsidiary, the term "Stock Payment"
shall not include (i) any such payment with respect to its Capital Stock or
warrants, rights or options to purchase or acquire shares of any class of its
Capital Stock payable to the Company or a Wholly-Owned Subsidiary or (ii)
Employee Stock Repurchases.
A "subsidiary" of any Person means (i) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more wholly-owned subsidiaries of such Person or by such Person and one
or more wholly-owned subsidiaries of such Person, (ii) a partnership in which
such Person or a wholly-owned subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but only if
such Person or its wholly-owned subsidiary is entitled to receive more than
fifty percent of the assets of such partnership upon its dissolution, or (iii)
any other Person (other than a corporation or partnership) in which such Person,
a wholly-owned subsidiary of such Person or such Person and one or more
wholly-owned subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such Person.
"Subsidiary" means any subsidiary of the Company; provided, that an
Unrestricted Subsidiary shall not be deemed a subsidiary of the Company for
purposes of the Indenture.
"Subsidiary Guarantee" means, individually and collectively, the guarantees
given by the Subsidiary Guarantors pursuant to the Indenture.
"Subsidiary Guarantor" means (i) Dailey Energy Services, Inc., a Delaware
corporation; Dailey International Sales Corporation, a Delaware corporation;
Columbia Petroleum Services Corp., a Delaware corporation; International
Petroleum Services, Inc., a Delaware corporation; Dailey Environmental
Remediation Technologies, Inc., a Texas corporation; Dailey Worldwide Services,
Corp., a Texas corporation; Air Drilling International, Inc., a Delaware
corporation; and Air Drilling Services, Inc., a Wyoming corporation; (ii) each
of the Company's Subsidiaries that becomes a guarantor of the Notes in
compliance with the provisions of the Indenture; and (iii) each of the Company's
Subsidiaries executing a supplemental indenture in which such Subsidiary agrees
to be bound by the terms of the Indenture.
"Unrestricted Subsidiary" means (i) any subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary (including any newly acquired or newly formed
Subsidiary or a Person becoming a Subsidiary through merger or consolidation or
Investment therein) to be an Unrestricted Subsidiary only if: (a) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property of, any other Subsidiary of the Company which is not a Subsidiary of
the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b)
all the Indebtedness of such Subsidiary shall at the date of designation, and
will at all times thereafter consist of Non-Recourse Indebtedness; (c) the
Company certifies that such designation complies with the "Limitation on
Restricted Payments" covenant; and (d) such Subsidiary, either alone or in
88
<PAGE> 95
the aggregate with all other Unrestricted Subsidiaries, does not operate,
directly or indirectly, all or substantially all of the business of the Company
and the Subsidiaries. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a Board
Resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. If, at any time, such Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture, and any Indebtedness of such Subsidiary shall be
deemed to be incurred as of such date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Subsidiary; provided that
immediately after giving effect to such designation, the Company could incur at
least $1.00 of additional Indebtedness (excluding Permitted Indebtedness)
pursuant to the first paragraph of the "Limitation on Incurrence of Additional
Indebtedness" covenant on a pro forma basis taking into account such
designation.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
board of directors or other governing body of such Person.
"Wholly-Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Subsidiary and, by contract or otherwise,
controls the management and business of such Subsidiary and derives the economic
benefits of ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a Wholly-Owned Subsidiary.
89
<PAGE> 96
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes to initial purchasers thereof. This discussion is based on currently
existing provisions of the Code, existing, temporary and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of Notes and is limited to purchasers who hold the Notes
as capital assets, within the meaning of section 1221 of the Code. Moreover,
this discussion is for general information only and does not address all of the
tax consequences that may be relevant to particular initial purchasers in light
of their personal circumstances or to certain types of initial purchasers (such
as certain financial institutions, insurance companies, tax-exempt entities,
dealers in securities, persons who have hedged the risk of owning a Note and
foreign taxpayers), or the effect of any applicable state, local or foreign tax
law.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
Payment of Interest on Notes
Interest paid or payable on a Note will be taxable to a holder as ordinary
interest income, generally at the time it is received or accrued, in accordance
with such holder's regular method of accounting for United States federal income
tax purposes.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, the holder generally will recognize taxable gain or loss
equal to the difference between the sum of cash plus the fair market value of
all other property received on such disposition (except to the extent such cash
or property is attributable to accrued but unpaid interest, which will be
taxable as ordinary income) and such holder's adjusted tax basis in the Note. A
holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such holder, less any principal payments received by such holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss and will be long-term capital gain or loss if, at the time
of such disposition, the holder's holding period for the Note is more than one
year.
The exchange of an Outstanding Note by a holder for an Exchange Note
pursuant to the terms set forth herein should not constitute a taxable exchange
for federal income tax purposes.
Backup Withholding and Information Reporting
Backup withholding and information reporting requirements may apply to
certain payments of principal, premium, if any, and interest on a Note, and to
proceeds of the sale or redemption of a Note before maturity. The Company, its
agent, a broker, the Trustee or any paying agent, as the case may be, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of such payment if a holder fails to furnish his taxpayer
identification number (social security or employer identification number),
certify that such number is correct, certify that such holder is not subject to
backup withholding or otherwise comply with the applicable requirements of the
backup withholding rules. Certain holders, including all corporations, are not
subject to backup withholding and reporting requirements. Any amounts withheld
under the backup withholding rules from a payment to a holder will be allowed as
a credit against such holder's United States federal income tax and may entitle
the holder to a refund, provided that the required information is furnished to
the Internal Revenue Service.
90
<PAGE> 97
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchase or to or through brokers or dealer who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. A broker-dealer that delivers such a prospectus to purchasers in connection
with such resales will be subject to certain of the civil liability provisions
under the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer, other than commissions or concession of any
brokers or dealers, and will indemnify the holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
request the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer. If the Company shall give any
such notice to suspend the use of the Prospectus, it shall extend the 90-day
period referred to above by the number of days during the period from and
including the date of the giving of such notice to and including when
broker-dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes.
LEGAL MATTERS
Certain matters related to the validity of the Exchange Notes will be
passed upon for the Company by Fulbright & Jaworski L.L.P., Houston, Texas.
91
<PAGE> 98
EXPERTS
The consolidated financial statements and schedule of Dailey International
Inc. at April 30, 1997 and 1996, and for each of the three years in the period
ended April 30, 1997, and the combined financial statements of DWS/DAMCO at
September 30, 1997 and December 31, 1996 and for the nine-month period ended
September 30, 1997 and the years ended December 31, 1996 and 1995, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Air Drilling International, Inc.
as of December 31, 1996 and 1995 and for the year ended December 31, 1996, and
the period from May 19, 1995 (Inception) to December 31, 1995 and the combined
financial statements of Air Drilling Services Inc., Canadian Air Drilling
Services Ltd., Specialty Testing & Consulting Ltd. and Global Air Drilling
Services Ltd. as of May 18, 1995 and for the period from January 1, 1995 through
May 18, 1995, appearing in this Prospectus and Registration Statement have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their reports included herein.
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<PAGE> 99
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF DAILEY
INTERNATIONAL INC.:
Report of Independent Auditors............................ F-3
Consolidated Balance Sheets as of April 30, 1997 and
1996................................................... F-4
Consolidated Statements of Operations for the years ended
April 30, 1997, 1996 and 1995.......................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended April 30, 1997, 1996 and 1995.............. F-6
Consolidated Statements of Cash Flows for the years ended
April 30, 1997, 1996 and 1995.......................... F-7
Notes to Consolidated Financial Statements................ F-8
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF DAILEY
INTERNATIONAL INC.:
Consolidated Balance Sheets as of October 31, 1997 and
April 30, 1997......................................... F-29
Consolidated Statements of Operations for the three and
six months ended October 31, 1997 and 1996............. F-30
Consolidated Statements of Cash Flows for the six months
ended October 31, 1997 and 1996........................ F-31
Notes to Consolidated Financial Statements................ F-32
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AIR DRILLING
INTERNATIONAL, INC. AND SUBSIDIARIES:
Report of Independent Accountants......................... F-45
Consolidated Balance Sheets as of December 31, 1996 and
1995................................................... F-46
Consolidated Statements of Operations for the year ended
December 31, 1996, and the period from May 19, 1995
(Inception) through December 31, 1995.................. F-47
Consolidated Statement of Changes in Stockholders' Equity
for the year ended December 31, 1996, and the period
from May 19, 1995 (Inception) through December 31,
1995................................................... F-48
Consolidated Statements of Cash Flows for the year ended
December 31, 1996, and the period from May 19, 1995
(Inception) through December 31, 1995.................. F-49
Notes to Consolidated Financial Statements................ F-50
SUPPLEMENTAL SCHEDULES OF AIR DRILLING INTERNATIONAL, INC.:
Report of Independent Accountants on Supplemental
Schedules.............................................. F-60
Consolidating Balance Sheet as of December 31, 1996....... F-61
Consolidating Balance Sheet as of December 31, 1995....... F-62
Consolidating Statement of Operations for the year ended
December 31, 1996...................................... F-63
Consolidating Statement of Operations for the period from
May 19, 1995 (Inception) through December 31, 1995..... F-64
Consolidating Statement of Cash Flows for the year ended
December 31, 1996...................................... F-65
Consolidating Statement of Cash Flows for the period from
May 19, 1995 (Inception) through December 31, 1995..... F-66
AUDITED COMBINED FINANCIAL STATEMENTS OF AIR DRILLING
SERVICES, INC., CANADIAN AIR DRILLING SERVICES LTD.,
SPECIALTY TESTING & CONSULTING LTD. AND GLOBAL AIR
DRILLING SERVICES LTD.:
Report of Independent Accountants......................... F-67
Combined Balance Sheet as of May 18, 1995................. F-68
Combined Statement of Income for the period from January
1, 1995 through May 18, 1995........................... F-69
Combined Statement of Changes in Stockholders' Equity for
the period from January 1, 1995
through May 18, 1995................................... F-70
Combined Statement of Cash Flows for the period from
January 1, 1995 through
May 18, 1995........................................... F-71
Notes to Combined Financial Statements.................... F-72
</TABLE>
F-1
<PAGE> 100
<TABLE>
<S> <C>
SUPPLEMENTAL SCHEDULES OF AIR DRILLING SERVICES, INC.,
CANADIAN AIR DRILLING SERVICES LTD., SPECIALTY TESTING &
CONSULTING LTD. AND GLOBAL AIR DRILLING SERVICES LTD.:
Report of Independent Accountants on Supplemental
Schedules.............................................. F-80
Combining Balance Sheet as of May 18, 1995................ F-81
Combining Income Statement for the period from January 1,
1995 through May 18, 1995.............................. F-82
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AIR DRILLING
INTERNATIONAL, INC. AND SUBSIDIARIES:
Consolidated Balance Sheets as of April 30, 1997 and
December 31, 1996...................................... F-83
Consolidated Statements of Operations for the four month
periods ended April 30, 1997 and 1996.................. F-84
Consolidated Statements of Cash Flows for the four month
periods ended April 30, 1997 and 1996.................. F-85
Notes to Unaudited Consolidated Financial Statements...... F-86
AUDITED COMBINED FINANCIAL STATEMENTS OF DIRECTIONAL
WIRELINE SERVICES, INC., DAMCO SERVICES, INC. AND DAMCO
TONG SERVICES, INC:
Report of Independent Auditors............................ F-87
Combined Balance Sheets as of September 30, 1997 and
December 31, 1996...................................... F-88
Combined Statements of Operations for the nine months
ended September 30, 1997 and the years ended December
31, 1996 and 1995...................................... F-89
Combined Statements of Shareholders' Equity for the nine
months ended September 30, 1997 and for the years ended
December 31, 1996 and 1995............................. F-90
Combined Statements of Cash Flows for the nine months
ended September 30, 1997 and the years ended December
31, 1996 and 1995...................................... F-91
Notes to Combined Financial Statements.................... F-92
</TABLE>
F-2
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Dailey International Inc.
We have audited the accompanying consolidated balance sheets of Dailey
International Inc., as of April 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended April 30, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dailey International Inc. at April 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Houston, Texas
June 27, 1997
F-3
<PAGE> 102
DAILEY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $15,200 $ 1,967
Accounts receivable, net.................................. 18,606 16,306
Accounts receivable from officers and affiliates.......... -- 436
Prepaid expenses.......................................... 346 422
Deferred income taxes..................................... 597 389
Other current assets...................................... 907 153
------- -------
Total current assets.............................. 35,656 19,673
Revenue-producing tools and inventory, net.................. 37,488 29,208
Property and equipment, net................................. 5,622 5,326
Deferred income taxes....................................... 1,959 1,384
Accounts receivable from officer............................ 250 --
Intangibles and other assets................................ 1,384 287
------- -------
Total assets...................................... $82,359 $55,878
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 8,324 $ 6,749
Accounts payable to affiliate............................. 442 --
Income taxes payable...................................... 3,241 1,749
Short-term debt........................................... -- 1,300
Current portion of long-term debt......................... 1,711 1,738
Current portion of indebtedness to affiliate.............. -- 660
------- -------
Total current liabilities......................... 13,718 12,196
Long-term debt.............................................. 5,155 6,866
Long-term indebtedness to affiliate......................... -- 1,100
Other noncurrent liabilities................................ 159 75
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued................................ -- --
Common stock, Class A, $0.01 par value; 20,000,000 shares
authorized; 4,315,000 and 0 issued and outstanding at
April 30, 1997 and 1996, respectively; Class B, $0.01
par value; 10,000,000 shares authorized, 5,000,000
shares issued and outstanding at April 30, 1997 and
1996................................................... 93 50
Treasury stock (24,000 shares)............................ (234) --
Paid-in capital........................................... 39,972 4,559
Retained earnings......................................... 23,496 31,032
------- -------
Total stockholders' equity........................ 63,327 35,641
------- -------
Total liabilities and stockholders' equity........ $82,359 $55,878
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 103
DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rental income........................................... $ 49,497 $ 42,987 $ 36,691
Sales of products and services.......................... 16,954 15,952 12,172
--------- --------- ---------
66,451 58,939 48,863
Costs and expenses:
Cost of rentals......................................... 37,655 33,019 29,685
Cost of products and services........................... 8,890 7,927 6,889
Selling, general and administrative..................... 11,893 12,083 9,607
Non-cash compensation................................... 2,807 -- --
Research and development................................ 850 728 775
--------- --------- ---------
62,095 53,757 46,956
--------- --------- ---------
Operating income.......................................... 4,356 5,182 1,907
Other (income) expense:
Interest income......................................... (640) (104) (60)
Interest expense -- nonaffiliates....................... 671 785 841
Interest expense -- affiliate........................... 162 182 220
Foreign exchange (gain) loss............................ 19 239 (90)
Other, net.............................................. 169 39 190
--------- --------- ---------
Income before income taxes................................ 3,975 4,041 806
Provision for income taxes................................ 1,511 1,427 838
--------- --------- ---------
Net income (loss)......................................... $ 2,464 $ 2,614 $ (32)
========= ========= =========
Earnings (loss) per share................................. $ .30 $ (.01)
========= =========
Pro forma earnings per share.............................. $ .40
=========
Weighted average shares outstanding....................... 8,094,880 5,360,000
Pro forma weighted average shares outstanding............. 6,610,000
</TABLE>
See accompanying notes.
F-5
<PAGE> 104
DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
PREFERRED COMMON COMMON TREASURY PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ------- ------- -------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1994 as
restated (Note 1)...... $-- $-- $50 $ -- $ 4,559 $ 28,450 $ 33,059
Net loss............... -- -- -- -- -- (32) (32)
--- --- --- ----- ------- -------- --------
Balance at April 30,
1995................... -- -- 50 -- 4,559 28,418 33,027
Net income............. -- -- -- -- -- 2,614 2,614
--- --- --- ----- ------- -------- --------
Balance at April 30,
1996................... -- -- 50 -- 4,559 31,032 35,641
Net income............. -- -- -- -- -- 2,464 2,464
Dividend (Note 1)...... -- -- -- -- -- (10,000) (10,000)
Net proceeds from sale
of stock............ -- 39 -- -- 27,610 -- 27,649
Capital contribution... -- -- -- -- 5,000 -- 5,000
Purchases of treasury
stock............... -- -- -- (234) -- -- (234)
Provision for stock
awards.............. -- 4 -- -- 2,803 -- 2,807
--- --- --- ----- ------- -------- --------
Balance at April 30,
1997................... $-- $43 $50 $(234) $39,972 $ 23,496 $ 63,327
=== === === ===== ======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 105
DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................... $ 2,464 $ 2,614 $ (32)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 6,593 5,726 5,428
Deferred income taxes.................................... (783) (816) (487)
Provision for doubtful accounts receivable............... 305 256 321
(Gain) loss on sale and disposition of property and
equipment............................................. 159 6 (9)
Provision for stock awards............................... 2,807 -- --
Changes in operating assets and liabilities:
Accounts receivable -- trade.......................... (2,605) (2,498) (663)
Accounts receivable from/payable to officers and
affiliates.......................................... 628 (538) (711)
Prepaid expenses and other............................ (972) 347 (3)
Accounts payable and accrued liabilities.............. 1,575 (932) 2,458
Income taxes payable.................................. 1,492 741 (319)
-------- -------- --------
Net cash provided by operating activities.................. 11,663 4,906 5,983
INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory......... (21,825) (12,173) (13,396)
Inventory transferred to cost of rentals................... 5,913 5,521 4,739
Revenue-producing tools lost in hole, abandoned, and
sold..................................................... 1,983 2,551 2,073
Additions to property and equipment........................ (660) (883) (1,619)
Proceeds from sale of property and equipment............... 126 916 473
Acquisition................................................ (1,584) -- --
-------- -------- --------
Net cash used in investing activities...................... (16,047) (4,068) (7,730)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt......................... 400 1,300 --
Payments on outstanding debt............................... (5,198) (1,967) (1,074)
Payment of promissory note................................. (5,000) -- --
Purchase of treasury stock................................. (234) -- --
Net proceeds from sale of common stock..................... 27,649 -- --
-------- -------- --------
Net cash provided by (used in) financing activities........ 17,617 (667) (1,074)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 13,233 171 (2,821)
Cash and cash equivalents at beginning of year............. 1,967 1,796 4,617
-------- -------- --------
Cash and cash equivalents at end of year................... $ 15,200 $ 1,967 $ 1,796
======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 106
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
1. ORGANIZATION AND PUBLIC OFFERING
The accompanying consolidated financial statements reflect the operations
of Dailey Petroleum Services Corp., a Delaware corporation, which was merged
with Dailey Corporation (which changed its name to Dailey Petroleum Services
Corp.) in June 1996. The Company subsequently changed its name to Dailey
International Inc. Dailey International Inc. and its predecessor are hereinafter
referred to as the "Company" or "Dailey."
The Company provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Founded in 1945 as a rental tool company,
Dailey began offering directional drilling services in 1984 and currently
provides such services in the Gulf of Mexico, the United States Gulf Coast
region, and most recently, Venezuela, Louisiana and the Austin Chalk formation
in Texas. The Company operates in one business segment.
Prior to June 1996, Dailey was a wholly owned subsidiary of Lawrence
Industries, Inc. ("Lawrence"). In June 1996, in preparation for the initial
public offering of Class A Common Stock of Dailey, Lawrence reorganized its
ownership of the Company into a holding company structure through a forward
triangular merger of Dailey Petroleum Services Corp., into a newly-formed,
wholly-owned indirect subsidiary of Lawrence (the "Reorganization"). The effect
of the forward triangular merger has been reflected retroactively in the
accompanying financial statements. In August 1996, the Company completed its
initial public offering of 3,910,000 shares of Class A Common Stock (the "IPO").
Dailey's Restated Certificate of Incorporation provides for three classes
of stock: Class A Common Stock, $.01 par (20,000,000 shares authorized,
4,315,000 issued and outstanding) ("Class A Common Stock"), Class B Common
Stock, $.01 par (10,000,000 shares authorized, 5,000,000 shares issued and
outstanding) ("Class B Common Stock"), and Preferred Stock, $.01 par (5,000,000
shares authorized, none issued or outstanding). The Board of Directors is
empowered to authorize the issuance of Preferred Stock in one or more series and
to fix the rights, powers, preferences and limitations of each series. A holder
of Class B Common Stock may convert its Class B Common Stock into Class A Common
Stock at any time at the ratio of one share of Class A Common Stock for each
share of Class B Common Stock. In the event of liquidation, holders of Class A
Common Stock and Class B Common Stock share with each other on a ratable basis
as a single class in the net assets of the Company available for distribution.
In addition, shares of Class B Common Stock convert automatically into a like
number of shares of Class A Common Stock upon the sale or transfer of such
shares to a person or entity that is not a member of the Lawrence Group (as
defined in the Company's Restated Certificate of Incorporation).
In connection with the IPO, the Company issued 3,910,000 shares of Class A
Common Stock. Net proceeds from the sale of the stock were $27.6 million. The
Company used $5.0 million of the proceeds from the IPO to repay the outstanding
balance of a $10.0 million promissory note, which was incurred in connection
with a dividend declared on June 27, 1996 (the "Dividend"). Prior to
commencement of the IPO, the Company's sole stockholder contributed to the
capital of the Company $5.0 million of the outstanding principal of such note.
The statements of operations for the 1996 fiscal period include pro forma per
share data which gives effect to the number of shares from which proceeds would
have been used to pay the Dividend (an additional 1,250,000 shares assuming a
per share offering price of $8.00, thus earnings per share for the year ended
April 30, 1996, were based on 6,610,000 shares of Common Stock outstanding).
Historical earnings per share excluding the pro forma effect of the dividend was
$0.49 per share for the year ended April 30, 1996.
F-8
<PAGE> 107
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation.
The Company has historically had significant transactions with Lawrence and
its affiliates which are reflected in the accompanying financial statements on
the basis established between the Company and Lawrence. See Notes 6, 7, and 10.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all investments with a maturity of three months or
less when purchased to be cash and cash equivalents.
Accounts Receivable
Accounts receivable are net of allowances for doubtful accounts of
$1,476,000 in 1997 and $1,325,000 in 1996.
Revenue-Producing Tools and Inventory
Revenue-producing tools and inventory are stated at cost utilizing the
first-in, first-out method. Revenue-producing tools are depreciated on the
straight-line method over their estimated useful lives of 5 to 7 years. Tools
lost in hole and billed to customers and tools abandoned are included in sales
of products and services and the related write-off of the tools' net book values
are included in costs of products and services in the accompanying consolidated
statements of operations.
Tools manufactured and assembled are transferred to revenue-producing tools
as completed at the total cost of components, subassemblies, expendable parts,
direct labor and indirect costs of each tool. For U.S. locations and
international distribution centers, components, subassemblies and expendable
parts are capitalized as inventory and expensed as tools are repaired and
maintained. Components, subassemblies and expendable parts are expensed when
shipped to all international locations other than distribution centers.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
primarily on the straight-line method over the estimated useful lives of 5 to 30
years for buildings and improvements, 3 to 10 years for machinery and equipment,
4 to 10 years for furniture and fixtures and 3 to 7 years for other property and
equipment.
Maintenance and repairs are charged to expense as incurred. Major repairs
and improvements are capitalized and depreciated. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are
removed from the related accounts and any gain or loss is recognized in
operations.
F-9
<PAGE> 108
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Intangible Assets
Patents, goodwill and other intangibles are amortized over 13 to 40 years
and had a net book value of $1,384,000 and $287,000 at April 30, 1997 and 1996,
respectively. In March 1997, Dailey acquired certain business assets for $1.6
million including approximately $750,000 of goodwill.
Impairment of Long-Lived Assets
The carrying value of long-lived assets, principally revenue-producing
tools, goodwill and property and equipment, is reviewed for potential impairment
when events or changes in circumstance indicate that the carrying amount of such
assets may not be recoverable. The determination of recoverability is made based
upon the estimated undiscounted future net cash flows of the related asset.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to use the "intrinsic value based method" of accounting
for its stock option plans. This method does not result in the recognition of
compensation expense at the time employee stock options are granted, if the
exercise price of the option equals or exceeds the fair market value of the
stock at the date of grant. (See Note 12).
Income Taxes
The accompanying consolidated financial statements reflect deferred income
taxes on the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws in effect. An impairment evaluation, with reserves recorded as
necessary for any tax benefit not expected to be realized, is required of
deferred tax assets. A current tax expense or benefit is recognized for
estimated taxes payable or refundable for the current year.
The Company was included in the consolidated U.S. federal income tax return
of Lawrence for taxable periods ending on the closing of the IPO. The Company
and Lawrence are jointly and severally liable with respect to taxes related to
periods prior to the IPO. The Company and its subsidiaries currently file
separate income tax returns. The accompanying consolidated financial statements
reflect the income tax provisions of the Company on a separate return basis for
all years with no U.S. federal tax operating loss, tax credit, or foreign credit
carryforwards generated prior to May 1, 1988 allocated to the Company by
Lawrence.
Pursuant to the Tax Allocation Agreement entered into by the Company and
Lawrence, the Company paid to Lawrence an amount equal to the federal income tax
computed on the Company's (and its subsidiaries) taxable income less any tax
credits generated by the Company or its subsidiaries. The Tax Allocation
Agreement applies to the Company for all years in which the Company (or any
predecessor) is or was included in the Lawrence consolidated federal income tax
return. To the extent a state or other taxing jurisdiction requires or permits a
consolidated, combined or unitary tax return to be filed by Lawrence and its
affiliates and such return includes the Company, the principles expressed with
respect to the consolidated federal tax allocation will apply.
Foreign Currency Translation
The U.S. dollar is the functional currency for all operations. Accordingly,
foreign currency translation gains and losses are recognized in the consolidated
statements of operations.
F-10
<PAGE> 109
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is effective for financial statements issued
for periods ending after December 15, 1997. At such time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
method of calculating fully diluted earnings per share will remain unchanged.
The impact of Statement 128 is expected to result in an increase in primary
earnings per share for the year ended April 30, 1997 of $.01 and no change for
the year ended April 30, 1996.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the current year presentation.
3. REVENUE-PRODUCING TOOLS AND INVENTORY
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue-producing tools..................................... $ 56,622 $ 48,024
Accumulated depreciation.................................... (32,503) (29,740)
-------- --------
24,119 18,284
Inventory:
Components, subassemblies and expendable parts............ 11,293 9,096
Rental tools and expendable parts under production........ 1,261 1,058
Raw materials............................................. 815 770
-------- --------
13,369 10,924
-------- --------
Revenue-Producing Tools and Inventory.................. $ 37,488 $ 29,208
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,072 $ 1,271
Buildings and improvements.................................. 5,758 5,985
Machinery and equipment..................................... 13,579 15,377
Furniture and fixtures...................................... 1,278 1,579
Other....................................................... 1,191 593
-------- --------
22,878 24,805
Accumulated depreciation.................................... (17,256) (19,479)
-------- --------
Property and Equipment................................. $ 5,622 $ 5,326
======== ========
</TABLE>
F-11
<PAGE> 110
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable...................................... $ 3,647 $ 2,601
Accrued salaries and vacation............................... 1,961 1,778
Agent commissions payable................................... 706 774
Accrued expenses and other.................................. 2,010 1,596
-------- --------
Accounts Payable and Accrued Liabilities............... $ 8,324 $ 6,749
======== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
The accompanying consolidated statements of operations include annual
rental charges from Lawrence for a corporate office facility and a manufacturing
and service center facility. See Note 10.
The affiliate balances, other than the amounts included in long-term debt,
are non-interest bearing and have no fixed repayment terms.
The Company provided Lawrence and certain of its affiliates with various
administrative and management services including cash management, accounting,
tax, data processing, human resources and legal services in 1997, 1996 and 1995.
During 1996 and 1995, the Company also utilized from time to time aircraft owned
by a Lawrence subsidiary. Prior to 1997, the Company did not charge Lawrence for
these administrative and management services or reimbursed Lawrence for use of
the aircraft because the effect of not recording the fair values of these
services rendered less services received was not significant. In 1997, the
Company charged Lawrence a net of $68,000 as fair value for these services.
The Company participates in the "Lawrence Companies Retirement Plan", a
defined contribution pension plan, covering all Dailey employees. Contributions
are determined as 50% of the employee's contribution up to 2% of the employee's
total compensation. Amounts charged to pension costs and contributed to the plan
in 1997, 1996 and 1995 totaled $203,000, $178,000 and $152,000, respectively.
7. BORROWING ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Note payable to a bank, monthly interest payments at a fixed
rate of 7.9% (See below); monthly principal payments of
$138,889 through December 1999, with increasing principal
payments through the maturity date of December 2000....... $6,778 $8,444
Note payable to affiliates, monthly principal payments of
$55,000 plus interest at 8.0%............................. -- 1,760
Other....................................................... 88 160
------ ------
6,866 10,364
Less current portion of long-term debt...................... 1,711 2,398
------ ------
Total long-term debt.............................. $5,155 $7,966
====== ======
</TABLE>
F-12
<PAGE> 111
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BORROWING ARRANGEMENTS -- (CONTINUED)
The note payable to a bank includes, among other things, provisions
relative to maintenance of working capital balances, limitations on additional
borrowing, debt coverage requirements and restrictions on payment of dividends.
The note payable to a bank is collateralized by a majority of the Company's
assets and a portion of other notes payable is collateralized by equipment
purchased.
In conjunction with the $10.0 million note payable to a bank and to limit
interest rate exposure, the Company entered into an interest rate swap, which
converted the floating interest rate to a fixed rate of 7.9% maturing in
December 2000.
Interest paid during the years ended April 30, 1997, 1996 and 1995 amounted
to $858,000, $956,000 and $1,128,000, respectively.
In December 1995, the Company entered into a $3.0 million revolving credit
facility with a bank on December 15, 1995 amended as of June 5, 1996 which
provided interest at the prime rate with an option to convert to a LIBOR-based
rate plus 2.0%. In December 1996, this revolving credit facility was extended
through December 1997. At April 30, 1997, the Company had no outstanding
borrowings. The obligations of the Company to the bank are collateralized by
substantially all of the Company's property, equipment, inventory, intellectual
property and receivables. The credit facility contains certain restrictive
covenants and customary events of default and conditions to the bank's
obligation to make advances to the Company.
On June 20, 1997, the note payable to a bank was amended to increase the
outstanding principal balance of the term loan to $41.5 million and the
outstanding principal balance of advances made pursuant to the revolving line of
credit to $4.0 million. Principal payments on the term loan are $350,000
quarterly through July 1998, with increasing payments thereafter until maturity
on June 30, 2002, at which time the obligation of the bank to make revolving
credit advances also terminates. Interest on the term loan and revolving credit
advances is variable and will fluctuate at a variable margin over the bank's
prime rate or at a LIBOR-based rate. Both interest rates can fluctuate based on
leverage ratios. On June 23, 1997, the date of funding, the average interest
rate on revolving advances was 8.0%. Borrowings under the revolving credit
facility are limited to the lesser of $15.0 million or a loan formula based upon
the receivable level of eligible accounts receivable. The note payable to the
bank contains certain restrictive covenants and customary events of default and
conditions to the bank's obligation to make advances.
8. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. operations...................................... $3,858 $4,072 $1,443
Foreign operations................................... 117 (31) (637)
------ ------ ------
Income (loss) before income taxes................. $3,975 $4,041 $ 806
====== ====== ======
Income tax provision:
U.S. current......................................... $ 679 $ 941 $ 737
Foreign current...................................... 1,358 1,302 588
U.S. deferred........................................ (783) (816) (487)
State and local current.............................. 257 -- --
------ ------ ------
Income tax provision.............................. $1,511 $1,427 $ 838
====== ====== ======
</TABLE>
F-13
<PAGE> 112
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Revenue-producing tools and property and equipment........ $ 683 $ 662
------ ------
Total deferred tax liabilities.................... 683 662
Deferred tax assets:
Stock award -- salary expense............................. 399 --
Net operating loss carryforward........................... -- 1,547
Provision for doubtful accounts receivable................ 544 504
Uniform capitalization costs.............................. 1,272 1,053
Vacation and workers' compensation accruals............... 418 389
Foreign tax credit carryforward........................... 1,661 --
------ ------
Total deferred tax assets......................... 4,294 3,493
Valuation allowance for deferred tax assets................. (1,055) (1,058)
------ ------
3,239 2,435
------ ------
Net deferred tax assets..................................... $2,556 $1,773
====== ======
</TABLE>
The difference between the United States statutory rate and the Company's
effective income tax rate is reconciled as follows:
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
United States statutory rate.............................. 34.0% 34.0% 34.0%
Increases (reductions) in tax rate resulting from:
Meals and entertainment................................. 2.7 2.2 10.7
State taxes............................................. 4.2 -- --
Dissolution of partnership.............................. -- 20.0 --
Benefit of net operating loss carryforward.............. -- (23.2) --
Foreign losses.......................................... 3.1 2.6 41.4
Other................................................... (6.0) (.3) 17.9
--- ----- -----
Effective income tax rate............................ 38.0% 35.3% 104.0%
=== ===== =====
</TABLE>
For income tax reporting at April 30, 1997 the Company has foreign tax
credit carryforwards of approximately $1,661,000, which will begin to expire in
the fiscal year ending April 30, 2000. The valuation allowance relates to
deferred tax assets established for the net operating loss, provision for
doubtful accounts receivable and foreign tax credit carryforward. No other
valuation allowances were considered necessary. The change in the valuation
allowance is due to the utilization of prior year net operating loss
carryforward and the establishment of an allowance for foreign tax credit
carryforwards. Based on the earnings history, it is expected that future taxable
income will be more than sufficient to utilize the remaining deductible
temporary differences.
No provision is made for U.S. income and foreign withholding taxes
applicable to undistributed earnings of foreign subsidiaries that are
indefinitely reinvested in foreign operations.
Income taxes paid during 1997, 1996 and 1995 were $608,000, $538,000 and
$917,000, respectively.
F-14
<PAGE> 113
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ROYALTIES
In 1986, the Company purchased the design, patents and rights to certain
hydraulic tools and entered into a royalty agreement with the seller which
expires in 1999 and 2003 as to the covered hydraulic drilling and fishing jars,
respectively. Royalty agreements were executed between the Company and the
royalty owner in 1993 and 1994 on newly issued methods and apparatus patents
related to a double-acting drilling accelerator and improvements to hydraulic
drilling jars. In March 1994, the royalty agreements were amended to cap
royalties at 5.0% of annual net rental revenues derived from the hydraulic
drilling and fishing jars and double-acting drilling accelerators through
December 1999, with the royalty percentage decreasing to 4.0% from January 2000
to expiration of the applicable patents. Upon expiration of the patents, no
royalties will be required. The amended agreement also revised the 1.0% royalty
paid on net lost-in-hole revenue for the original hydraulic drilling jar patent
to the 2.0% provided in subsequent royalty agreements. For the years ended April
30, 1997, 1996 and 1995, the accompanying consolidated statements of operations
include royalty expense of $879,000, $843,000 and $826,000, respectively,
excluding the $250,000 related to the amended royalty agreement. The owner of
the royalty was an officer of the Company until October 1994.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space, transportation equipment and other
property under noncancelable operating leases with third parties and a corporate
office facility and manufacturing and service center facility with Lawrence. See
Note 6. Future minimum lease commitments under noncancelable operating leases at
April 30, 1997 are as follows:
<TABLE>
<CAPTION>
THIRD PARTY LAWRENCE TOTAL
----------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
1998................................................ $ 649 $ 915 $1,564
1999................................................ 302 951 1,253
2000................................................ 236 969 1,205
2001................................................ 221 989 1,210
2002................................................ 221 -- 221
Thereafter.......................................... 520 -- 520
------ ------ ------
$2,149 $3,824 $5,973
====== ====== ======
</TABLE>
Rental expense under operating leases with third parties, inclusive of
month-to-month rentals, totaled $2,184,000, $2,436,000 and $1,700,000 in 1997,
1996 and 1995, respectively, and with Lawrence totaled $915,000, $1,306,000 and
$1,244,000 in 1997, 1996 and 1995, respectively and are included in selling
general and administrative expenses and cost of rentals.
The Company is the defendant in various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the consolidated financial statements of the Company. The Company is also
the plaintiff in certain actions defending its patents and proprietary designs.
11. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company is subject to credit risk and other risks inherent in
international operations. Generally, in excess of 50% of the Company's
receivables are due from oil and gas exploration companies and drilling
contractors operating in countries other than the United States and from the
Company's international agents. United States receivables are generally due from
major oil and gas exploration and drilling contractors throughout the oil field
areas of the United States. The Company routinely monitors its cash and
receivable positions with customers and international agents.
F-15
<PAGE> 114
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL
INSTRUMENTS -- (CONTINUED)
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long- and short-term debt and interest rate swap: The carrying amount of
the Company's borrowings under its short-term revolving note payable
approximates fair value. The fair values of the Company's long-term debt and
interest rate swap are estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts of the Company's long-term debt approximated
the fair values at April 30, 1997 and 1996.
12. STOCK OPTIONS AND AWARDS
Prior to the IPO, the Company established its 1996 Key Employee Stock Plan
(the "1996 Plan") and its 1996 Non-Employee Director Stock Option Plan (the
"1996 Director Plan"). The 1996 Plan and the 1996 Director Plan (the "Plans")
have 900,000 shares authorized for the granting of options or restricted stock
to management personnel and 100,000 shares authorized for the granting of
options to directors, respectively.
The Company applied Accounting Principals Board Opinion 25 ("APB25") and
related interpretations in accounting for these plans. Accordingly, no
compensation cost has been recognized in 1997 for either plan. Based on
information available at the grant date, the Company estimated a four year
expected life for all options granted during the year, volatility of .53 and
risk free interest rates ranging from 6.03% to 6.70%. The Company does not
presently anticipate issuing dividends in the future. Had compensation cost for
the Company's two stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method available under SFAS 123, the Company's net income and earnings per share
for 1997 would have been reduced to the pro forma amounts listed below. There
were no options issued in 1996 or 1995.
<TABLE>
<CAPTION>
1997
------
<S> <C> <C>
Net Income As reported $2,464
Pro forma $1,114
Earnings per share As reported $ .30
Pro forma $ .14
</TABLE>
Stock options under the Plans are for Class A Common Stock and have
exercise prices equal to fair market values at dates of grant. Options issued
under the 1996 Plan may not be exercised within six months of, nor after ten
years from, the date of grant. Options issued under the 1996 Director Plan may
not be exercised within one year of, nor after ten years from, the date of
grant. The average remaining contractual life of options outstanding is
approximately ten years. Option activity for the year ended April 30, 1997 was
as follows:
F-16
<PAGE> 115
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTIONS AND AWARDS -- (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
----------------- ----------------
<S> <C> <C>
Outstanding at April 30, 1996........................ 0 $ 0
Granted
1996 Plan -- at fair values from $8.00 to
$10.75........................................ 513,328 8.36
1996 Director Plan -- at fair value of $8.88.... 20,000 8.88
Other -- at fair value of $6.50................. 20,000 6.50
Forfeiture
1996 Plan -- at fair value of $8.00............. (19,199) 8.00
------- -----
Outstanding at April 30, 1977........................ 534,129 $8.32
======= =====
</TABLE>
Of the 553,328 options granted, 20,000 were not granted under the Plans and
have an exercisable life between one and five years from the date of grant. Of
the 534,129 options outstanding at April 30, 1997, 374,124 were exercisable.
Immediately following the IPO, restricted stock awards totaling 360,000 of
Class A Common Stock were granted to key officers. In October 1996, a restricted
stock award of 45,000 Class A Common Stock was granted to an executive officer.
Awards do not require any payment by the executive officers and were to vest
over a three year period. Subsequently, the Board approved accelerated vesting
of the 405,000 shares of restricted stock awards which resulted in the Company
recognizing $2.8 million in non-cash compensation expense during 1997.
Restricted stock activity for the year ended April 30, 1997 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED SHARES
-----------------
<S> <C>
Outstanding at April 30, 1996............................... $ 0
Granted at fair values of $8.00 and $9.00................. 405,000
Forfeiture................................................ 0
Vested.................................................... (349,803)
---------
Outstanding at April 30, 1977............................... $ 55,197
=========
</TABLE>
The costs associated with these awards are treated the same under APB25 and
SFAS123 and are expensed in the period granted. These expenses are not reflected
in the pro forma information above as they are included in the reported
balances.
13. SUBSEQUENT EVENTS
On June 20, 1997, the Company consummated the acquisition (the "ADI
Acquisition") of Air Drilling International, Inc. ("ADI"). Dailey acquired ADI
for $46.4 million, including the repayment of approximately $16.8 million in
indebtedness. As a result of the ADI Acquisition, the Company became a leading
worldwide provider of air drilling services for underbalanced drilling
applications.
In June 1997, following the ADI Acquisition, the Company implemented a cost
reduction program to flatten its corporate management structure and streamline
the Company's operations (the "Management Reorganization"). As a result of such
program, the Company expects to incur a $2.8 million restructuring charge during
the first quarter of the year ended April 30, 1998 associated primarily with
staff reductions and severance settlements and various reorganization costs. The
Company expects the Management Reorganization to result in annual savings of
approximately $1.8 million. The Company is contemplating the private placement
of $100 million of senior unsecured notes during the year ended April 30, 1998.
It is anticipated the
F-17
<PAGE> 116
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS -- (CONTINUED)
funds will be used to extinguish existing bank financing, to finance potential
acquisitions, and to expand the fleet of revenue producing tools.
14. INDUSTRY SEGMENT AND DOMESTIC AND INTERNATIONAL OPERATIONS
The Company operates in one business segment, providing directional
drilling services and technologically-advanced downhole tools for oil and gas
drilling and workover applications.
Export revenues to unaffiliated customers included in domestic sales were
$977,000, $1,833,000 and $274,000 in 1997, 1996 and 1995, respectively.
Revenues by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $40,223 $34,370 $29,607
Europe................................................ 7,297 7,349 7,090
West Africa........................................... 2,559 2,059 1,446
Latin America......................................... 11,670 11,032 6,024
Middle East........................................... 1,036 563 511
Southeast Asia........................................ 3,666 3,566 4,185
------- ------- -------
Total....................................... $66,451 $58,939 $48,863
======= ======= =======
</TABLE>
Operating income by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $ 8,833 $ 8,025 $ 3,639
Europe................................................ 2,665 2,424 2,512
West Africa........................................... 1,292 860 286
Latin America......................................... 855 1,434 812
Middle East........................................... 222 413 (15)
Southeast Asia........................................ 1,176 916 1,645
Corporate(A).......................................... (10,687) (8,890) (6,972)
------- ------- -------
Total....................................... $ 4,356 $ 5,182 $ 1,907
======= ======= =======
</TABLE>
- ---------------
(A) Corporate operating losses include general and administrative costs such as
accounting, systems, data processing, legal and other costs which support
all operations of the Company.
F-18
<PAGE> 117
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INDUSTRY SEGMENT AND DOMESTIC AND INTERNATIONAL OPERATIONS -- (CONTINUED)
Identifiable assets by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Domestic.................................................... $39,000 $30,931
Europe...................................................... 7,992 7,617
West Africa................................................. 1,539 1,631
Latin America............................................... 9,465 7,972
Middle East................................................. 668 242
Southeast Asia.............................................. 3,157 3,620
Corporate................................................... 20,538 3,865
------- -------
Total............................................. $82,359 $55,878
======= =======
</TABLE>
15. QUARTERLY INFORMATION
Selected unaudited quarterly data are as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
--------- ------------ ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AND COMMON STOCK PRICE)
<S> <C> <C> <C> <C>
FISCAL 1997
Operating revenues..................... $16,758 $17,155 $17,483(b) $15,057(b)
Operating income....................... 1,801 2,060 1,160(a) (665)(a)
Net income (loss)...................... 962 1,318 785(a) (601)(a)
Per share:
Net income (loss).................... 0.15 0.15 0.08 (.06)
Dividends............................ 0.00 0.00 0.00 0.00
Common stock price:
High................................. n/a 10.75 11.00 10.50
Low.................................. n/a 8.00 9.00 5.38
FISCAL 1996
Operating revenues..................... $15,479 $14,100 $14,602 $14,758
Operating income....................... 1,840 1,337 745 1,260
Net income............................. 997 640 376 601
Per share (pro forma):
Net income (loss).................... 0.15 0.10 0.06 0.09
Dividends............................ 0.00 0.00 0.00 0.00
Common stock price:
High................................. n/a n/a n/a n/a
Low.................................. n/a n/a n/a n/a
</TABLE>
- ---------------
(a) Reflects the impact of noncash compensation expense during the period of
$894,000 pretax and $572,000 after tax in the third quarter and $1.9 million
pretax and $1.3 million after tax in the fourth quarter.
(b) Reflects the utilization of additional downhole tools manufactured and
acquired with proceeds from the IPO.
Note: All financial data and per share data for quarters prior to August 14,
1996 (the effective date of the IPO) represents pro forma information as
the Company was a wholly owned subsidiary of Lawrence. As a result, no
common stock prices were available for the respective periods.
F-19
<PAGE> 118
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The $100 million senior unsecured notes which are described in Note 13 will
be unconditionally guaranteed on a joint and several basis by certain
subsidiaries of the Company. Accordingly, the following condensed consolidating
balance sheets as of April 30, 1997 and 1996 and the related condensed
consolidating statements of operations and cash flows for the year ended April
30, 1997, 1996 and 1995 have been provided. The condensed consolidating
financial statements herein are followed by notes which are an integral part of
these statements.
CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $14,475 $ 320 $ 405 $ -- $15,200
Accounts receivable, net................. 13,327 1,697 3,582 -- 18,606
Other current assets..................... 1,259 41 550 -- 1,850
------- -------- ------- -------- -------
Total current assets............. 29,061 2,058 4,537 -- 35,656
Revenue-producing tools and inventory,
net...................................... 29,957 7,186 345 -- 37,488
Property and equipment, net................ 5,040 182 400 -- 5,622
Deferred income taxes...................... 1,959 -- -- -- 1,959
Investment in subsidiaries................. 22,767 -- -- (22,767) --
Intangibles and other assets............... 1,634 -- -- -- 1,634
------- -------- ------- -------- -------
Total assets..................... $90,418 $ 9,426 $ 5,282 $(22,767) $82,359
======= ======== ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................... $ 7,004 $ 686 $ 634 $ -- $ 8,324
Accounts payable to affiliates........... 10,895 (18,698) 8,245 -- 442
Income taxes payable..................... 2,211 194 836 -- 3,241
Current portion of long-term debt........ 1,711 -- -- -- 1,711
------- -------- ------- -------- -------
Total current liabilities........ 21,821 (17,818) 9,715 -- 13,718
Long-term debt............................. 5,155 -- -- -- 5,155
Other noncurrent liabilities............... 115 44 -- -- 159
Stockholders' equity:
Common Stock............................. 93 9 3 (12) 93
Treasury stock........................... (234) -- -- -- (234)
Paid-in capital.......................... 39,972 491 195 (686) 39,972
Retained earnings........................ 23,496 26,700 (4,631) (22,069) 23,496
------- -------- ------- -------- -------
Total stockholders' equity....... 63,327 27,200 (4,433) (22,767) 63,327
------- -------- ------- -------- -------
Total liabilities and
stockholders' equity........... $90,418 $ 9,426 $ 5,282 $(22,767) $82,359
======= ======== ======= ======== =======
</TABLE>
See accompanying notes.
F-20
<PAGE> 119
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 1,428 $ 363 $ 176 $ -- $ 1,967
Accounts receivable, net................. 11,446 2,001 2,859 -- 16,306
Accounts receivable from officers and
affiliates............................ (9,923) 14,827 (4,468) -- 436
Other current assets..................... 701 42 221 -- 964
------- ------- ------- -------- -------
Total current assets............. 3,652 17,233 (1,212) -- 19,673
Revenue-producing tools and inventory,
net...................................... 22,056 7,152 -- -- 29,208
Property and equipment, net................ 4,501 204 416 -- 5,121
Property and equipment held for sale,
net...................................... 205 -- -- -- 205
Deferred income taxes...................... 1,384 -- -- -- 1,384
Investment in subsidiaries................. 22,334 -- -- (22,334) --
Intangibles and other assets............... 286 1 -- -- 287
------- ------- ------- -------- -------
Total assets..................... $54,418 $24,590 $ (796) $(22,334) $55,878
======= ======= ======= ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................... $ 5,874 $ 632 $ 243 $ -- $ 6,749
Income taxes payable..................... 1,236 80 433 -- 1,749
Short-term debt.......................... 1,300 -- -- -- 1,300
Current portion of long-term debt........ 1,738 -- -- -- 1,738
Current portion of indebtedness to
affiliate............................. 660 -- -- -- 660
Total current liabilities........ 10,808 712 676 -- 12,196
Long-term debt............................. 6,866 -- -- -- 6,866
Long-term indebtedness to affiliate........ 1,100 -- -- -- 1,100
Other noncurrent liabilities............... 3 72 -- -- 75
Stockholders' equity:
Common Stock............................. 50 9 3 (12) 50
Treasury stock........................... -- -- -- -- --
Paid-in capital.......................... 4,559 491 195 (686) 4,559
Retained earnings........................ 31,032 23,306 (1,670) (21,636) 31,032
------- ------- ------- -------- -------
Total stockholders equity........ 35,641 23,806 (1,472) (22,334) 35,641
------- ------- ------- -------- -------
Total liabilities and
stockholders' equity........... $54,418 $24,590 $ (796) $(22,334) $55,878
======= ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-21
<PAGE> 120
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income............................ $36,603 $ 6,470 $ 6,424 $ -- $49,497
Sales of products and services........... 13,385 2,188 1,397 (16) 16,954
------- ------- ------- -------- -------
49,988 8,658 7,821 (16) 66,451
Cost and expenses:
Cost of rentals.......................... 26,444 5,274 10,293 (4,356) 37,655
Cost of products and services............ 8,661 191 45 (7) 8,890
Selling, general and administrative...... 10,585 594 714 -- 11,893
Non-cash compensation.................... 2,807 -- -- -- 2,807
Research and development................. 850 -- -- -- 850
------- ------- ------- -------- -------
49,347 6,059 11,052 (4,363) 62,095
------- ------- ------- -------- -------
Operating income........................... 641 2,599 (3,231) 4,347 4,356
Other (income) expense:
Interest income.......................... (624) (16) -- -- (640)
Interest expense......................... 824 9 -- -- 833
Equity in subsidiaries, net of taxes..... (960) -- -- 960 --
Other, net............................... (2,406) (1,080) (673) 4,347 188
------- ------- ------- -------- -------
Income (loss) before income taxes.......... 3,807 3,686 (2,558) (960) 3,975
Provision for income taxes................. 816 292 403 -- 1,511
------- ------- ------- -------- -------
Net income (loss).......................... $ 2,991 $ 3,394 $(2,961) $ (960) $ 2,464
======= ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-22
<PAGE> 121
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income............................ $31,391 $ 4,948 $ 6,648 $ -- $42,987
Sales of products and services........... 13,486 1,166 1,500 (200) 15,952
------- ------- ------- -------- -------
44,877 6,114 8,148 (200) 58,939
Cost and expenses:
Cost of rentals.......................... 23,787 5,699 6,506 (2,973) 33,019
Cost of products and services............ 7,504 381 89 (47) 7,927
Selling, general and administrative...... 11,193 498 432 (40) 12,083
Research and development................. 728 -- -- -- 728
------- ------- ------- -------- -------
43,212 6,578 7,027 (3,060) 53,757
------- ------- ------- -------- -------
Operating income........................... 1,665 (464) 1,121 2,860 5,182
Other (income) expense:
Interest income.......................... (89) (13) (2) -- (104)
Interest expense......................... 959 8 -- -- 967
Equity in subsidiaries, net of taxes..... (1,018) -- -- 1,018 --
Other, net............................... (2,048) (731) 197 2,860 278
------- ------- ------- -------- -------
Income (loss) before income taxes.......... 3,861 272 926 (1,018) 4,041
Provision for income taxes................. 764 404 259 -- 1,427
------- ------- ------- -------- -------
Net income (loss).......................... $ 3,097 $ (132) $ 667 $ (1,018) $ 2,614
======= ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-23
<PAGE> 122
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income............................ $28,352 $ 6,178 $ 2,161 $ -- $36,691
Sales of products and services........... 11,134 1,076 332 (370) 12,172
------- ------- ------- -------- -------
39,486 7,254 2,493 (370) 48,863
Cost and expenses:
Cost of rentals.......................... 23,949 4,662 2,437 (1,363) 29,685
Cost of products and services............ 6,728 212 1 (52) 6,889
Selling, general and administrative...... 8,427 593 599 (12) 9,607
Research and development................. 776 -- (1) -- 775
------- ------- ------- -------- -------
39,880 5,467 3,036 (1,427) 46,956
------- ------- ------- -------- -------
Operating income........................... (394) 1,787 (543) 1,057 1,907
Other (income) expense:
Interest income.......................... (47) (13) -- -- (60)
Interest expense......................... (1,041) 3 17 -- 1,061
Equity in subsidiaries, net of taxes..... (3,213) -- -- 3,213 --
Other, net............................... (1,121) (361) 525 1,057 100
------- ------- ------- -------- -------
Income (loss) before income taxes.......... 2,946 2,158 (1,085) (3,213) 806
Provision for income taxes................. 505 213 120 -- 838
------- ------- ------- -------- -------
Net income (loss).......................... $ 2,441 $ 1,945 $(1,205) $ (3,213) $ (32)
======= ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-24
<PAGE> 123
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................... $ 2,991 $ 3,394 $(2,961) $(960) $ 2,464
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Equity in earnings of subsidiaries....... (960) -- -- 960 --
Depreciation and amortization............ 4,926 1,545 122 -- 6,593
Deferred income taxes.................... (783) -- -- -- (783)
Provision for doubtful accounts
receivable............................ 229 40 36 -- 305
Provision for stock awards............... 2,807 -- -- -- 2,807
(Gain) loss on sale and disposition of
property and equipment................ 21 138 -- -- 159
Changes in operating assets and
liabilities:
Accounts receivable -- trade.......... (2,110) 264 (759) -- (2,605)
Accounts receivable from/payable to
affiliates.......................... 722 (3,872) 3,778 -- 628
Prepaid expenses and other............ (617) (25) (330) -- (972)
Accounts payable and accrued
liabilities......................... 1,130 48 397 -- 1,575
Income taxes payable.................. 975 114 403 -- 1,492
-------- ------- ------- ----- --------
Net cash provided by operating
activities............................... 9,331 1,646 686 -- 11,663
INVESTING ACTIVITIES:
Additions to revenue-producing tools and
inventory................................ (18,474) (2,099) (1,252) -- (21,825)
Inventory transferred to cost of rentals... 3,805 1,207 901 -- 5,913
Revenue-producing tools lost in hole,
abandoned, and sold...................... 2,622 (639) -- -- 1,983
Additions to property and equipment........ (547) (22) (91) -- (660)
Proceeds from sale of property and
equipment................................ 277 (136) (15) -- 126
Acquisition................................ (1,584) -- -- -- (1,584)
-------- ------- ------- ----- --------
Net cash used in investing activities...... (13,901) (1,689) (457) -- (16,047)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt......... 400 -- -- -- 400
Payments on outstanding debt............... (5,198) -- -- -- (5,198)
Payment of promissory note................. (5,000) -- -- -- (5,000)
Net proceeds from sale of common stock..... 27,649 -- -- -- 27,649
Purchase of treasury stock................. (234) -- -- -- (234)
-------- ------- ------- ----- --------
Net cash provided by financing
activities............................... 17,617 -- -- -- 17,617
-------- ------- ------- ----- --------
Increase (decrease) in cash and cash
equivalents.............................. 13,047 (43) 229 -- 13,233
Cash and cash equivalents at beginning of
period................................... 1,428 363 176 -- 1,967
-------- ------- ------- ----- --------
Cash and cash equivalents at end of
period................................... $ 14,475 $ 320 $ 405 $ -- $ 15,200
======== ======= ======= ===== ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 124
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................... $ 3,097 $ (132) $ 667 $(1,018) $ 2,614
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Equity in earnings of subsidiaries........ (1,018) -- -- 1,018 --
Depreciation and amortization............. 4,324 1,344 58 -- 5,726
Deferred income taxes..................... (816) -- -- -- (816)
Provision for doubtful accounts
receivable............................. 204 52 -- -- 256
Provision for stock awards................ -- -- -- -- --
(Gain) loss on sale and disposition of
property and equipment................. 6 -- -- -- 6
Changes in operating assets and
liabilities:
Accounts receivable -- trade........... (278) (437) (1,783) -- (2,498)
Accounts receivable from/payable to
affiliates........................... (3,251) 1,644 1,069 -- (538)
Prepaid expenses and other............. 332 2 13 -- 347
Accounts payable and accrued
liabilities.......................... (1,138) 105 101 -- (932)
Income taxes payable................... 338 92 311 -- 741
------- ------- ------- ------- --------
Net cash provided by operating activities... 1,800 2,670 436 -- 4,906
INVESTING ACTIVITIES:
Additions to revenue-producing tools and
inventory................................. (9,267) (2,576) (330) -- (12,173)
Inventory transferred to cost of rentals.... 4,078 1,107 336 -- 5,521
Revenue-producing tools lost in hole,
abandoned, and sold....................... 3,988 (1,437) -- -- 2,551
Additions to property and equipment......... (870) 320 (333) -- (883)
Proceeds from sale of property and
equipment................................. 1,247 (307) (24) -- 916
Acquisition................................. -- -- -- -- --
------- ------- ------- ------- --------
Net cash used in investing activities....... (824) (2,893) (351) -- (4,068)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt.......... 1,300 -- -- -- 1,300
Payments on outstanding debt................ (1,967) -- -- -- (1,967)
Payment of promissory note.................. -- -- -- -- --
Net proceeds from sale of common stock...... -- -- -- -- --
Purchase of treasury stock.................. -- -- -- -- --
------- ------- ------- ------- --------
Net cash used in financing activities....... (667) -- -- -- (667)
------- ------- ------- ------- --------
Increase (decrease) in cash and cash
equivalents............................... 309 (223) 85 -- 171
Cash and cash equivalents at beginning of
period.................................... 1,119 586 91 -- 1,796
------- ------- ------- ------- --------
Cash and cash equivalents at end of
period.................................... $ 1,428 $ 363 $ 176 $ -- $ 1,967
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 125
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................... $ 2,441 $ 1,945 $(1,205) $(3,213) $ (32)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Equity in earnings of subsidiaries....... (3,213) -- -- 3,213 --
Depreciation and amortization............ 4,368 1,037 23 -- 5,428
Deferred income taxes.................... (487) -- -- -- (487)
Provision for doubtful accounts
receivable............................ 137 184 -- -- 321
Provision for stock awards............... -- -- -- -- --
(Gain) loss on sale and disposition of
property and equip.................... (9) -- -- -- (9)
Accounts receivable -- trade.......... (1,527) 859 5 -- (663)
Accounts receivable form/payable to
officers and affiliates............. 677 (2,492) 1,104 -- (711)
Prepaid expenses and other............ (55) 151 (99) -- (3)
Accounts payable and accrued
liabilities......................... 2,588 (242) 112 -- 2,458
Income taxes payable.................. (424) (17) 122 -- (319)
-------- ------- ------- ------- --------
Net cash provided by operating
activities............................... 4,496 1,425 62 -- 5,983
INVESTING ACTIVITIES:
Additions to revenue-producing tools and
inventory................................ (13,219) (130) (47) -- (13,396)
Inventory transferred to cost of rentals... 3,386 1,298 55 -- 4,739
Revenue-producing tools lost in hole,
abandoned, and sold...................... 4,459 (2,386) -- -- 2,073
Additions to property and equipment........ (1,337) (197) (85) -- (1,619)
Proceeds from sale of property and
equipment................................ 474 (6) 5 -- 473
Acquisition................................ -- -- -- -- --
-------- ------- ------- ------- --------
Net cash used in investing activities...... (6,237) (1,421) (72) -- (7,730)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt......... -- -- -- -- --
Payments on outstanding debt............... (1,074) -- -- -- (1,074)
Payment of promissory note................. -- -- -- -- --
Net proceeds from sale of common stock..... -- -- -- -- --
Purchase of treasury stock................. -- -- -- -- --
-------- ------- ------- ------- --------
Net cash used in financing activities...... (1,074) -- -- -- (1,074)
-------- ------- ------- ------- --------
Increase (decrease) in cash and cash
equivalents.............................. (2,815) 4 (10) -- (2,821)
Cash and cash equivalents at beginning of
period................................... 3,934 582 101 -- 4,617
-------- ------- ------- ------- --------
Cash and cash equivalents at end of
period................................... $ 1,119 $ 586 $ 91 $ -- $ 1,796
======== ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-27
<PAGE> 126
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding April 30, 1997 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. OTHER
Notes 1 through 15 should be read in conjunction with the Condensed
Consolidating Financial Statements.
F-28
<PAGE> 127
DAILEY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1997 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 59,611 $15,200
Accounts receivable, net.................................. 36,877 18,606
Other current assets...................................... 3,455 1,850
-------- -------
Total current assets.............................. 99,943 35,656
Revenue-producing tools and inventory, net.................. 69,961 37,488
Property and equipment, net................................. 6,417 5,622
Deferred income taxes....................................... -- 1,959
Accounts receivable from officer............................ 250 250
Goodwill, net............................................... 21,736 825
Intangibles and other assets................................ 5,775 559
-------- -------
Total assets...................................... $204,082 $82,359
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 19,121 $ 8,324
Accounts payable to affiliates............................ 697 442
Income taxes payable...................................... 3,067 3,241
Current portion of long-term debt......................... 76 1,711
-------- -------
Total current liabilities......................... 22,961 13,718
Long-term debt.............................................. 114,217 5,155
Deferred income taxes....................................... 832 --
Other noncurrent liabilities................................ 997 159
Commitments and contingencies
Stockholders' equity:
Common stock.............................................. 95 93
Treasury stock (144,000 shares)........................... (1,047) (234)
Paid-in capital........................................... 41,213 39,972
Retained earnings......................................... 24,814 23,496
-------- -------
Total stockholders' equity........................ 65,075 63,327
-------- -------
Total liabilities and stockholders' equity........ $204,082 $82,359
======== =======
</TABLE>
See accompanying notes.
F-29
<PAGE> 128
DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income........................... $ 15,660 $ 13,056 $ 31,262 $ 25,175
Sales of products and services.......... 6,904 4,099 11,427 8,736
Underbalanced drilling services......... 9,010 -- 11,904 --
---------- ---------- ---------- ----------
31,574 17,155 54,593 33,911
COSTS AND EXPENSES:
Cost of rentals......................... 11,173 9,540 21,819 18,884
Cost of products and services........... 3,894 2,263 6,901 4,799
Cost of underbalanced drilling
services............................. 5,695 -- 7,536 --
Selling, general and administrative..... 6,006 3,068 10,224 5,968
Reorganization costs.................... -- -- 2,453 --
Non-cash compensation................... 61 -- 539 --
Research and development................ 42 224 162 399
---------- ---------- ---------- ----------
26,871 15,095 49,634 30,050
---------- ---------- ---------- ----------
Operating income.......................... 4,703 2,060 4,959 3,861
Other (income) expense:
Interest income......................... (692) (195) (814) (207)
Interest expense -- nonaffiliates....... 2,802 178 3,225 380
Interest expense -- affiliate........... -- 61 -- 172
Other, net.............................. 51 (60) 195 (106)
---------- ---------- ---------- ----------
Income before income taxes................ 2,542 2,076 2,353 3,622
Income tax provision...................... 1,118 758 1,035 1,342
---------- ---------- ---------- ----------
Net income................................ $ 1,424 $ 1,318 $ 1,318 $ 2,280
========== ========== ========== ==========
Earnings per share........................ $ 0.15 $ 0.15 $ 0.14 $ 0.32
========== ========== ========== ==========
Weighted average shares outstanding....... 9,451,656 9,023,065 9,331,627 7,191,532
</TABLE>
See accompanying notes.
F-30
<PAGE> 129
DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 1,318 $ 2,280
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 5,534 3,055
Deferred income taxes..................................... 34 325
Provision for doubtful accounts receivable................ 268 153
(Gain)/loss on sale and disposition of property and
equipment.............................................. 10 (17)
Provision for stock awards................................ 539 --
Changes in operating assets and liabilities:
Accounts receivable -- trade.............................. (11,474) (5,546)
Accounts payable to affiliates............................ 255 611
Prepaid expenses and other................................ (1,482) (1,455)
Accounts payable and accrued liabilities.................. 6,457 5,435
Income taxes payable...................................... (614) 515
-------- --------
Net cash provided by operating activities................... 845 5,356
INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory.......... (14,102) (10,724)
Inventory transferred to cost of rentals.................... 3,707 2,894
Revenue-producing tools lost in hole, abandoned, and sold... 1,520 1,175
Additions to property and equipment......................... (4,405) (966)
Proceeds from sale of property and equipment................ 607 100
Acquisition, net of cash acquired........................... (46,226) --
-------- --------
Net cash used in investing activities....................... (58,899) (7,521)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt.......................... 159,597 400
Payments on outstanding debt................................ (52,893) (4,339)
Cost of initial public offering............................. -- (3,496)
Payment of promissory note.................................. -- (5,000)
Proceeds from sale of common stock.......................... -- 31,330
Purchase of treasury stock.................................. (813) --
Exercise of stock options................................... 704 --
Financing costs of Existing Notes........................... (4,130) --
-------- --------
Net cash provided by financing activities................... 102,465 18,895
Increase in cash and cash equivalents....................... 44,411 16,730
Cash and cash equivalents at beginning of period............ 15,200 1,967
-------- --------
Cash and cash equivalents at end of period.................. $ 59,611 $ 18,697
======== ========
</TABLE>
See accompanying notes.
F-31
<PAGE> 130
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of Dailey International Inc. and its subsidiaries and predecessors
("Dailey" or the "Company") and have been prepared in accordance with United
States generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the three and
six month periods ended October 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal period. For further information,
reference is made to the consolidated financial statements and footnotes thereto
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on July 29, 1997. Certain reclassifications have been made to the
April 30, 1997 and October 31, 1996 financial information to conform to the
current period presentation.
2. ORGANIZATION AND PUBLIC OFFERING
The accompanying consolidated financial statements reflect the operations
of Dailey International Inc. (formerly Dailey Petroleum Services Corp.), a
Delaware corporation. In June 1996, Dailey Petroleum Services Corp. was merged
with Dailey Corporation which was named Dailey Petroleum Services Corp. On
October 7, 1997, the Company changed its name to Dailey International Inc. In
July 1997, the Company's Board of Directors changed the Company's fiscal year to
December 31, effective December 31, 1997.
The Company is a leading provider of specialty drilling services to the oil
and gas industry and designs, manufactures and rents technologically-advanced
downhole tools for oil and gas drilling and workover applications. Founded in
1945 as a rental tool company, Dailey began offering directional drilling
services in 1984 and currently provides such services in the Gulf of Mexico, the
U.S. Gulf Coast region and, most recently, Venezuela. In June 1997, the Company
acquired (the "ADI Acquisition") Air Drilling International, Inc. ("ADI") and,
as a result, became a leading provider worldwide of air drilling services for
underbalanced drilling applications. The Company operates in one business
segment.
Prior to June 1996, Dailey was a wholly-owned subsidiary of Lawrence
Industries, Inc. ("Lawrence"). In June 1996, in preparation for the initial
public offering of Class A Common Stock of Dailey, Lawrence reorganized its
ownership of the Company into a holding company structure through a forward
triangular merger of Dailey Petroleum Services Corp., into a newly-formed,
wholly-owned indirect subsidiary of Lawrence, Dailey Corporation (the
"Reorganization"), which is now Dailey International Inc. The effect of the
forward triangular merger has been reflected retroactively in the accompanying
financial statements. In August 1996, the Company completed its initial public
offering of 3,910,000 shares of Class A Common Stock (the "1996 IPO").
Dailey's Restated Certificate of Incorporation provides for three classes
of stock: Class A Common Stock, $.01 par (20,000,000 shares authorized,
4,627,598 issued and 4,483,598 outstanding) ("Class A Common Stock"), Class B
Common Stock, $.01 par (10,000,000 shares authorized, 5,000,000 shares issued
and outstanding) ("Class B Common Stock"), and Preferred Stock, $.01 par
(5,000,000 shares authorized, none issued or outstanding). The Board of
Directors is empowered to authorize the issuance of Preferred Stock in one or
more series and to fix the rights, powers, preferences and limitations of each
series. A holder of Class B Common Stock may convert its Class B Common Stock
into Class A Common Stock at any time at the ratio of one share of Class A
Common Stock for each share of Class B Common Stock. In the event of
liquidation, holders of Class A Common Stock and Class B Common Stock share with
each other on a ratable basis as a single class in the net assets of the Company
available for distribution. In addition, shares of Class B Common Stock convert
automatically into a like number of shares of Class A Common Stock upon the sale
or
F-32
<PAGE> 131
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transfer of such shares to a person or entity that is not a member of the
Lawrence Group (as defined in the Company's Restated Certificate of
Incorporation).
In connection with the 1996 IPO, the Company issued 3,910,000 shares of
Class A Common Stock. Net proceeds from the sale of the stock were $27.6
million. The Company used $5.0 million of the proceeds from the 1996 IPO to
repay the outstanding balance of a $10.0 million promissory note, which was
incurred in connection with a dividend declared on June 27, 1996 (the
"Dividend"). Prior to commencement of the 1996 IPO, the Company's sole
stockholder contributed to the capital of the Company $5.0 million of the
principal of such note.
3. ADI ACQUISITION
On June 20, 1997, the Company purchased the stock of ADI (a provider of air
drilling services for underbalanced drilling applications) for $46.4 million,
including the repayment of approximately $16.8 million of ADI indebtedness,
financed with bank debt of $45.5 million and proceeds from the 1996 IPO. The ADI
Acquisition was accounted for under the purchase method of accounting. As a
result, the assets and liabilities of ADI were recorded at their estimated fair
market values as of the date of the ADI Acquisition. The Company recorded
goodwill of approximately $22.3 million relating to the excess of the fair
market value of ADI's assets over the purchase price paid for ADI, which will be
amortized over 20 years and result in approximately $1.1 million in amortization
expense per year. Since the goodwill associated with the ADI Acquisition will
not be amortized for tax purposes, the Company expects its effective tax rate
shown on its financial statements to increase significantly as a result of the
ADI Acquisition. The purchase price allocation was based on preliminary
estimates and may be revised at a later date.
The pro forma unaudited results of operations for the three and six months
ended October 31, 1997 and 1996, assuming consummation of the purchase of ADI as
of May 1, 1996 utilizing interim financing of $45.5 million under the Company's
bank credit facility and reflecting extinguishment of debt of Dailey and ADI
(except for capitalized leases), are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------- -----------------
1997 1996 1997 1996
-------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................................... $31,574 $22,694 $58,808 $44,599
Net income (loss)............................. 1,424 811 (295) 1,406
Net income (loss) per common share............ 0.15 0.09 (0.03) 0.20
</TABLE>
The pro forma information for the three and six months ended October 31,
1997 and 1996, includes adjustments for additional depreciation and amortization
expense associated with the purchase price allocation using a 20-year life for
goodwill and an average life of eight years for fixed assets, increased interest
expense for the additional borrowings under the credit facility as if they were
incurred at the beginning of the period and related adjustments for income
taxes. The pro forma information is not necessarily indicative of the results of
operations had the acquisition been affected on the assumed dates or the results
of operations for any future period.
F-33
<PAGE> 132
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. REVENUE-PRODUCING TOOLS AND INVENTORY
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1997 1997
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revenue-producing tools..................................... $ 85,799 $ 56,622
Accumulated depreciation.................................... (35,664) (32,503)
-------- --------
50,135 24,119
Inventory:
Components, subassemblies and expendable parts............ 17,052 11,293
Rental tools and expendable parts under production........ 1,771 1,261
Raw materials............................................. 1,003 815
-------- --------
19,826 13,369
-------- --------
Revenue-Producing Tools and Inventory............. $ 69,961 $ 37,488
======== ========
</TABLE>
5. STOCK OPTIONS AND AWARDS
Prior to the 1996 IPO, the Company established its 1996 Key Employee Stock
Plan (the "1996 Plan") and its 1996 Non-Employee Director Stock Option (the
"1996 Director Plan"). Pursuant to the 1996 Plan, the Board of Directors of the
Company are authorized to issue up to 900,000 shares of the Company's Class A
Common Stock. On October 7, 1997, the Board of Directors approved the 1997
Long-Term Incentive Plan (the "1997 Plan"). Pursuant to the 1997 Plan, the Board
of Directors of the Company are authorized to issue up to 720,000 shares of the
Company's Class A Common Stock.
Option activity for the six months ended October 31, 1997 was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
--------------------
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at April 30, 1997............................... 534,129 $ 8.32
Granted
1996 Director Plan at fair value of $13.25............. 20,000 13.25
1997 Plan at fair value of $6.30 to $13.25............. 150,000 6.84
Exercised
1996 Plan.............................................. (82,598) 8.84
------- ------
Outstanding at October 31, 1997............................. 621,531 $ 8.08
======= ======
</TABLE>
The options granted have an exercisable life between one and three years
from the date of grant.
Restricted stock activity for the six months ended October 31, 1997 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED SHARES
-----------------
<S> <C>
Outstanding at April 30, 1997............................... 55,197
Granted
1997 Plan at fair value of $12.75...................... 230,000
Vested
1996 Plan.............................................. (55,197)
1997 Plan.............................................. (4,792)
-------
Outstanding at October 31, 1997............................. 225,208
=======
</TABLE>
F-34
<PAGE> 133
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 230,000 shares granted pursuant to the 1997 Plan will vest over a four
year period. The shares vested during the six months ended October 31, 1997
resulted in $539,000 of non-cash compensation expense.
6. BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1997 1997
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes................................................ $114,116 $ --
Note payable to a bank...................................... -- 6,778
Other notes payable......................................... 177 88
-------- ------
114,293 6,866
Less current portion of long-term debt...................... 76 1,711
-------- ------
Total long-term debt.............................. $114,217 $5,155
======== ======
</TABLE>
On August 19, 1997, the Company issued $115.0 million of 9 3/4% Senior
Notes due 2007 at a discount of 0.785%, and a portion of the proceeds was used
to repay the note payable to a bank.
7. REORGANIZATION
In June 1997, the Company implemented a cost reduction program to flatten
its corporate management structure and streamline the Company's operations (the
"Management Reorganization"). As a result, the Company incurred a $2.5 million
restructuring charge during June 1997 associated primarily with staff
reductions, severance settlements and various reorganization costs.
F-35
<PAGE> 134
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The $115 million of 9 3/4% Senior Notes due 2007 issued on August 19, 1997
are unconditionally guaranteed on a joint and several basis by certain
subsidiaries of the Company. Accordingly, the following condensed consolidating
balance sheets as of October 31, 1997 and April 30, 1997 and the related
condensed consolidating statements of operations and cash flows for the three
and six months ended October 31, 1997 and 1996 have been provided. The condensed
consolidating financial statements herein are followed by notes which are an
integral part of these statements.
CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 58,585 $ 574 $ 452 $ -- $ 59,611
Accounts receivable, net........... 18,940 11,819 6,118 -- 36,877
Other current assets............... 1,473 1,037 945 -- 3,455
-------- ------- ------- -------- --------
Total current assets....... 78,998 13,430 7,515 -- 99,943
Revenue-producing tools and
inventory, net..................... 34,291 27,261 8,409 -- 69,961
Property and equipment, net.......... 4,955 832 630 -- 6,417
Investment in subsidiaries........... 52,180 -- -- (52,180) --
Accounts receivable from officers.... 250 -- -- -- 250
Goodwill, net........................ 809 20,785 142 -- 21,736
Intangibles and other assets......... 5,352 423 -- -- 5,775
-------- ------- ------- -------- --------
Total assets.................... $176,835 $62,731 $16,696 $(52,180) $204,082
======== ======= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities..................... $ 12,807 $ 3,779 $ 2,535 $ -- $ 19,121
Accounts payable to affiliates..... (15,132) 6,674 9,155 -- 697
Income taxes payable............... 1,473 (154) 1,743 -- 3,067
Current portion of long-term
debt............................ 46 205 (175) 76
-------- ------- ------- -------- --------
Total current
liabilities.............. (806) 10,504 13,263 -- 22,961
Long-term debt....................... 114,136 48 33 -- 114,217
Deferred income taxes................ (1,925) 879 1,878 -- 832
Other noncurrent liabilities......... 355 390 252 997
Stockholders' equity:
Common stock....................... 95 8 6 (14) 95
Treasury stock (144,000 shares).... (1,047) -- -- -- (1,047)
Paid-in capital.................... 41,213 23,785 3,895 (27,680) 41,213
Retained earnings.................. 24,814 27,117 (2,631) (24,486) 24,814
-------- ------- ------- -------- --------
Total stockholders'
equity................... $ 65,075 50,910 1,270 (52,180) 65,075
-------- ------- ------- -------- --------
Total liabilities and
stockholders' equity..... $176,835 $62,731 $16,696 $(52,180) $204,082
======== ======= ======= ======== ========
</TABLE>
See accompanying notes.
F-36
<PAGE> 135
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $14,475 $ 320 $ 405 $ -- $15,200
Accounts receivable, net.............. 13,327 1,697 3,582 -- 18,606
Other current assets.................. 1,259 41 550 -- 1,850
------- -------- ------- -------- -------
Total current assets.......... 29,061 2,058 4,537 -- 35,656
Revenue-producing tools and inventory,
net................................... 29,957 7,186 345 -- 37,488
Property and equipment, net............. 5,040 182 400 -- 5,622
Deferred income taxes................... 1,959 -- -- -- 1,959
Investments in subsidiaries............. 22,767 -- -- (22,767) --
Intangibles and other assets............ 1,634 -- -- -- 1,634
------- -------- ------- -------- -------
Total assets.................. $90,418 $ 9,426 $ 5,282 $(22,767) $82,359
======= ======== ======= ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 7,004 686 $ 634 $ -- $ 8,324
Accounts payable to affiliates........ 10,895 (18,698) 8,245 -- 442
Income taxes payable.................. 2,211 194 836 -- 3,241
Current portion of long-term debt..... 1,711 -- -- -- 1,711
------- -------- ------- -------- -------
Total current liabilities..... 21,821 (17,818) 9,715 -- 13,718
Long-term debt.......................... 5,155 -- -- -- 5,155
Other noncurrent liabilities............ 115 44 -- -- 159
Stockholders' equity:
Common stock.......................... 93 9 3 (12) 93
Treasury stock........................ (234) -- -- -- (234)
Paid-in capital....................... 39,972 491 195 (686) 39,972
Retained earnings..................... 23,496 26,700 (4,631) (22,069) 23,496
------- -------- ------- -------- -------
Total stockholders' equity.... 63,327 27,200 (4,433) (22,767) 63,327
------- -------- ------- -------- -------
Total liabilities and
stockholders' equity........ $90,418 $ 9,426 $ 5,282 $(22,767) $82,359
======= ======== ======= ======== =======
</TABLE>
See accompanying notes.
F-37
<PAGE> 136
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental income................. $12,072 $1,871 $1,717 $ -- $15,660
Sales of products and
services................... 4,597 462 1,845 -- 6,904
Underbalanced drilling
services................... -- 6,845 2,165 -- 9,910
------- ------ ------ ------- -------
16,669 9,178 5,727 -- 31,574
Costs and expenses:
Cost of rentals............... 8,325 1,491 1,481 (124) 11,173
Cost of products and
services................... 2,822 98 974 -- 3,894
Cost of underbalanced
drilling................... -- 4,801 894 -- 5,695
Selling, general and
administrative............. 3,286 1,485 1,392 (157) 6,006
Non-cash compensation......... 61 -- -- -- 61
Research and development...... 42 -- -- -- 42
------- ------ ------ ------- -------
14,536 7,875 4,741 (281) 26,871
------- ------ ------ ------- -------
Operating income................ 2,133 1,303 986 281 4,703
Other (income) expense:
Interest income............... (692) -- -- -- (692)
Interest
expense -- nonaffiliates... 2,764 19 19 -- 2,802
Interest
expenses -- affiliates..... -- -- -- -- --
Equity in subsidiaries, net of
taxes...................... (1,634) -- -- 1,634 --
Other, net.................... (4) (224) (2) 281 51
------- ------ ------ ------- -------
Income before taxes............. 1,699 1,508 969 (1,634) 2,542
Income tax provision
(benefit)..................... 275 (24) 867 -- 1,118
------- ------ ------ ------- -------
Net income (loss)............... $ 1,424 $1,532 $ 102 $(1,634) $ 1,424
======= ====== ====== ======= =======
</TABLE>
See accompanying notes.
F-38
<PAGE> 137
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income................... $23,771 $ 3,667 $ 3,824 $ -- $31,262
Sales of products and
services..................... 8,340 689 2,398 -- 11,427
Underbalanced drilling
services..................... -- 8,932 2,972 -- 11,904
------- ------- ------- ------- -------
32,111 13,288 9,194 -- 54,593
Costs and expenses:
Cost of rentals................. 16,391 2,982 2,672 (226) 21,819
Cost of products and services... 5,391 144 1,366 -- 6,901
Cost of underbalanced
drilling..................... -- 5,958 1,578 -- 7,536
Selling, general and
administrative............... 6,001 2,485 2,088 (350) 10,224
Reorganization costs............ 2,453 -- -- -- 2,453
Non-cash compensation........... 539 -- -- -- 539
Research and development........ 162 -- -- -- 162
------- ------- ------- ------- -------
30,937 11,569 7,704 (576) 49,634
------- ------- ------- ------- -------
Operating income.................. 1,174 1,719 1,490 576 4,959
Other (income) expense:
Interest income................. (807) (7) -- -- (814)
Interest
expense-nonaffiliates........ 3,170 30 25 -- 3,225
Interest expense-affiliates..... -- -- -- -- --
Equity in subsidiaries, net of
taxes........................ (2,417) -- -- 2,417 --
Other, net...................... 102 (480) (3) 576 195
------- ------- ------- ------- -------
Income before taxes............... 1,126 2,176 1,468 (2,417) 2,353
Income tax provision (benefit).... (192) 302 925 -- 1,035
------- ------- ------- ------- -------
Net income (loss)................. $ 1,318 $ 1,874 543 $(2,417) $ 1,318
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-39
<PAGE> 138
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......................... $ 9,727 $1,710 $1,619 $ -- $13,056
Sales of products and services........ 3,281 456 362 -- 4,099
------- ------ ------ ------- -------
13,008 2,166 1,981 -- 17,155
Costs and expenses:
Cost of rentals....................... 6,739 1,281 2,645 1,125 9,540
Cost of products and services......... 2,222 41 -- -- 2,263
Selling, general and administrative... 2,738 143 187 -- 3,068
Research and development.............. 224 -- -- -- 224
------- ------ ------ ------- -------
11,923 1,465 2,832 (1,125) 15,095
------- ------ ------ ------- -------
Operating income........................ 1,085 701 (851) 1,125 2,060
Other (income) expense:
Interest income....................... (195) -- -- -- (195)
Interest expense-nonaffiliates........ 176 2 -- -- 178
Interest expense-affiliates........... 61 -- -- -- 61
Equity in subsidiaries, net of
taxes.............................. (160) -- -- 160 --
Other, net............................ (633) (323) (229) 1,125 (60)
------- ------ ------ ------- -------
Income before taxes..................... 1,836 1,022 (622) (160) 2,076
Income tax provision (benefit).......... 518 135 105 -- 758
------- ------ ------ ------- -------
Net income (loss)....................... $ 1,318 $ 887 $ (727) $ (160) $ 1,318
======= ====== ====== ======= =======
</TABLE>
See accompanying notes.
F-40
<PAGE> 139
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income..................... $18,484 $3,394 $ 3,297 $ -- $25,175
Sales of products and services.... 6,676 1,239 838 (17) 8,736
------- ------ ------- ------- -------
25,160 4,633 4,135 (17) 33,911
Costs and expenses:
Cost of rentals:.................. 13,381 2,533 5,091 (2,121) 18,884
Cost of products and services..... 4,618 145 43 (7) 4,799
Selling, general and
administrative................. 5,407 249 312 -- 5,968
Research and development.......... 399 -- -- -- 399
------- ------ ------- ------- -------
23,805 2,927 5,446 (2,128) 30,050
------- ------ ------- ------- -------
Operating income.................... 1,355 1,706 (1,311) 2,111 3,861
Other (income) expense:
Interest income................... (203) (4) -- -- (207)
Interest
expense -- nonaffiliates....... 376 4 -- -- 380
Interest expense -- affiliates.... 172 -- -- -- 172
Equity in subsidiaries, net of
taxes.......................... (854) -- -- 854 --
Other, net........................ (1,340) (598) (279) 2,111 (106)
------- ------ ------- ------- -------
Income before taxes................. 3,204 2,304 (1,032) (854) 3,622
Income tax provision (benefit)...... 924 204 214 -- 1,342
------- ------ ------- ------- -------
Net income (loss)................... $ 2,280 $2,100 $(1,246) $ (854) $ 2,280
======= ====== ======= ======= =======
</TABLE>
See accompanying notes.
F-41
<PAGE> 140
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................ $ 1,318 $ 1,758 $ 659 (2,417) $ 1,318
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Equity in earnings of subsidiaries....... (2,417) -- -- 2,417 --
Depreciation and amortization............ 3,058 2,298 178 -- 5,534
Deferred income taxes.................... 34 -- -- -- 34
Provision for doubtful accounts
receivable............................. 174 96 (2) -- 268
(Gain) loss on sale and disposition of
property and equipment................. 10 -- -- -- 10
Provision for stock awards............... 539 (73) 73 -- 539
Changes in operating assets and
liabilities:
Accounts receivable -- trade........... (5,787) (4,652) (1,035) -- (11,474)
Accounts receivable from/payable to
affiliates.......................... (26,027) 25,372 910 -- 255
Prepaid expenses and other............. (81) (1,161) (240) -- (1,482)
Accounts payable and accrued
liabilities......................... 5,803 (253) 907 -- 6,457
Income taxes payable................... (738) 177 (53) -- (614)
-------- -------- ------- ------- --------
Net cash provided by (used in) operating
activities................................. (24,114) 23,562 1,397 -- 845
INVESTING ACTIVITIES:
Additions to revenue-producing tools and
inventory.................................. (11,954) (835) (1,313) -- (14,102)
Inventory transferred to cost of rentals..... 2,582 562 563 -- 3,707
Revenue-producing tools lost in hole,
abandoned, and sold........................ 2,512 (972) (20) -- 1,520
Additions to property and equipment.......... (918) (3,354) (133) -- (4,405)
Proceeds from sale of property and
equipment.................................. 573 (38) 72 -- 607
Acquisition.................................. (27,629) (18,535) (62) -- (46,226)
-------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities................................. (34,834) (23,172) (893) -- (58,899)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt........... 159,597 -- -- -- 159,597
Payments on outstanding debt................. (52,300) (136) (457) -- (52,893)
Purchase of treasury stock................... (813) -- -- -- (813)
Exercise of stock options.................... 704 -- -- -- 704
Financing costs of Senior Notes.............. (4,130) -- -- -- (4,130)
-------- -------- ------- ------- --------
Net cash used in financing activities........ 103,058 (136) (457) -- 102,465
-------- -------- ------- ------- --------
Increase in cash and cash equivalents........ 44,110 254 47 -- 44,411
Cash and cash equivalents at beginning of
period..................................... 14,475 320 405 -- 15,200
-------- -------- ------- ------- --------
Cash and cash equivalents at end of period... $ 58,585 $ 574 452 -- $ 59,611
======== ======== ======= ======= ========
</TABLE>
See accompanying notes.
F-42
<PAGE> 141
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................... $ 2,280 $ 2,100 $(1,246) $(854) $ 2,280
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Equity in earnings of subsidiaries...... (854) -- -- 854 --
Depreciation and amortization........... 2,253 747 55 -- 3,055
Deferred income taxes................... 325 -- -- -- 325
Provision for doubtful accounts
receivable........................... 114 20 19 -- 153
Provision for stock awards.............. -- -- -- -- --
(Gain) loss on sale and disposition of
property and equipment............... (17) -- -- -- (17)
Changes in operating assets and
liabilities:
Accounts receivable -- trade......... (3,120) (254) (2,172) -- (5,546)
Accounts receivable from/payable to
affiliates......................... (299) (1,744) 2,654 -- 611
Prepaid expenses and other........... (727) (349) (379) -- (1,455)
Accounts payable and accrued
liabilities........................ 4,096 442 897 -- 5,435
Income taxes payable................. 224 84 207 -- 515
------- ------- ------- ----- --------
Not cash provided by (used in) operating
activities.............................. 4,275 1,046 35 -- 5,356
INVESTING ACTIVITIES:
Additions to revenue-producing tools and
inventory............................... (9,704) (696) (324) -- (10,724)
Inventory transferred to cost of
rentals................................. 2,357 161 376 -- 2,894
Revenue-producing tools lost in hole,
abandoned, and sold..................... 1,428 (253) -- -- 1,175
Additions to property and equipment....... (885) (8) (73) -- (966)
Proceeds from sale of property and
equipment............................... 23 1 76 -- 100
------- ------- ------- ----- --------
Net cash provided by (used in) investing
activities.............................. (6,781) (795) 55 -- (7,521)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt........ 400 -- -- -- 400
Payments on outstanding debt.............. (4,339) -- -- -- (4,339)
Cost of initial public offering........... (3,496) -- -- -- (3,496)
Payment of promissory note................ (5,000) -- -- -- (5,000)
Proceeds from sale of common stock........ 31,330 -- -- -- 31,330
------- ------- ------- ----- --------
Net cash used in financing activities..... 18,895 -- -- -- 18,895
------- ------- ------- ----- --------
Increase in cash and cash equivalents..... 16,389 251 90 -- 16,730
Cash and cash equivalents at beginning of
period.................................. 1,428 363 176 -- 1,967
------- ------- ------- ----- --------
Cash and cash equivalents at end of
period.................................. $17,817 $ 614 $ 266 $ -- $ 18,697
======= ======= ======= ===== ========
</TABLE>
See accompanying notes.
F-43
<PAGE> 142
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding October 31, 1997 classifications.
Elimination Entries
Revenues and related cost of sales by individual category have been
presented net of intercompany transactions.
B. OTHER
Notes 1 through 7 should be read in conjunction with the Condensed
Consolidating Financial Statements.
9. SUBSEQUENT EVENTS
On January 28, 1998, the Company acquired the operating assets and
liabilities of Directional Wireline Services, Inc. ("DWS") and DAMCO Services,
Inc. and DAMCO Tong Services, Inc. (collectively, "DAMCO" and with DWS,
"DWS/DAMCO"), which are headquartered in Houma, Louisiana. DWS/DAMCO provide
specialized drilling, workover, completion and production services to the U.S.
Gulf of Mexico region and Nigeria. The aggregate purchase price for DWS/DAMCO
was $61 million and the acquisition is being accounted for utilizing the
purchase method of accounting.
F-44
<PAGE> 143
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Air Drilling International, Inc.:
We have audited the accompanying consolidated balance sheets of Air
Drilling International, Inc. (the "Company") and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996 and the
period from May 19, 1995 (Inception) to December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Air Drilling International, Inc. as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1996 and the period from May 19, 1995 (Inception) to December 31,
1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 2, 1997
F-45
<PAGE> 144
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 294,719 $ --
Certificate of deposit.................................... -- 112,500
Accounts receivable, net of allowance for doubtful
accounts of $215,000 and $250,145, respectively........ 4,825,319 3,778,088
Income tax refund receivable.............................. 279,802 176,251
Other current assets...................................... 93,678 149,915
----------- -----------
Total current assets................................. 5,493,518 4,216,754
----------- -----------
Property and equipment, net................................. 17,503,492 16,683,031
Materials and supplies inventory............................ 4,654,826 2,482,670
Deposits and other.......................................... 252,417 220,602
Debt issuance costs, net of accumulated amortization of
$4,184 and $185,226, respectively......................... 148,900 990,365
----------- -----------
Total noncurrent assets.............................. 22,559,635 20,376,668
----------- -----------
Total assets...................................... $28,053,153 $24,593,422
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,446,100 $ 1,509,855
Notes payable, current maturities......................... 913,046 1,317,589
Accrued expenses.......................................... 2,178,246 1,636,106
Capital lease obligations................................. 548,097 199,202
Income taxes payable...................................... 340,289 225,926
----------- -----------
Total current liabilities......................... 7,425,778 4,888,678
----------- -----------
Capital lease obligations................................... 503,933 199,110
Notes payable, net of current maturities.................... 13,707,752 11,837,941
Less debt discount.......................................... -- (505,498)
Deferred income taxes....................................... 2,780,978 3,609,077
----------- -----------
Total noncurrent liabilities...................... 16,992,663 15,140,630
----------- -----------
Total liabilities................................. 24,418,441 20,029,308
----------- -----------
Commitments (Note 5)
Stockholders' equity:
Common stock, $.01 par value, 165,000 shares authorized;
100,000 shares issued and outstanding.................. 1,000 1,000
Paid-in capital........................................... 4,708,189 4,708,189
Put warrants.............................................. 113,898 490,625
Cumulative foreign currency translation adjustments....... (8,156) --
Accumulated deficit....................................... (1,180,219) (635,700)
----------- -----------
Total stockholders' equity........................ 3,634,712 4,564,114
----------- -----------
Total liabilities and stockholders' equity........ $28,053,153 $24,593,422
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 145
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM
MAY 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales................................................... $21,819,889 $ 9,411,118
Cost of sales............................................... 12,080,953 4,504,440
----------- -----------
Gross profit......................................... 9,738,936 4,906,678
----------- -----------
Operating expenses:
Depreciation and amortization............................. 2,009,626 1,055,258
Foreign taxes............................................. 259,819 251,166
Salaries.................................................. 1,587,161 875,536
Other selling, general and administrative expenses........ 3,312,728 1,863,341
----------- -----------
Total operating expenses............................. 7,169,334 4,045,301
----------- -----------
Operating income..................................... 2,569,602 861,377
----------- -----------
Other income (expense):
Interest expense.......................................... (2,035,015) (1,122,568)
Amortization expense...................................... (422,885) (279,728)
Gain (loss) on disposition of assets...................... (48,093) 25,285
Foreign currency exchange loss............................ (8,823) --
Other, net................................................ (108,575) (40,320)
----------- -----------
Total other income (expense)......................... (2,623,391) (1,417,331)
Loss from continuing operations before income taxes......... (53,789) (555,954)
Income tax provision (benefit).............................. (50,904) 189,121
----------- -----------
Loss from continuing operations before extraordinary item... (2,885) (745,075)
----------- -----------
Extraordinary item:
Loss on early extinguishment of debt, net of income tax
benefit of $398,741.................................... 918,361 --
----------- -----------
Net loss.................................................... $ (921,246) $ (745,075)
=========== ===========
Net loss per share:
Extraordinary item........................................ $ (9.18) $ --
=========== ===========
Net loss.................................................. $ (9.21) $ (7.45)
=========== ===========
Weighted average shares outstanding....................... 100,000 100,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE> 146
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM
MAY 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
---------------- PAID-IN PUT TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS ADJUSTMENTS DEFICIT TOTAL
------- ------ ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuances on May 19, 1995....... 100,000 $1,000 $4,708,189 $600,000 $ -- $ -- $5,309,189
Change in put warrant
valuation..................... -- -- -- (109,375) -- 109,375 --
Net loss........................ -- -- -- -- -- (745,075) (745,075)
------- ------ ---------- -------- ------- ----------- ----------
Balance at December 31, 1995.... 100,000 1,000 4,708,189 490,625 -- (635,700) 4,564,114
Change in put warrant
valuation..................... -- -- -- (376,727) -- 376,727 --
Foreign currency translation.... -- -- -- -- (8,156) -- (8,156)
Net loss........................ -- -- -- -- -- (921,246) (921,246)
------- ------ ---------- -------- ------- ----------- ----------
Balance at December 31, 1996.... 100,000 $1,000 $4,708,189 $113,898 $(8,156) $(1,180,219) $3,634,712
======= ====== ========== ======== ======= =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
<PAGE> 147
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD FROM
MAY 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (921,246) $ (745,075)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.......................... 2,432,511 1,334,986
(Gain) loss on sale of fixed assets.................... 48,093 (25,285)
Deferred taxes......................................... (471,146) 335,106
Extraordinary loss, net of tax benefit................. 918,361 --
Other.................................................. (35,145) --
Changes in operating assets and liabilities:
(Increase) decrease in certificate of deposit.......... 112,500 (28,500)
(Increase) decrease in accounts receivable............. (1,012,086) 288,133
(Increase) decrease in income tax refund receivable.... (103,551) 22,579
(Increase) decrease in other current assets............ 56,237 (64,986)
Increase in deposits and other......................... (31,815) (74,995)
Increase (decrease) in accounts payable................ 1,601,601 (135,222)
Increase (decrease) in accrued expenses................ 542,140 437,920
Increase (decrease) in income taxes payable............ 114,363 (443,896)
Deferred income taxes.................................. (151,623) --
---------- ----------
Net cash provided by operating activities............ 3,099,194 900,765
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment....................... (2,430,489) (1,670,868)
Proceeds on sale of fixed assets.......................... 402,492 25,285
Purchases of materials and supplies inventory............. (2,172,156) (1,195,037)
---------- ----------
Net cash used in investing activities................ (4,200,153) (2,840,620)
---------- ----------
Cash flows from financing activities:
Net borrowings under Revolving Note....................... 1,408,092 691,944
Principal payments on term loan and capital leases........ (1,261,517) (573,550)
Proceeds from loans....................................... 1,070,380 574,465
Cash overdraft............................................ 334,644 --
Debt issuance costs....................................... (153,084) --
---------- ----------
Net cash provided by financing activities.............. 1,398,515 692,859
---------- ----------
Effect of exchange rate on cash............................. (2,837) --
Increase (decrease) in cash................................. 294,719 (1,246,996)
Cash, beginning of period................................... -- 1,246,996
---------- ----------
Cash, end of period......................................... $ 294,719 $ --
========== ==========
Supplemental cash flow information:
Interest paid............................................. $2,022,756 $ 822,042
========== ==========
Income taxes paid......................................... $ 256,623 $ 471,951
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE> 148
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of
Air Drilling International, Inc. ("ADI") and its wholly owned subsidiaries: Air
Drilling Services, Inc., which includes Air Drilling Services de Venezuela, C.A.
("ADS"), Air Drilling Services France (SARL) ("ADS France"), Canadian Air
Drilling Services Ltd. ("CADS") and Specialty Testing & Consulting Ltd.
("Specialty"), collectively (the "Company"). ADS is located in the United
States. CADS and Specialty are located in Canada. All intercompany balances have
been eliminated.
Effective May 19, 1995, ADI acquired ADS, CADS and Specialty. ADI is 85%
owned by Wind River Associates LLC ("Wind River") and 15% by prior management.
Wind River paid $10,500,000 to acquire the 85% interest. The acquisition was
accounted for using the purchase method of accounting. The purchase price was
allocated based on the relative fair market value of the acquired assets and
assumed liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
ADI's principal business is to provide air drilling services and rental of
related equipment to companies in the oil and gas industry on a domestic and
international basis.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment:
Property and equipment are stated at cost. Maintenance and repair costs are
expensed as incurred; renewals and betterments are capitalized. Depreciation is
provided for at rates based upon estimated useful service, on a straight-line
and accelerated basis ranging from 5 to 10 years. Upon sale or retirement, the
asset cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations.
Materials and Supplies Inventory:
Inventories consist of operating materials and supplies used to support the
machinery and equipment. Due to the nature of ADI's operations, the length of
various contracts and the international location of several jobs, inventories
are classified as long term assets because these materials and supplies may be
used over a period longer than one year. Inventories are carried at cost.
Income Taxes:
ADS files a consolidated tax return with ADI in the United States. CADS and
Specialty file separate tax returns in Canada. Income taxes are calculated
pursuant to Statement of Financial Accounting Standards No. 109, Accounting For
Income Taxes. Under this method, income taxes are recorded for future events at
tax rates in effect when the balances are expected to be paid. The Company
intends on indefinitely reinvesting its earnings in CADS and Specialty.
F-50
<PAGE> 149
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition:
ADI recognizes revenue as services are performed; potential contract losses
are recorded in the period known.
Loss Per Share:
Loss per share is calculated by taking the net loss divided by the weighted
average common shares outstanding. The common stock warrant is not included
since it would be antidilutive.
In 1997, FASB Statement No. 128 Earnings Per Share was issued. The Company
believes the implementation of this statement will have an immaterial impact on
earnings per share.
Foreign Currency Translation:
Canadian and French assets and liabilities are translated into U.S. dollars
using the exchange rate in effect at year end. Canadian and French revenues and
expenses are translated using average exchange rates for each period.
Adjustments resulting from these translations are accumulated in a separate
component of stockholders' equity. Foreign currency transaction gains or losses,
which primarily represent exchange gains or losses resulting from the
denomination of current intercompany balances into U.S. dollars, are included in
determining net income for the period.
Cash and Cash Equivalents:
ADI considers cash on hand, deposits in bank and certificates of deposit
with original maturities of less than three months to be cash equivalents.
Under the terms of a service agreement, ADS was obligated to maintain a
$112,500 letter of credit. The funds in this restricted account served as a
guarantee of completion and are included in a certificate of deposit on the
consolidated balance sheet. This amount was released in 1996.
Debt Issuance Costs:
Debt issuance costs are being amortized over the term of the related
indebtedness using the effective interest method.
Debt Discount:
The debt discount is being amortized over the term of the related
indebtedness using the effective interest method.
Supplemental Cash Flow Disclosures:
During fiscal year 1996, the Company had noncash capital lease property and
equipment additions of $904,433.
F-51
<PAGE> 150
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Machinery and equipment.......................... $19,901,213 $17,153,189
Transportation equipment......................... 222,679 222,679
Office furniture and equipment................... 445,540 363,477
----------- -----------
20,569,432 17,739,345
Less accumulated depreciation.................... 3,065,940 1,056,314
----------- -----------
$17,503,492 $16,683,031
=========== ===========
</TABLE>
Included in the above is machinery and equipment under capital leases as of
December 31, 1996 and 1995, which had an initial cost of $1,584,726 and
$680,293, respectively, and accumulated amortization of $144,269 and $43,241,
respectively.
4. NOTES PAYABLE:
The Company had notes payable at December 31, 1996 and 1995 that consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
$5,000,000 Revolving Line of Credit Agreement (the
"Revolving Note"). The Revolving Note matures in May
2000 and is collateralized by all accounts receivable,
inventory and equipment of ADS and the guarantees of
CADS and Specialty. Interest rate at the bank's prime
rate plus 2.0% (prime is 8.25% and 8.5% at December 31,
1996 and 1995, respectively). The weighted average
interest rate for the year ended December 31, 1996 was
10.68%................................................. $ 2,612,736 $ 1,204,644
"A" and "B" Senior Term Notes ("Term Notes"), initial
principal of $11,000,000. The Term Notes mature May
2000 and are collateralized by all accounts receivable,
inventory and equipment of ADS and guarantees of CADS
and Specialty. The interest rate on Term Note A is 12%
and the interest rate on Term Note B is 13.5%.......... 9,607,142 10,535,714
Mortgage payable, interest rate of 6.99%, monthly payment
of $916 including principal and interest, maturity date
of December 2008, collateralized by residential rental
property, note obtained by a stockholder of ADI........ 89,536 90,707
Subordinated promissory note to prior management
("Subordinated Note") with an initial principal balance
of $750,000. The Subordinated Note is payable in
installments beginning on the fourth anniversary.
Interest rate is 13.5%................................. 750,000 750,000
Unsecured demand notes payable to certain stockholders of
Wind River and ADI bearing interest at 13.5%........... 1,375,831 305,451
</TABLE>
F-52
<PAGE> 151
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Note payable to a financial institution in 36 equal
installments of $8,567 including principal and
interest. Interest rate is 9.1% and note is
collateralized by certain equipment in Canada.......... 185,553 269,014
----------- -----------
14,620,798.. 13,155,530
Less current portion of long-term debt................... (913,046) (1,317,589)
----------- -----------
Notes payable, net of current maturities................. $13,707,752 $11,837,941
</TABLE>
The Company's notes payable maturities are as follows:
<TABLE>
<S> <C>
1997..................................... $ 913,046
1998..................................... 1,078,941
1999..................................... 1,238,779
2000..................................... 1,348,253
2001..................................... 9,680,494
Thereafter............................... 361,285
-----------
$14,620,798
===========
</TABLE>
On December 31, 1996, the Company entered into a new debt agreement to
replace its existing Revolving Line and Term Notes. The new agreement provides
for a Reducing Term Note of $8.5 million, subordinated debt of $4.0 million and
the issuance of preferred stock for $1.5 million. The debt was funded on January
2, 1997 and the old Revolving Line and Term Notes were paid off. Because the
Company had a binding contract to repay the old debt at December 31, 1996, all
costs associated with the old debt have been charged to operations during 1996.
In addition, the classification of debt between current and long-term at
December 31, 1996 has been based on the terms of the new debt. In connection
with the refinancing, ADI issued detachable warrants for up to 35% of the
Company, initially valued by management at $1.15 million. Under the new
agreement, the Company was in violation of the covenant to deliver financial
statements within 90 days of year end and received a waiver for this violation.
F-53
<PAGE> 152
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma balance sheet (unaudited) as of December 31, 1996
presents the balance sheet as if the funding had occurred on December 31, 1996
and the proceeds were used to pay off the existing debt:
<TABLE>
<S> <C>
Cash........................................................ $ 1,212,443
Other current assets........................................ 5,198,799
-----------
Total current assets........................................ 6,411,242
-----------
Other assets................................................ 22,959,635
-----------
Total assets................................................ $29,370,877
===========
Current portion of notes payable............................ $ 913,046
Other current liabilities................................... 6,007,926
-----------
Total current liabilities................................... 6,920,972
-----------
Notes payable, net of current maturities.................... 13,992,874
Less debt discount.......................................... (1,150,000)
Other noncurrent liabilities................................ 3,436,217
-----------
Total noncurrent liabilities................................ 16,279,091
-----------
Total liabilities........................................... 23,200,063
-----------
Common stock................................................ 1,000
Preferred stock............................................. 1,500,000
Paid-in capital............................................. 4,708,189
Put warrants................................................ 1,150,000
Cumulative foreign currency translation adjustments......... (8,156)
Accumulated deficit......................................... (1,180,219)
-----------
Total stockholders' equity.................................. 6,170,814
-----------
Total liabilities and stockholders' equity.................. $29,370,877
===========
</TABLE>
The Revolving Note and Term Note agreements require that, among other
items, certain financial covenants be met, including tangible net worth,
operating and net cash flow, debt coverage, operating profit and collateral
coverage ratio. The loan agreements also restrict the payment of dividends. The
Revolving Note and Term Note agreements contain a provision that if there is any
material adverse change in the Company's financial condition, the lender has the
right to declare the Company in default.
The fair value of the long-term debt as of December 31, 1996 and 1995 was
determined using valuation techniques that are considered management's best
estimate based on the current market. The carrying amount of the debt
approximated market value as of December 31, 1996. The carrying amount of the
debt exceeded the market value by approximately $221,000 as of December 31,
1995.
F-54
<PAGE> 153
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES:
Operating Leases:
The Company is committed under noncancelable, short-term operating leases
involving offices, facilities, transportation and office equipment. The Company
has lease agreements for $125,500 per year through June 2001 with companies
owned by the Company's stockholders. Minimum annual rent payments on the leases
that exceed one year are as follows:
<TABLE>
<S> <C>
1997..................................... $377,000
1998..................................... 264,000
1999..................................... 200,000
2000..................................... 142,000
2001..................................... 43,000
----------
$1,026,000
==========
</TABLE>
Total rent expense for the year ended December 31, 1996 and the period from
May 19, 1995 (inception) to December 31, 1995 was approximately $1,345,000 and
$250,000, respectively.
Capital Leases:
The Company is the lessee of certain equipment under capital leases
expiring in various years through 2001. The Company has the following lease
agreements with companies owned by the Company's shareholders: $7,400 per month
through 2001 and $14,500 per month through 1997. Future minimum lease payments
required under these capital leases in calendar years are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 635,717
1998........................................................ 264,676
1999........................................................ 191,125
2000........................................................ 88,800
2001........................................................ 44,427
----------
Total minimum lease payments................................ 1,224,745
Less amount representing interest........................... 172,715
----------
Present value of minimum lease payments..................... 1,052,030
Less current portion........................................ 548,097
----------
$ 503,933
==========
</TABLE>
The leases provide for terms of renewal as well as purchase options.
6. FOREIGN TAXES ON REVENUES:
ADS and CADS do business in certain foreign countries as well as the United
States and Canada. ADS has elected to pay tax on gross revenues in most cases.
The amount expensed for the year ended December 31, 1996 and the period from May
19, 1995 (inception) to December 31, 1995 was $259,819 and $251,166,
respectively.
F-55
<PAGE> 154
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
Income (loss) from continuing operations before income taxes for the year
ended December 31, 1996 and the period from May 19, 1995 (inception) to December
31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
U.S............................................... $(739,158) $(695,446)
Foreign........................................... 685,369 139,492
--------- ---------
Total............................................. $ (53,789) $(555,954)
========= =========
</TABLE>
U.S. and foreign income taxes for the year ended December 31, 1996 and the
period from May 19, 1995 (inception) to December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current -- foreign.................................. $ 420,242 $(145,985)
Deferred -- U.S..................................... (524,973) 320,163
Use of net operating loss
carryforwards -- foreign.......................... 90,146 --
Deferred -- foreign................................. (36,319) 14,944
--------- ---------
Total income tax provision (benefit)................ $ (50,904) $ 189,121
========= =========
</TABLE>
At December 31, 1996, ADI had for U.S. federal income tax purposes, net
operating loss carryforwards of approximately $94,000 and $1,535,000 expiring in
2010 and 2011, respectively, AMT credits with no expiration, and foreign tax
credit carryforwards of $394,207 that expire as follows:
<TABLE>
<S> <C>
1998...................................... $ 45,000
1999...................................... 191,000
2000...................................... 158,207
--------
$394,207
========
</TABLE>
F-56
<PAGE> 155
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax assets and liabilities as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Noncurrent:
Allowance for doubtful accounts (U.S.)........ $ 73,100 $ --
Net operating loss carryforwards (U.S.)....... 554,006 36,158
Net operating loss carryforwards (foreign).... 16,551 106,697
AMT credits (U.S.)............................ 9,432 14,060
Foreign tax credits (U.S.).................... 394,207 510,902
Materials and supplies inventory (U.S.)....... -- 20,719
Foreign currency translation.................. 21,331 --
Valuation allowance (U.S.).................... -- (510,902)
---------- ----------
Total deferred tax assets.......................... 1,068,627 177,634
---------- ----------
Deferred tax liabilities:
Noncurrent:
Property and equipment (U.S.)................. 1,927,310 1,730,010
Property and equipment (foreign).............. 1,922,295 2,056,701
---------- ----------
Total deferred tax liabilities..................... 3,849,605 3,786,711
---------- ----------
Net deferred tax liability......................... $2,780,978 $3,609,077
========== ==========
</TABLE>
The net change in the valuation allowance for deferred tax assets for the
period from May 19, 1995 (inception) to December 31, 1995 was an increase of
$510,902. During 1996, management determined that it was more likely than not
that this amount would be realized and reversed the entire valuation allowance.
The effective rate differs from the federal statutory rates as a result of
the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Expected income tax (benefit) at statutory rate..... $ (18,288) $(189,024)
Foreign income taxes................................ 474,069 78,058
Effect of valuation allowance....................... (510,902) 510,902
Foreign tax credits................................. (104,913) (125,824)
Change in estimates................................. 76,658 (38,200)
Other............................................... 32,472 (46,791)
--------- ---------
Income tax expense (benefit)........................ $ (50,904) $ 189,121
========= =========
</TABLE>
In connection with the acquisition of the equity interest, the sellers
agreed to indemnify the purchasers, Wind River, for any tax (net of any benefit)
that arises prior to the May 19, 1995 acquisition date.
8. DEFINED CONTRIBUTION PLAN:
All ADS employees are eligible to participate in a defined contribution
plan (401k) whereby employees can make voluntary contributions for a portion of
their compensation. The Company matches a discretionary percentage of the
employees' contributions. For the year ended December 31, 1996 and the period
from May 19, 1995 (inception) to December 31, 1995, ADS contributed
approximately $13,300 and $8,000, respectively.
F-57
<PAGE> 156
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY:
In connection with the acquisition of ADS, CADS and Specialty, ADI issued
debt with detachable warrants to purchase 25,000 shares of ADI common stock at
any time at the stated par value at $.01 per share, representing 20% of the
common stock of ADI, after dilution for these new shares.
The holder of the warrants has the ability to put the warrants back to ADI
for an agreed-upon price based upon the fair market value of the Company after
three years. Additionally, after five years, ADI can call the warrants and pay
the holder an agreed-upon price based upon the fair market value of the Company.
At the inception of ADI's operations, the Company recorded the long-term
debt at the face value, less the fair market value of $600,000 of the warrants.
Changes in valuation of the warrants are amortized to accumulated deficit over
the remaining term of the warrants. Management has estimated the fair market
value of the put warrants as of December 31, 1996 and 1995 to be $113,898 and
$75,000, respectively. The $113,898 was paid by the Company on January 2, 1997
and, as noted in Note 4, the Company issued new detachable warrants to purchase
up to 35% of the Company.
As of December 31, 1996, ADS had authorized 660,000 shares of preferred
stock and no shares were outstanding.
10. CONTRACTS:
Specialty is a party to a contract with Global Air Drilling Services, Inc.
("Global") in which Global uses Specialty's equipment and in return receives 98%
of Global's before-tax profits. Specialty may terminate the contract at any
time. For the year ended December 31, 1996 and the period from May 19, 1995
(inception) to December 31, 1995, Specialty collected $87,000 and $353,000,
respectively, from Global.
11. CONCENTRATION OF CREDIT RISK:
Certain locations where ADI operates may have unstable political and
economic environments. The Company has purchased foreign credit insurance
(subject to a $200,000 deductible on all receivables at December 31, 1996) on
those receivables due from companies operating in foreign countries. Foreign
receivables not insured at December 31, 1996 and 1995 were $215,000 and
$367,000, respectively. At various times throughout the year, the Company
maintains cash and certificate of deposit balances in excess of the federally
insured limit.
F-58
<PAGE> 157
AIR DRILLING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. GEOGRAPHIC SEGMENTS:
The Company conducts foreign operations in Canada, France and Venezuela.
Summarized financial information which is included in the statements of
operations is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Operating revenues from unaffiliated services:
United States.................................. $10,741,991 $ 4,201,863
Canada......................................... 6,962,182 3,623,544
France......................................... 2,695,000 1,585,711
Venezuela...................................... 1,420,716 --
----------- -----------
Total....................................... $21,819,889 $ 9,411,118
=========== ===========
Depreciation and amortization:
United States.................................. $ 1,156,909 $ 555,841
Canada......................................... 839,717 499,417
France......................................... 13,000 --
Venezuela...................................... -- --
----------- -----------
Total....................................... $ 2,009,626 $ 1,055,258
=========== ===========
Operating income (loss):
United States.................................. $ 980,790 $ 676,797
Canada......................................... 881,096 (77,198)
France......................................... 277,000 261,778
Venezuela...................................... 430,716 --
----------- -----------
Total....................................... $ 2,569,602 $ 861,377
=========== ===========
Identifiable assets:
United States.................................. $18,942,334 $15,500,055
Canada......................................... 8,130,851 8,460,724
France......................................... 785,000 632,643
Venezuela...................................... 194,968 --
----------- -----------
Total....................................... $28,053,153 $24,593,422
=========== ===========
</TABLE>
F-59
<PAGE> 158
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES
To the Shareholders of
Air Drilling International, Inc.:
Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements of Air Drilling International, Inc. taken as a
whole. The supplemental schedules on pages F-61 through F-66 are presented for
the purposes of additional analysis and are not a required part of the basic
consolidated financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated, in all material respects, in
relation to the basic consolidated financial statements taken as a whole.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 2, 1997
F-60
<PAGE> 159
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADS CONSOLIDATED
ADI ADS FRANCE CADS SPECIALTY ELIMINATIONS ADI
--------- ----------- -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................ $ -- $ 190,743 $ 31,000 $ 51,232 $ 21,744 $ -- $ 294,719
Certificate of deposit...... -- -- -- -- -- -- --
Accounts receivable......... -- 3,727,308 428,000 843,192 41,819 -- 5,040,319
Allowance for doubtful
accounts................. -- (215,000) -- -- -- -- (215,000)
Income tax refund
receivable............... -- 279,802 -- -- -- -- 279,802
Intercompany accounts
receivable/(payable)..... -- 315,518 284,000 (380,269) (219,249) -- --
Other current assets........ -- 27,870 -- 53,715 12,093 -- 93,678
--------- ----------- -------- ---------- ---------- ----------- -----------
Total current assets... -- 4,326,241 743,000 567,870 (143,593) -- 5,493,518
--------- ----------- -------- ---------- ---------- ----------- -----------
Property and equipment, net... -- 10,181,719 14,000 5,836,963 1,470,810 -- 17,503,492
Materials and supplies
inventory................... -- 4,392,606 -- 262,220 -- -- 4,654,826
Deposits and other............ -- 87,836 28,000 72,577 64,004 -- 252,417
Note
receivable -- Specialty..... -- 765,262 -- -- -- (765,262) --
Note receivable -- CADS....... -- 610,951 -- -- -- (610,951) --
Debt issuance costs........... -- 148,900 -- -- -- -- 148,900
--------- ----------- -------- ---------- ---------- ----------- -----------
Total noncurrent
assets.............. -- 16,187,274 42,000 6,171,760 1,534,814 (1,376,213) 22,559,635
--------- ----------- -------- ---------- ---------- ----------- -----------
Total assets........ $ -- $20,513,515 $785,000 $6,739,630 $1,391,221 $(1,376,213) $28,053,153
========= =========== ======== ========== ========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............ $ -- $ 2,568,598 $141,000 $ 670,386 $ 66,116 $ -- $ 3,446,100
Notes payable, current
maturities............... -- 819,820 -- 90,913 2,313 -- 913,046
Accrued expenses............ -- 1,970,704 3,000 -- 204,542 -- 2,178,246
Capital lease obligations... -- 175,338 -- 221,453 151,306 -- 548,097
Income taxes payable........ -- 188,189 60,000 36,460 55,640 -- 340,289
--------- ----------- -------- ---------- ---------- ----------- -----------
Total current
liabilities......... -- 5,722,649 204,000 1,019,212 479,917 -- 7,425,778
--------- ----------- -------- ---------- ---------- ----------- -----------
Capital lease obligations..... -- 485,997 -- 17,936 -- -- 503,933
Notes payable -- ADS.......... -- -- -- 610,951 765,262 (1,376,213) --
Notes payable, net of current
maturities.................. -- 13,556,319 -- 128,843 22,590 -- 13,707,752
Less debt discount............ -- -- -- -- -- -- --
Deferred income taxes......... (204,000) 1,097,135 -- 1,485,047 402,796 -- 2,780,978
--------- ----------- -------- ---------- ---------- ----------- -----------
Total noncurrent
liabilities......... (204,000) 15,139,451 -- 2,242,777 1,190,648 (1,376,213) 16,992,663
--------- ----------- -------- ---------- ---------- ----------- -----------
Total liabilities...... (204,000) 20,862,100 204,000 3,261,989 1,670,565 (1,376,213) 24,418,441
--------- ----------- -------- ---------- ---------- ----------- -----------
Stockholders' equity:
Common stock................ (1,001) 1 -- 1,000 1,000 -- 1,000
Paid-in capital............. 1,001 1,008,272 197,953 3,742,116 (241,153) -- 4,708,189
Put warrants................ 113,898 -- -- -- -- -- 113,898
Cumulative foreign currency
translation
adjustments.............. -- -- 18,107 (27,989) 1,726 -- (8,156)
Retained earnings/
(accumulated deficit).... 90,102 (1,356,858) 364,940 (237,486) (40,917) -- (1,180,219)
--------- ----------- -------- ---------- ---------- ----------- -----------
Total equity........... 204,000 (348,585) 581,000 3,477,641 (279,344) -- 3,634,712
--------- ----------- -------- ---------- ---------- ----------- -----------
Total liabilities
and stockholders'
equity............ $ -- $20,513,515 $785,000 $6,739,630 $1,391,221 $(1,376,213) $28,053,153
========= =========== ======== ========== ========== =========== ===========
</TABLE>
F-61
<PAGE> 160
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADS CONSOLIDATED
ADI ADS FRANCE CADS SPECIALTY ELIMINATIONS ADI
--------- ----------- -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash......................... $ -- $ (58,585) $ 50,668 $ (8,327) $ 16,244 $ -- $ --
Certificate of deposit....... -- 112,500 -- -- -- -- 112,500
Accounts receivable.......... -- 2,315,245 722,184 911,791 79,013 -- 4,028,233
Allowance for doubtful
accounts.................. -- (235,000) -- (15,145) -- -- (250,145)
Income tax refund
receivable................ -- 118,595 -- 57,656 -- -- 176,251
Intercompany accounts
receivable/(payable)...... -- 1,141,071 (162,848) (787,820) (190,403) -- --
Other current assets......... -- 94,758 22,301 23,503 9,353 -- 149,915
--------- ----------- -------- ---------- ---------- ----------- -----------
Total current assets.... -- 3,488,584 632,305 181,658 (85,793) -- 4,216,754
--------- ----------- -------- ---------- ---------- ----------- -----------
Property and equipment, net.... -- 8,909,703 -- 6,313,519 1,459,809 -- 16,683,031
Materials and supplies
inventory.................... -- 2,231,488 -- 251,182 -- -- 2,482,670
Deposits and other............. -- 77,936 338 77,820 64,508 -- 220,602
Note receivable -- Specialty... -- 1,043,254 -- -- -- (1,043,254) --
Note receivable -- CADS........ -- 610,951 -- -- -- (610,951) --
Debt issuance costs............ -- 792,344 -- 73,262 124,759 -- 990,365
--------- ----------- -------- ---------- ---------- ----------- -----------
Total noncurrent
assets......................... -- 13,665,676 338 6,715,783 1,649,076 (1,654,205) 20,376,668
--------- ----------- -------- ---------- ---------- ----------- -----------
Total assets......... $ -- $17,154,260 $632,643 $6,897,441 $1,563,283 $(1,654,205) $24,593,422
========= =========== ======== ========== ========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............. $ -- $ 1,026,321 $127,794 $ 319,312 $ 36,428 $ -- $ 1,509,855
Notes payable, current
maturities................ -- 1,234,288 -- 83,036 265.00 -- 1,317,589
Accrued expenses............. -- 1,291,125 35,453 237,122 72,406 -- 1,636,106
Capital lease obligations.... -- -- -- 199,202 -- -- 199,202
Income taxes payable......... -- 53,853 112,503 (84,550) 144,120 -- 225,926
--------- ----------- -------- ---------- ---------- ----------- -----------
Total current
liabilities.......... -- 3,605,587 275,750 754,122 253,219 -- 4,888,678
--------- ----------- -------- ---------- ---------- ----------- -----------
Capital lease obligations...... -- -- -- 199,110 -- -- 199,110
Notes payable -- ADS........... -- -- -- 610,951 1,043,254 (1,654,205) --
Notes payable, net of current
maturities................... -- 11,593,334 -- 217,779 26,828 -- 11,837,941
Less debt discount............. (505,498) -- -- -- -- -- (505,498)
Deferred income taxes.......... (32,131) 1,691,204 -- 1,525,110 424,894 -- 3,609,077
--------- ----------- -------- ---------- ---------- ----------- -----------
Total noncurrent
liabilities.......... (537,629) 13,284,538 -- 2,552,950 1,494,976 (1,654,205) 15,140,630
--------- ----------- -------- ---------- ---------- ----------- -----------
Total liabilities....... (537,629) 16,890,125 275,750 3,307,072 1,748,195 (1,654,205) 20,029,308
--------- ----------- -------- ---------- ---------- ----------- -----------
Stockholders' equity:
Common stock................. (1,001) 1 -- 1,000 1,000 -- 1,000
Paid-in capital.............. 1,001 1,008,272 197,953 3,742,116 (241,153) -- 4,708,189
Put warrants................. 490,625 -- -- -- -- -- 490,625
Retained
earnings/(accumulated
deficit).................. 47,004 (744,138) 158,940 (152,747) 55,241 -- (635,700)
--------- ----------- -------- ---------- ---------- ----------- -----------
Total equity............ 537,629 264,135 356,893 3,590,369 (184,912) -- 4,564,114
--------- ----------- -------- ---------- ---------- ----------- -----------
Total liabilities and
stockholders'
equity............. $ -- $17,154,260 $632,643 $6,897,441 $1,563,283 $(1,654,205) $24,593,422
========= =========== ======== ========== ========== =========== ===========
</TABLE>
F-62
<PAGE> 161
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADS CONSOLIDATED
ADI ADS FRANCE CADS SPECIALTY ELIMINATIONS ADI
--------- ----------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $ -- $14,026,068 $3,685,000 $5,383,327 $1,578,855 $(2,853,361) $21,819,889
Cost of sales............. -- 8,047,812 2,972,000 3,058,704 855,798 (2,853,361) 12,080,953
--------- ----------- ---------- ---------- ---------- ----------- -----------
Gross profit....... -- 5,978,256 713,000 2,324,623 723,057 -- 9,738,936
--------- ----------- ---------- ---------- ---------- ----------- -----------
Operating expenses:
Depreciation and
amortization......... -- 1,156,909 13,000 668,256 171,461 -- 2,009,626
Foreign taxes........... -- 259,819 -- -- -- -- 259,819
Salaries................ -- 860,728 -- 527,946 198,487 -- 1,587,161
Other selling, general
and administrative
expenses............. -- 2,289,294 423,000 555,462 44,972 -- 3,312,728
--------- ----------- ---------- ---------- ---------- ----------- -----------
Total operating
expenses........ -- 4,566,750 436,000 1,751,664 414,920 -- 7,169,334
--------- ----------- ---------- ---------- ---------- ----------- -----------
Operating income... -- 1,411,506 277,000 572,959 308,137 -- 2,569,602
--------- ----------- ---------- ---------- ---------- ----------- -----------
Other income (expense):
Intercompany............ -- 606,452 -- (361,489) (244,963) -- --
Interest expense,
lending
institutions......... -- (1,966,662) -- (66,003) (2,350) -- (2,035,015)
Amortization expense.... (142,491) (227,670) -- (20,978) (31,746) -- (422,885)
Gain (loss) on
disposition of
assets............... -- (50,293) -- -- 2,200 -- (48,093)
Foreign currency
exchange gain
(loss)............... -- -- 44,000 (17,909) (34,914) -- (8,823)
Other, net.............. -- (120,000) 6,000 4,374 1,051 -- (108,575)
--------- ----------- ---------- ---------- ---------- ----------- -----------
Total other income
(expense)....... (142,491) (1,758,173) 50,000 (462,005) (310,722) -- (2,623,391)
--------- ----------- ---------- ---------- ---------- ----------- -----------
Income (loss) from
continuing operations
before income
taxes.............. (142,491) (346,667) 327,000 110,954 (2,585) -- (53,789)
Income tax provision
(benefit)............... (48,447) (268,389) 121,000 143,787 1,145 -- (50,904)
--------- ----------- ---------- ---------- ---------- ----------- -----------
Loss from continuing
operations before
extraordinary item... (94,044) (78,278) 206,000 (32,833) (3,730) -- (2,885)
--------- ----------- ---------- ---------- ---------- ----------- -----------
Extraordinary item:
Loss on early
extinguishment of debt,
net of tax benefit...... 239,585 534,442 -- 51,906 92,428 -- 918,361
--------- ----------- ---------- ---------- ---------- ----------- -----------
Net income (loss)......... $(333,629) $ (612,720) $ 206,000 $ (84,739) $ (96,158) $ -- $ (921,246)
========= =========== ========== ========== ========== =========== ===========
</TABLE>
F-63
<PAGE> 162
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADS CONSOLIDATED
ADI ADS FRANCE CADS SPECIALTY ELIMINATIONS ADI
-------- ----------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ 5,084,037 $1,585,711 $2,547,080 $1,076,464 $ (882,174) $ 9,411,118
Cost of sales.............. -- 2,093,748 1,136,266 1,570,575 586,025 (882,174) 4,504,440
-------- ----------- ---------- ---------- ---------- ----------- -----------
Gross profit............. -- 2,990,289 449,445 976,505 490,439 -- 4,906,678
-------- ----------- ---------- ---------- ---------- ----------- -----------
Operating expenses:
Depreciation and
amortization.......... -- 555,841 -- 408,337 91,080 -- 1,055,258
Foreign taxes............ -- 190,641 -- 60,525 -- -- 251,166
Salaries................. -- 449,510 27,408 311,477 87,141 -- 875,536
Other selling, general
and administrative
expenses.............. -- 1,117,500 160,259 464,779 120,803 -- 1,863,341
-------- ----------- ---------- ---------- ---------- ----------- -----------
Total operating
expenses......... -- 2,313,492 187,667 1,245,118 299,024 -- 4,045,301
-------- ----------- ---------- ---------- ---------- ----------- -----------
Operating income
(loss)........... -- 676,797 261,778 (268,613) 191,415 -- 861,377
-------- ----------- ---------- ---------- ---------- ----------- -----------
Other income (expense):
Interest expense......... -- (1,064,046) -- (51,274) (7,248) -- (1,122,568)
Amortization expense..... (94,502) (148,129) -- (13,732) (23,365) -- (279,728)
Gain on disposition of
assets................ -- -- -- 14,177 11,108 -- 25,285
Other, net............... -- (65,566) 9,749 11,539 3,958 -- (40,320)
-------- ----------- ---------- ---------- ---------- ----------- -----------
Total other income
(expense)........... (94,502) (1,277,741) 9,749 (39,290) (15,547) -- (1,417,331)
-------- ----------- ---------- ---------- ---------- ----------- -----------
Income (loss) before income
taxes.................... (94,502) (600,944) 271,527 (307,903) 175,868 -- (555,954)
Income tax provision
(benefit)................ (32,131) 143,194 112,587 (155,156) 120,627 -- 189,121
-------- ----------- ---------- ---------- ---------- ----------- -----------
Net income (loss).......... $(62,371) $ (744,138) $ 158,940 $ (152,747) $ 55,241 $ -- $ (745,075)
======== =========== ========== ========== ========== =========== ===========
</TABLE>
F-64
<PAGE> 163
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADS CONSOLIDATED
ADI ADS FRANCE CADS SPECIALTY ADI
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ (333,629) $ (612,720) $ 206,000 $ (84,739) $ (96,158) $ (921,246)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 142,491 1,384,579 13,000 689,234 203,207 2,432,511
(Gain) loss on sale of fixed assets........ -- 50,293 -- -- (2,200) 48,093
Deferred taxes............................. (48,447) (476,526) -- 107,169 (53,342) (471,146)
-- (20,000) -- (15,145) -- (35,145)
239,585 534,442 -- 51,906 92,428 918,361
Changes in operating assets and
liabilities:
Decrease in certificate of deposit......... -- 112,500 -- -- -- 112,500
(Increase) decrease in accounts
receivable............................... -- (1,412,063) 294,184 68,599 37,194 (1,012,086)
(Increase) decrease in income tax refund
receivable............................... -- (161,207) -- 57,656 -- (103,551)
(Increase) decrease in other current
assets................................... -- 66,888 22,301 (30,212) (2,740) 56,237
Increase in deposits and other............. -- (9,900) (27,662) 5,243 504 (31,815)
(Increase) decrease in accounts payable.... -- 1,207,633 13,206 351,074 29,688 1,601,601
Increase/decrease in intercompany
payable/receivable....................... -- 825,553 (446,848) (407,551) 28,846 --
Increase in accrued expenses............... -- 679,579 (32,453) (237,122) 132,136 542,140
Decrease in income taxes payable........... -- 134,336 (52,503) 121,010 (88,480) 114,363
Deferred income taxes........................ -- (35,636) -- (147,232) 31,245 (151,623)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.......................... -- 2,267,751 (10,775) 529,890 312,328 3,099,194
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........ -- (2,201,993) (6,000) (219,253) (3,243) (2,430,489)
Proceeds on sale of fixed assets........... -- 400,292 -- -- 2,200 402,492
Purchase of materials and supplies
inventory................................ -- (2,161,118) -- (11,038) -- (2,172,156)
Net cash used in investing
activities.......................... -- (3,962,819) (6,000) (230,291) (1,043) (4,200,153)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings under Revolving Note........ -- 1,408,092 -- -- -- 1,408,092
Principal payments on term loan, capital
leases and mortgage...................... -- (993,628) -- (239,982) (27,907) (1,261,517)
Proceeds from loans........................ 1,070,380 -- -- -- 1,070,380
Cash overdraft............................. -- 334,644 -- -- -- 334,644
Intercompany loan.......................... -- 277,992 -- -- (277,992) --
Debt issuance costs........................ -- (153,084) -- -- -- (153,084)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.......................... -- 1,944,396 -- (239,982) (305,899) 1,398,515
----------- ----------- ----------- ----------- ----------- -----------
Effect of exchange rate on cash.............. -- -- (2,893) (58) 114 (2,837)
Increase (decrease) in cash.................. -- 249,328 (19,668) 59,559 5,500 294,719
Cash, beginning of period.................... -- (58,585) 50,668 (8,327) 16,244 --
----------- ----------- ----------- ----------- ----------- -----------
Cash, end of period.......................... $ -- $ 190,743 $ 31,000 $ 51,232 $ 21,744 $ 294,719
=========== =========== =========== =========== =========== ===========
</TABLE>
F-65
<PAGE> 164
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADS CONSOLIDATED
ADI ADS FRANCE CADS SPECIALTY ADI
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ (62,371) $ (744,138) $ 158,940 $ (152,747) $ 55,241 $ (745,075)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 94,502 703,970 -- 422,069 114,445 1,334,986
Gain on sale of fixed assets............. -- (14,177) (11,108) (25,285)
Deferred taxes........................... (32,131) 373,356 -- 17,374 (23,493) 335,106
Changes in operating assets and
liabilities:
Increase in certificate of deposit....... -- (28,500) -- -- -- (28,500)
(Increase) decrease in accounts
receivable............................. -- 637,437 (436,405) 20,091 67,010 288,133
(Increase) decrease in income tax refund
receivable............................. -- 80,235 -- (57,656) -- 22,579
Increase in other current assets......... -- 26,367 (101,901) 5,062 5,486 (64,986)
Increase in deposits and other........... -- (300) 48,606 (68,754) (54,547) (74,995)
Decrease in accounts payable............. -- 638,143 (46,751) (380,585) (346,029) (135,222)
Increase/decrease in intercompany
payable/receivable..................... -- (1,141,071) 162,848 787,820 190,403 --
Increase in accrued expenses............. -- 445,488 43,590 34,989 (86,147) 437,920
Decrease in income taxes payable......... -- (179,911) 83,380 (412,312) 64,947 (443,896)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.......................... -- 811,076 (87,693) 201,174 (23,792) 900,765
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........ -- (1,297,815) -- (290,108) (82,945) (1,670,868)
Proceeds on sale of fixed assets........... -- -- -- 14,177 11,108 25,285
Purchase of materials and supplies
inventory................................ -- (1,047,666) -- (148,427) 1,056 (1,195,037)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.......................... -- (2,345,481) -- (424,358) (70,781) (2,840,620)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings under Revolving Note........ -- 691,944 -- -- -- 691,944
Principal payments on term loan, capital
leases and mortgage...................... -- (464,980) -- (108,092) (478) (573,550)
Proceeds from loans........................ -- 305,451 -- 269,014 -- 574,465
Intercompany loan.......................... -- 855,420 -- (413,580) (441,840) --
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.......................... -- 1,387,836 -- (252,658) (442,318) 692,859
----------- ----------- ----------- ----------- ----------- -----------
Decrease in cash............................. -- (146,570) (87,693) (475,842) (536,891) (1,246,996)
Cash, beginning of period.................... -- 87,985 138,361 467,515 553,135 1,246,996
----------- ----------- ----------- ----------- ----------- -----------
Cash, end of period.......................... $ -- $ (58,585) $ 50,668 $ (8,327) $ 16,244 $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
F-66
<PAGE> 165
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Air Drilling Services, Inc.
Canadian Air Drilling Services Ltd.,
Specialty Testing & Consulting Ltd. and
Global Air Drilling Services Ltd.:
We have audited the accompanying combined balance sheet of Air Drilling
Services, Inc., Canadian Air Drilling Services Ltd., Specialty Testing &
Consulting Ltd. and Global Air Drilling Services Ltd. as of May 18, 1995, and
the related combined statements of income, stockholders' equity and cash flows
for the period from January 1, 1995 through May 18, 1995. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Canadian Air Drilling
Services Ltd. as of May 18, 1995 or for the period from January 1, 1995 through
May 18, 1995. Those statements reflect total assets of $5,775,350 as of May 18,
1995, and total revenues of $2,798,517 for the period from January 1, 1995
through May 18, 1995. Those financial statements were audited and reported on
separately by other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the combined financial statements referred to above present fairly, in all
material respects, the combined financial position of Air Drilling Services,
Inc., Canadian Air Drilling Services Ltd., Specialty Testing & Consulting Ltd.
and Global Air Drilling Services Ltd. as of May 18, 1995, and the combined
results of their operations and their cash flows for the period from January 1,
1995 through May 18, 1995, in conformity with generally accepted accounting
principles in the United States.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
July 25, 1995
F-67
<PAGE> 166
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
COMBINED BALANCE SHEET
AS OF MAY 18, 1995
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 1,955,202
Certificate of deposit.................................... 84,000
Accounts receivable, net of allowance for doubtful
accounts of $36,816.................................... 4,213,987
Income tax refund receivable.............................. 198,830
Materials and supplies inventory, at cost................. 658,507
Other current assets...................................... 84,929
-----------
Total current assets.............................. 7,195,455
-----------
Property and equipment, net, at cost........................ 8,271,563
Materials and supplies inventory, at cost................... 1,086,700
Deposits and other.......................................... 175,491
-----------
Total assets...................................... $16,729,209
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,607,290
Demand loans.............................................. 773,879
Notes payable, current maturities......................... 2,213,260
Payroll and sales taxes payable........................... 127,321
Accrued expenses.......................................... 436,960
Income taxes payable...................................... 463,790
Foreign income taxes payable.............................. 121,871
-----------
Total current liabilities......................... 5,744,371
-----------
Deferred income taxes....................................... 408,269
Notes payable, net of current maturities.................... 1,334,088
-----------
Total liabilities................................. 7,486,728
-----------
Commitments and contingencies (Notes 5 and 10)
Stockholders' equity:
Share capital............................................. 394,213
Additional paid-in capital................................ 84,301
Cumulative foreign currency translation adjustments....... (191,481)
Retained earnings......................................... 8,955,448
-----------
Total stockholders' equity........................ 9,242,481
-----------
Total liabilities and stockholders' equity........ $16,729,209
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-68
<PAGE> 167
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
COMBINED STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH MAY 18, 1995
<TABLE>
<S> <C>
Net sales................................................... $7,718,774
Cost of sales............................................... 4,218,554
----------
Gross profit.............................................. 3,500,220
----------
Operating expenses:
Depreciation.............................................. 566,185
Foreign taxes............................................. 107,997
Salaries, wages and bonuses............................... 396,220
Other selling, general and administrative expenses........ 1,497,620
----------
Total operating expenses.......................... 2,568,022
----------
Operating income.................................. 932,198
----------
Other income (expense):
Interest income........................................... 13,978
Interest expense.......................................... (161,905)
Gain on disposition of assets............................. 38,570
Other..................................................... (54,894)
----------
Total other expenses.............................. (164,251)
----------
Income before income taxes.................................. 767,947
Income tax provision........................................ 227,484
----------
Net income.................................................. $ 540,463
==========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
F-69
<PAGE> 168
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH MAY 18, 1995
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY
SHARE PAID-IN RETAINED TRANSLATION
CAPITAL CAPITAL EARNINGS ADJUSTMENTS TOTAL
-------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995........... $372,876 $84,301 $8,414,985 $(294,553) $8,577,609
Foreign currency translation
adjustment......................... 21,265 -- -- 103,072 124,337
Issuance of 7,500 Class D shares
(with stated capital of $5,230) and
10,000 Class A shares (with stated
capital of $72) of Specialty
Testing & Consulting in exchange
for all issued and outstanding
Class C shares (with stated capital
of $5,230)......................... 72 -- -- -- 72
Net income........................... -- -- 540,463 -- 540,463
-------- ------- ---------- --------- ----------
Balance at May 18, 1995.............. $394,213 $84,301 $8,955,448 $(191,481) $9,242,481
======== ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
F-70
<PAGE> 169
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH MAY 18, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 540,463
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 566,185
Gain on sale of fixed assets........................... (38,570)
Deferred taxes......................................... (63,937)
Decrease in accounts receivable........................ 431,183
Increase in income tax refund receivable............... (28,211)
Decrease in other current assets....................... 110,373
Decrease in deposits and other......................... 43,713
Increase in accounts payable........................... 136,090
Increase in payroll and sales taxes payable............ 95,396
Decrease in accrued expenses........................... (80,115)
Gain on disposition of investment...................... (1,418)
Change in accrued bonuses payable...................... (649,621)
Increase in foreign income taxes payable............... 85,015
Decrease in income taxes payable....................... (19,981)
----------
Net cash provided by operating activities......... 1,126,565
----------
Cash flows from investing activities:
Purchases of property and equipment....................... (672,581)
Proceeds on sale of fixed assets.......................... 213,229
Increase in inventory..................................... (57,711)
Disposition of investment................................. 99,508
----------
Net cash used in investing activities............. (417,555)
----------
Cash flows from financing activities:
Proceeds from loans....................................... 875,151
Principal payments on loans and leases.................... (713,905)
Issuance of common shares................................. 72
----------
Net cash provided by financing activities......... 161,318
----------
Increase in cash............................................ 870,328
Effect of exchange rate on cash............................. 53,651
----------
Change in cash after adjustment............................. 923,979
Cash, beginning of year..................................... 1,031,223
----------
Cash, end of year........................................... $1,955,202
==========
Supplemental cash flow information:
Interest paid............................................. $ 161,954
Income taxes paid......................................... $ 361,537
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-71
<PAGE> 170
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The combined financial statements include the assets, liabilities,
shareholders' equity, revenues and expenses of Air Drilling Services, Inc.
("ADS"), Canadian Air Drilling Services Ltd. ("CADS") and Specialty Testing &
Consulting Ltd. and Global Air Drilling Services Ltd. ("Specialty/Global")
(collectively the "Companies"). They have been prepared as a result of the
common ownership of the above companies. The Companies' year end is December 31.
All material intercompany balances have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
The Companies' principal business is to provide air drilling services and
rental of related equipment to oil and gas industry companies on an
international basis.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Maintenance and repair
costs are expensed as incurred; renewals and betterments are capitalized.
Depreciation is provided for at rates based upon estimated useful service lives,
on a straight-line and accelerated basis ranging from 5 to 20 years.
Inventory:
Inventories consist of operating materials and supplies used to support the
machinery and equipment.
Income Taxes:
ADS files a consolidated tax return with its parent in the United States.
CADS and Specialty/Global file separate tax returns in Canada. Income taxes are
calculated pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes."
Revenue Recognition:
The Companies' recognize revenue as services are performed; potential
losses are recorded in the period known.
Foreign Currency Translation:
The functional currency for CADS and Specialty/Global is the Canadian
dollar. The functional currency for ADS is the U.S. dollar. The CADS and
Specialty/Global financial statements have been translated to U.S. dollars using
the current rate method. Revenues and expenses are translated into the
functional currency using the exchange rate in effect at the date of the
transaction. Monetary items in the combined balance sheet are translated at the
exchange rates in effect at the end of the year. The foreign currency
translation adjustment is recorded as a part of stockholders' equity.
Cash and Cash Equivalents:
The Companies consider cash on hand, deposits in bank and certificates of
deposit with original maturities of less than three months to be cash
equivalents.
F-72
<PAGE> 171
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of a service agreement, ADS is obligated to a maintain a
$84,000 letter of credit. The funds in this restricted account serve as a
guarantee of completion and are included in certificate of deposit on the
combined balance sheet.
Reclassification:
The presentation of certain prior period information has been reclassified
to conform to the current year presentation format.
3. PROPERTY AND EQUIPMENT:
Property and equipment at May 18, 1995 is summarized as follows:
<TABLE>
<S> <C>
Machinery and equipment..................................... $12,377,291
Plant facilities/land and buildings......................... 372,401
Automobiles................................................. 182,023
Office furniture and equipment.............................. 88,489
-----------
13,020,204
Less accumulated depreciation............................... (4,748,641)
-----------
$ 8,271,563
===========
</TABLE>
4. NOTES PAYABLE:
The Companies have notes payable to unrelated parties at May 18, 1995 that
consisted of the following:
<TABLE>
<S> <C>
ADS:
Revolving Line of Credit Agreement (the "Revolving Loan"),
borrowing base of $1,750,000. The Revolving Loan matures
in August 1995 and is collateralized by all accounts
receivable, inventory and equipment of ADS and the
guarantees of Pugh-Malhotra Holdings, Inc. ("PMH") and two
officers of ADS. Interest rate at the bank's prime rate
plus 1.25% (10.25% at May 18, 1995)....................... $ 1,653,941
Equipment Loan Agreement (the "Equipment Loan"), borrowing
base of $2,111,448. The Equipment Loan matures August 1997
and is collateralized by all accounts receivable,
inventory and equipment of ADS and guarantees of PMH and
two officers of ADS. Interest rate is the bank's prime
rate plus 1% (10% at May 18, 1995)........................ 1,278,425
Mortgage payable (the "mortgage"), interest rate of 6.99%,
monthly payment of $305 including principal and interest,
maturity date of December 2008, collateralized by
residential rental property, note obtained by officer and
stockholder of ADS........................................ 32,206
SPECIALTY/GLOBAL:
Mortgage payable (the "mortgage"), $303 monthly including
interest at 6.99%, due December 2008, collateralized by
residential rental property, note obtained by stockholder
of Specialty/Global....................................... 27,571
Term bank loan, payable $3,083 monthly in Canadian dollars,
plus interest at bank prime rate plus 1.25% (9.25% at May
18, 1995), due September 1995, collateralized by accounts
receivable and equipment.................................. 8,473
</TABLE>
F-73
<PAGE> 172
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Term bank loan, payable $2,892 monthly in Canadian dollars,
plus interest at bank prime rate plus 1.25% (10.25% at May
18, 1995), due September 1995, collateralized by accounts
receivable and equipment.................................. 8,527
Specialty/Global carries a First Bank Operating Account
("FBOA") with the Bank of Montreal to a maximum of
$150,000 Canadian. The interest rate is Bank of Montreal
prime plus 0.5%. There are no amounts outstanding at May
18, 1995.................................................. --
CADS:
Bank of Montreal revolving loan, due upon demand payable in
monthly installments of $55,275 plus interest calculated
at prime plus 1.25%....................................... $ 773,879
Ingersoll Rand equipment loan payable (the "Ingersoll Rand
Loan") in monthly installments of principal and interest
of $18,847, interest calculated at 10.75%................. 504,971
Mortgage payable (the "mortgage") on U.S. condo, payable in
monthly installments of principal and interest of $305,
interest calculated at 6.99%.............................. 33,234
CADS carries a First Bank Operating Account ("FBOA") with
the Bank of Montreal to a maximum of $300,000 Canadian.
The interest rate is Bank of Montreal prime plus 1.25%.
There were no amounts outstanding at May 18, 1995......... --
-----------
4,321,227
Less:
Demand bank loans......................................... (773,879)
Current portion of long-term debt......................... (2,213,260)
-----------
Total long-term notes payable..................... $ 1,334,088
===========
</TABLE>
On May 19, 1995, all notes payable except the mortgage payable and
Ingersoll Rand Loan were paid off in full.
5. LEASES:
Operating Leases:
ADS and CADS are committed under noncancelable, short-term operating leases
involving its offices, facilities, transportation and office equipment. Certain
leases contain escalation and renewal clauses. The minimum annual rent payments
on the leases that exceed one year are as follows:
<TABLE>
<CAPTION>
ADS CADS TOTAL
-------- -------- --------
<S> <C> <C> <C>
1995............................................... $ 92,157 $ 48,911 $141,068
1996............................................... 146,811 53,094 199,905
1997............................................... 140,967 29,784 170,751
1998............................................... 122,544 25,338 147,882
1999............................................... 122,544 18,606 141,150
-------- -------- --------
$625,023 $175,733 $800,756
======== ======== ========
</TABLE>
Rent expense under operating leases was $71,542 for 1995.
F-74
<PAGE> 173
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Capital Leases:
CADS is the lessee of certain equipment under capital leases expiring in
various years through 1998. Included in equipment is $680,269 of assets under
capital leases and related accumulated depreciation of $39,706 at May 18, 1995.
Future minimum lease payments required under these capital leases are as
follows:
<TABLE>
<S> <C>
1995........................................................ $ 132,034
1996........................................................ 226,344
1997........................................................ 207,634
1998........................................................ 6,890
---------
Total minimum lease payments................................ 572,902
Less amount representing interest........................... (67,931)
---------
Present value of minimum lease payments..................... 504,971
Less current portion........................................ (163,285)
---------
$ 341,686
=========
</TABLE>
6. FOREIGN TAXES:
ADS and CADS do business in certain foreign countries as well as the United
States and Canada. ADS has the option to pay a 10%-12% tax on gross revenues or
to pay normal corporate tax rates on net taxable income in the respective
countries. ADS has elected to pay the 10%-12% foreign tax on gross revenues in
the respective countries which totaled $107,997 for the period from January 1,
1995 through May 18, 1995. CADS does business in Venezuela. Included as part of
foreign tax expense is approximately $122,230 of Venezuelan foreign taxes.
7. INCOME TAXES:
Income before income taxes for the period from January 1, 1995 to May 18,
1995 was as follows:
<TABLE>
<S> <C>
U.S......................................................... $ 57,113
Foreign..................................................... 710,834
--------
Total....................................................... $767,947
========
</TABLE>
F-75
<PAGE> 174
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<S> <C>
Current income taxes:
U.S....................................................... $ 354
Canada.................................................... 271,392
France.................................................... 19,675
--------
291,421
--------
Deferred income taxes:
U.S....................................................... (59,254)
Canada.................................................... (4,683)
France.................................................... --
--------
(63,937)
--------
Total income tax provision........................ $227,484
========
</TABLE>
At May 18, 1995, ADS had for U.S. federal income tax purposes, $5,626 of
AMT tax credits with no expiration and foreign tax credit carryforwards of
$197,028 that expire as follows:
<TABLE>
<S> <C>
1998........................................................ $120,205
1999........................................................ 76,823
--------
$197,028
========
</TABLE>
The components of the net deferred tax assets and liabilities as of May 18,
1995 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Noncurrent:
AMT credits (U.S.)..................................... $ 5,626
Foreign tax credits (U.S.)............................. 197,028
--------
Total deferred tax assets................................... 202,654
--------
Deferred tax liabilities:
Noncurrent:
Property and equipment (U.S.).......................... 441,640
Property and equipment (foreign)....................... 169,283
--------
Total deferred tax liabilities.............................. 610,923
--------
Net deferred tax liability.................................. $408,269
========
</TABLE>
The combined effective income tax rate differs from the United States
federal statutory rate for the following reasons:
<TABLE>
<S> <C>
Expected income tax provision............................... $261,102
Foreign income taxes........................................ 44,700
Foreign tax credits......................................... (76,823)
Other....................................................... (1,495)
--------
$227,484
========
</TABLE>
F-76
<PAGE> 175
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY:
Stockholders' equity consists of the following at May 18, 1995:
<TABLE>
<S> <C>
ADS:
Authorized:
50,000 common shares with a $1.00 par value.
Issued and outstanding:
35,500 common shares................................... $ 35,500
Additional paid-in capital............................. 84,301
---------
ADS share capital................................. 119,801
---------
CADS:
Authorized:
Unlimited number of Class "A" voting common shares
without par value.
Unlimited number of Class "B" nonvoting common shares
without par value.
Unlimited number of Class "C" nonvoting preferred
shares without par value.
Unlimited number of Class "D" nonparticipating common
shares without par value.
Issued and Outstanding:
10,000 Class "A" common shares......................... $ 7,395
890 Class "C" preferred shares......................... 655,930
1,000,000 Class "D" common shares...................... 1
---------
CADS share capital................................ 663,326
---------
Specialty Testing & Consulting Ltd.:
Authorized:
100,000 Class A common, voting shares without par
value.
100,000 Class B common, nonvoting shares without par
value.
100,000 Class C common, voting shares without par
value.
Unlimited number of Class D preferred, noncumulative,
voting shares, redemption price set at time of
issuance.
Issued and Outstanding:
10,000 Class A shares.................................. $ 72
7,500 Class C shares................................... 5,230
Global Air Drilling Services Ltd:
Authorized:
Unlimited number of Class A common, voting shares.
Unlimited number of Class B common, voting shares.
Unlimited number of Class C common, nonvoting shares.
Issued and outstanding:
1,000 Class A shares................................... $ 85
---------
Specialty/Global share capital.................... 5,387
---------
Less elimination of ADS investment in CADS................ (310,000)
---------
Total combined share capital...................... $ 478,514
=========
</TABLE>
F-77
<PAGE> 176
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. CONCENTRATION OF CREDIT RISK:
Approximately 76% of ADS' revenue is from international operations. Some of
these locations may have unstable political and economic environments. At
May 18, 1995, approximately $1,700,000 of accounts receivable was due from
companies operating in foreign countries.
Approximately 11% of CADS' revenue is from international operations. At May
18, 1995, approximately $83,300 of accounts receivable was due from
companies operating in foreign countries.
Specialty/Global did not generate any revenue from international operations
during the period from January 1, 1995 through May 18, 1995.
10. CADS CONTINGENT LIABILITIES:
In prior years, investment tax credits of $147,000 were claimed as a
reduction of federal taxes payable for Canadian tax purposes. This amount is
potentially repayable in the event that the related equipment has not been
used "primarily in Canada." The equipment had previously been used in
Venezuela; however, the majority of it is currently being used in Canada.
While the location of its future use is intended to be in Canada, it is
possible this may not transpire. The actual use test used by Revenue Canada
will be a matter of fact. The amount of any repayment that may result is
undeterminable at this time. Any potential repayment will likely be recorded
as a charge to the income statement in the period in which it is paid.
11. GEOGRAPHIC SEGMENTS
The Companies conduct foreign operations in Canada and France. Summarized
financial information which is included in the combined statement of income
is as follows:
<TABLE>
<S> <C>
Operating revenues from unaffiliated services:
United States............................................. $ 2,924,036
Canada.................................................... 4,171,747
France.................................................... 622,991
-----------
Total............................................. $ 7,718,774
===========
Depreciation:
United States............................................. $ 367,923
Canada.................................................... 192,661
France.................................................... 5,601
-----------
Total............................................. $ 566,185
===========
Operating income:
United States............................................. $ 51,436
Canada.................................................... 841,412
France.................................................... 39,350
-----------
Total............................................. $ 932,198
===========
Identifiable assets:
United States............................................. $ 9,107,860
Canada.................................................... 7,148,714
France.................................................... 472,635
-----------
Total............................................. $16,729,209
===========
</TABLE>
F-78
<PAGE> 177
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT:
Effective May 19, 1995, the shareholders of the Companies sold their
ownership interests to a newly formed company, Air Drilling International,
Inc. ("ADII") and acquired a 16% ownership interest in ADII.
F-79
<PAGE> 178
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES
To the Shareholders of Air Drilling Services, Inc.
Canadian Air Drilling Services Ltd.,
Specialty Testing & Consulting Ltd. and
Global Air Drilling Services Ltd.:
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules on pages F-81
and F-82 are presented for the purposes of additional analysis and are not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated, in all material respects, in
relation to the basic financial statements taken as whole.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
July 25, 1995
F-80
<PAGE> 179
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
COMBINING BALANCE SHEET
AS OF MAY 18, 1995
ASSETS
<TABLE>
<CAPTION>
SPECIALTY/ COMBINED
ADS CADS GLOBAL ELIMINATIONS TOTAL
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash............................. $ 130,476 $1,241,394 $ 583,332 $ -- $ 1,955,202
Certificate of deposit........... 84,000 -- -- -- 84,000
Accounts receivable, net......... 3,136,214 931,882 226,121 (80,230) 4,213,987
Income tax refund receivable..... 198,830 -- -- -- 198,830
Materials and supplies inventory,
at cost....................... 535,240 123,267 -- -- 658,507
Other current assets............. 41,525 28,565 14,839 -- 84,929
----------- ---------- ---------- ----------- -----------
Total current assets..... 4,126,285 2,325,108 824,292 (80,230) 7,195,455
----------- ---------- ---------- ----------- -----------
Property and equipment, net, at
cost............................. 4,272,103 3,424,446 575,014 -- 8,271,563
Materials and supplies inventory,
at
cost............................. 1,086,700 -- -- -- 1,086,700
Investments, affiliated company.... 1,431,370 -- -- (1,431,370) --
Deposits and other................. 139,237 25,796 10,458 -- 175,491
----------- ---------- ---------- ----------- -----------
Total assets............. $11,055,695 $5,775,350 $1,409,764 $(1,511,600) $16,729,209
=========== ========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................. $ 562,723 $ 699,897 $ 424,900 $ (80,230) $ 1,607,290
Demand loans..................... -- 773,879 -- -- 773,879
Notes payable, current
maturities.................... 2,028,509 166,285 18,466 -- 2,213,260
Payroll and sales taxes
payable....................... 22,533 -- 104,788 -- 127,321
Accrued expenses................. 436,960 -- -- -- 436,960
Income taxes payable............. -- 383,454 80,336 -- 463,790
Foreign income taxes payable..... 121,871 -- -- -- 121,871
----------- ---------- ---------- ----------- -----------
Total current
liabilities............ 3,172,596 2,023,515 628,490 (80,230) 5,744,371
----------- ---------- ---------- ----------- -----------
Deferred income taxes.............. 238,986 169,283 -- -- 408,269
Notes payable, net of current
maturities....................... 936,063 371,920 26,105 -- 1,334,088
----------- ---------- ---------- ----------- -----------
Total liabilities........ 4,347,645 2,564,718 654,595 (80,230) 7,486,728
----------- ---------- ---------- ----------- -----------
Stockholders' equity:
Share capital.................... 119,801 663,326 5,387 (310,000) 478,514
Cumulative foreign currency
translation adjustments....... -- (61,331) (130,150) -- (191,481)
Retained earnings................ 6,588,249 2,608,637 879,932 (1,121,370) 8,955,448
----------- ---------- ---------- ----------- -----------
6,708,050 3,210,632 755,169 (1,431,370) 9,242,481
----------- ---------- ---------- ----------- -----------
Total liabilities and
stockholders' equity... $11,055,695 $5,775,350 $1,409,764 $(1,511,600) $16,729,209
=========== ========== ========== =========== ===========
</TABLE>
F-81
<PAGE> 180
AIR DRILLING SERVICES, INC., CANADIAN AIR DRILLING
SERVICES LTD., SPECIALTY TESTING & CONSULTING LTD.
AND GLOBAL AIR DRILLING SERVICES LTD.
COMBINING INCOME STATEMENT
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH MAY 18, 1995
<TABLE>
<CAPTION>
SPECIALTY/ COMBINED
ADS CADS GLOBAL ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales............................ $3,642,881 $2,798,517 $1,422,930 $(145,554) $7,718,774
Cost of sales........................ 1,878,714 1,495,146 990,248 (145,554) 4,218,554
---------- ---------- ---------- --------- ----------
Gross profit....................... 1,764,167 1,303,371 432,682 -- 3,500,220
---------- ---------- ---------- --------- ----------
Operating expenses:
Depreciation....................... 373,524 153,231 39,430 -- 566,185
Foreign taxes...................... 107,997 -- -- -- 107,997
Salaries, wages and bonuses........ 360,410 -- 35,810 -- 396,220
Other selling, general and
administrative expenses......... 735,596 671,168 90,856 -- 1,497,620
---------- ---------- ---------- --------- ----------
Total operating expenses... 1,577,527 824,399 166,096 -- 2,568,022
---------- ---------- ---------- --------- ----------
Operating income........... 186,640 478,972 266,586 -- 932,198
---------- ---------- ---------- --------- ----------
Other income (expense):
Interest income.................... 809 9,755 3,414 -- 13,978
Interest expense................... (102,265) (55,745) (3,895) -- (161,905)
Equity in earnings of affiliate.... 110,997 -- -- (110,997)
Gain on disposition of assets...... -- 38,570 -- -- 38,570
Other, net......................... (28,071) (14,279) (12,544) -- (54,894)
---------- ---------- ---------- --------- ----------
Total other income
(expense)................ (18,530) (21,699) (13,025) (110,997) (164,251)
---------- ---------- ---------- --------- ----------
Income before income taxes........... 168,110 457,273 253,561 (110,997) 767,947
Income tax provision (benefit)....... (39,225) 179,781 86,928 -- 227,484
---------- ---------- ---------- --------- ----------
Net income................. $ 207,335 $ 277,492 $ 166,633 $(110,997) $ 540,463
========== ========== ========== ========= ==========
</TABLE>
F-82
<PAGE> 181
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ (318) $ 295
Accounts receivable, net of allowance for doubtful
accounts of $215,000................................... 7,924 4,825
Income tax refund receivable.............................. 253 280
Other current assets...................................... 375 94
------- -------
Total current assets................................. 8,234 5,494
------- -------
Property and equipment, net................................. 18,101 17,503
Materials and supplies inventory............................ 5,234 4,654
Deposits and other.......................................... 448 252
Debt issuance costs, net of accumulated amortization........ 530 149
------- -------
Total noncurrent assets.............................. 24,313 22,559
------- -------
Total assets...................................... $32,547 $28,053
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,031 $ 3,446
Notes payable, current maturities......................... 1,019 913
Accrued expenses.......................................... 1,286 2,178
Capital lease obligations................................. 490 548
Income taxes payable...................................... 1,475 340
------- -------
Total current liabilities......................... 6,301 7,425
------- -------
Capital lease obligations................................... 573 504
Notes payable, net of current maturities.................... 16,367 13,708
Less debt discount.......................................... (1,087) --
Deferred income taxes....................................... 2,781 2,781
------- -------
Total noncurrent liabilities...................... 18,634 16,993
------- -------
Total liabilities................................. 24,935 24,418
------- -------
Commitments
Stockholders' equity:
Common stock, $.01 par value, 165,000 shares authorized;
100,000 shares issued and outstanding.................. 1 1
Paid-in-capital........................................... 4,708 4,708
Put warrants.............................................. 1,150 114
Preferred Common Stock.................................... 1,553 --
Cumulative foreign currency translation adjustment........ -- (8)
Accumulated deficit....................................... 200 (1,180)
------- -------
Total stockholders' equity........................ 7,612 3,635
------- -------
Total liabilities and stockholders' equity........ $32,547 $28,053
======= =======
</TABLE>
See accompanying notes.
F-83
<PAGE> 182
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FOUR MONTH PERIODS ENDED APRIL 30, 1997 AND APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED FOUR MONTHS ENDED
APRIL 30, 1997 APRIL 30, 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................. $11,227 $6,906
Cost of sales............................................. 5,512 3,521
------- ------
Gross profit....................................... 5,715 3,385
------- ------
Operating expenses:
Depreciation and amortization........................... 808 597
Foreign taxes........................................... 180 117
Other selling, general and administrative expenses...... 1,821 1,472
------- ------
Total operating expenses........................... 2,809 2,186
------- ------
Operating income................................... 2,906 1,199
------- ------
Other income (expense):
Interest expense........................................ (754) (753)
Gain (loss) on disposition of assets.................... 439 (8)
Foreign currency exchange loss.......................... (6)
Other, net.............................................. (77) (22)
------- ------
Total other income (expense)....................... (398) (783)
------- ------
Income before income taxes................................ 2,508 416
Income tax provision...................................... 1,128 359
------- ------
Net income................................................ $ 1,380 $ 57
======= ======
</TABLE>
See accompanying notes.
F-84
<PAGE> 183
AIR DRILLING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTH PERIODS ENDED APRIL 30, 1997 AND APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED FOUR MONTHS ENDED
APRIL 30, 1997 APRIL 30, 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,380 $ 57
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 911 742
(Gain) loss on sale of assets.......................... (439) 8
Other.................................................. 6 (15)
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (3,099) (1,422)
Decrease in income tax refund receivable............... 27 --
Increase in other current assets....................... (281) (239)
Increase in deposits and other......................... (196) (68)
Decrease in accounts payable........................... (1,415) (388)
Decrease in accrued expenses........................... (892) (394)
Increase in income taxes payable....................... 1,135 358
-------- -------
Net cash used in operating activities................ (2,863) (1,361)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,602) (823)
Proceeds on sale of assets................................ 583 153
Purchase of materials and supplies inventory.............. (579) (276)
-------- -------
Net cash used in investing activities................ (1,598) (946)
-------- -------
Cash flows from financing activities:
Net borrowings under Revolving Note....................... 440 1,950
Principal payments on term loan and capital leases........ (10,393) (415)
Proceeds from loans and leases............................ 12,669 837
Proceeds from preferred stock issuance.................... 1,553 --
Debt issuance cost........................................ (421) --
-------- -------
Net cash provided by financing activities............ 3,848 2,372
-------- -------
Increase(decrease) in cash.................................. (613) 65
Cash, beginning of period................................... 295 --
-------- -------
Cash, end of period......................................... $ (318) $ 65
======== =======
</TABLE>
See accompanying notes.
F-85
<PAGE> 184
AIR DRILLING INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of Air Drilling International, Inc. ("ADI") and its wholly owned
subsidiaries: Air Drilling Services, Inc., which includes Air Drilling Services
de Venezuela, C.A. ("ADS"), Air Drilling Services France (SARL) ("ADS France"),
Canadian Air Drilling Services Ltd. ("CADS") and Specialty Testing & Consulting
Ltd. ("Specialty"), collectively (the "Company"). ADS is located in the United
States. CADS and Specialty are located in Canada. All intercompany balances have
been eliminated. The financial statements have been prepared in accordance with
United States generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
four month period ended April 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
2. NOTES PAYABLE:
On December 31, 1996, the Company entered into a new debt agreement to
replace its existing Revolving Line and Term Notes. The new agreement provides
for a Reducing Term Note of $8.5 million, subordinated debt of $4.0 million and
the issuance of preferred stock for $1.5 million. The debt was funded on January
2, 1997 and the old Revolving Line and Term Notes were paid off. Because the
Company had a binding contract to repay the old debt at December 31, 1996, all
costs associated with the old debt were charged to operations during 1996. In
addition, the classification of debt between current and long-term at December
31, 1996 was based on the terms of the new debt. In connection with the
refinancing, ADI issued detachable warrants for up to 35% of the Company,
initially valued by management of $1.15 million.
The Company had notes payable at April 30, 1997 and December 31, 1996 that
consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
$5.0 million Revolving Line of Credit Agreement, maturing in
May 2000.................................................. $ -- $ 2,613
"A" and "B" Senior Term notes, initial principal of $11.0
million, maturing May 2000................................ -- 9,607
Mortgage payable, maturing December 2008.................... 88 90
Subordinated promissory note to prior management............ 750 750
Unsecured demand notes payable to certain stockholders of
Wind River
and ADI................................................... 1,376 1,376
Note payable to a financial institution in 36 installments
of $8,567 including principal and interest................ -- 186
$8.5 million Reducing Term Note............................. 8,120 --
$4.0 million Subordinated Note to Warrant Holder............ 4,000 --
$5.0 million Revolving Line of Credit....................... 3,052 --
------- -------
17,386 14,621
------- -------
Less current portion of long-term debt...................... (1,019) (913)
------- -------
Notes payable, net of current maturities.................... $16,367 $13,708
======= =======
</TABLE>
3. SUBSEQUENT EVENT:
On June 20, 1997, the Company completed the sale of its stock to Dailey
Petroleum Services Corp. for $46.4 million, including the repayment of
approximately $16.8 million in indebtedness.
F-86
<PAGE> 185
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Directional Wireline Services, Inc.,
DAMCO Services, Inc. and DAMCO Tong Services, Inc.
We have audited the accompanying combined balance sheets of Directional
Wireline Services, Inc., DAMCO Services, Inc. and DAMCO Tong Services, Inc.
(collectively, "DWS/DAMCO" -- see Note 1) as of September 30, 1997 and December
31, 1996, and the related combined statements of operations, shareholders'
equity, and cash flows for the nine-month period ended September 30, 1997 and
the years ended December 31, 1996 and 1995. These financial statements are the
responsibility of DWS/DAMCO's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position at September 30, 1997
and December 31, 1996 of DWS/DAMCO, and the combined results of their operations
and their cash flows for the nine-month period ended September 30, 1997 and the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
January 16, 1998
except for Note 1 as to which the date is January 28, 1998
F-87
<PAGE> 186
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,679,231 $ 141,318
Accounts receivable, less allowance ($110,134 in 1997 and
$120,383 in 1996)...................................... 6,843,469 8,691,374
Consumable supplies inventories........................... 2,407,074 2,230,302
Prepaid expenses and other assets......................... 572,370 293,164
----------- -----------
Total current assets.............................. 12,502,144 11,356,158
Property, plant and equipment:
Land...................................................... 25,000 25,000
Building and improvements................................. 358,488 358,488
Furniture and fixtures.................................... 63,421 40,696
Revenue producing tools................................... 16,569,370 15,825,158
Vehicles.................................................. 2,614,448 2,489,938
----------- -----------
19,630,727 18,739,280
Less accumulated depreciation............................... 15,301,746 14,622,987
----------- -----------
4,328,981 4,116,293
Deposits and other.......................................... 168,484 116,426
----------- -----------
Total assets...................................... $16,999,609 $15,588,877
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,178,114 $ 1,152,930
Current portion of notes payable to affiliated
companies.............................................. 128,963 203,917
Current portion of other notes payable.................... 213,992 183,988
Current portion of capital lease obligations.............. 14,077 --
----------- -----------
Total current liabilities......................... 1,535,146 1,540,835
Noncurrent portion of notes payable to affiliated
companies................................................. 77,028 184,728
Noncurrent portion of other notes payable................... 251,619 174,024
Long-term portion of capital lease obligation............... 64,046 --
Postretirement benefit obligations.......................... 86,369 88,761
Shareholders' equity:
Common stock, no par value:
Authorized shares -- 21,000 issued and outstanding
shares: 4,012 at September 30, 1997 and December 31,
1996.................................................. 498,828 498,828
Retained earnings......................................... 14,506,862 13,121,990
----------- -----------
15,005,690 13,620,818
Less common stock in treasury at cost -- 15 shares at
September 30, 1997 and December 31, 1996.................. 20,289 20,289
----------- -----------
Total shareholders' equity........................ 14,985,401 13,600,529
----------- -----------
Total liabilities and shareholders' equity........ $16,999,609 $15,588,877
=========== ===========
</TABLE>
See accompanying notes.
F-88
<PAGE> 187
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Service revenue..................................... $22,966,447 $26,284,671 $18,622,314
Costs and operating expenses........................ 8,007,225 9,318,652 9,755,257
Depreciation........................................ 829,061 1,020,672 898,320
General and administrative and indirect operating
expenses.......................................... 6,201,401 8,115,415 5,108,062
Non-cash compensation............................... -- 17,288 2,038,421
Selling and marketing expenses...................... 577,783 639,216 661,320
----------- ----------- -----------
15,615,470 19,111,243 18,461,380
----------- ----------- -----------
7,350,977 7,173,428 160,934
Other income (expense):
Settlement of shareholder litigation.............. -- -- (482,660)
Settlement of royalty agreement................... (234,507) -- --
Interest expense.................................. (51,641) (69,708) (63,610)
Gain (loss) on disposal of assets................. -- 34,633 (44,189)
Interest and other income......................... 320,043 97,601 212,663
----------- ----------- -----------
33,895 62,526 (377,796)
----------- ----------- -----------
Net income (loss)......................... $ 7,384,872 $ 7,235,954 $ (216,862)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-89
<PAGE> 188
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON TREASURY RETAINED
STOCK STOCK EARNINGS TOTAL
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............... $449,325 $ (3,000) $11,202,898 $11,649,223
Net loss................................. -- -- (216,862) (216,862)
Purchase of treasury stock............... -- (2,023,495) -- (2,023,495)
Issuance of treasury stock............... -- 1,988,918 -- 1,988,918
Issuance of capital stock................ 49,503 -- -- 49,503
-------- ----------- ----------- -----------
Balance at December 31, 1995............... 498,828 (37,577) 10,986,036 11,447,287
Net income............................... -- -- 7,235,954 7,235,954
Distributions to shareholders............ -- -- (5,100,000) (5,100,000)
Issuance of treasury stock............... -- 17,288 -- 17,288
-------- ----------- ----------- -----------
Balance at December 31, 1996............... 498,828 (20,289) 13,121,990 13,600,529
Net income............................... -- -- 7,384,872 7,384,872
Distributions to shareholders............ -- -- (6,000,000) (6,000,000)
-------- ----------- ----------- -----------
Balance at September 30, 1997.............. $498,828 $ (20,289) $14,506,862 $14,985,401
======== =========== =========== ===========
</TABLE>
See accompanying notes.
F-90
<PAGE> 189
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................... $ 7,384,872 $ 7,235,954 $ (216,862)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... 829,061 1,020,672 898,320
Non-cash compensation expense..................... -- 17,288 2,038,421
Provision for doubtful accounts................... 49,471 76,359 56,723
(Gain) loss on disposal of assets................. -- (34,633) 44,189
Changes in operating assets and liabilities:
Consumable supplies inventories................ (176,772) (334,489) (358,887)
Accounts receivable............................ 1,798,434 (4,080,176) (1,256,092)
Prepaid expenses and other assets.............. (279,206) 158,693 (98,073)
Deposits and other assets...................... (52,058) (21,463) (4,895)
Accounts payable and accrued expenses.......... 25,184 277,540 (18,780)
Accrued post-retirement benefit cost........... (2,392) (3,300) (3,070)
----------- ----------- -----------
Net cash provided by operating activities........... 9,576,594 4,312,445 1,080,994
INVESTING ACTIVITIES
Proceeds from disposal of assets.................... 64,929 136,939 36,697
Purchases of plant and equipment.................... (743,119) (1,145,464) (1,063,856)
----------- ----------- -----------
Net cash used in investing activities............... (678,190) (1,008,525) (1,027,159)
FINANCING ACTIVITIES
Purchases of treasury stock......................... -- -- (2,023,495)
Principal payments on notes payable and capital
lease obligations................................. (360,491) (321,372) (334,259)
Distributions to shareholders....................... (6,000,000) (5,100,000) --
----------- ----------- -----------
Net cash provided by (used in) financing
activities........................................ (6,360,491) (5,421,372) (2,357,754)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 2,537,913 (2,117,452) (2,303,919)
Cash and cash equivalents at beginning of year...... 141,318 2,258,770 4,562,689
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 2,679,231 $ 141,318 $ 2,258,770
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid....................................... $ 51,641 $ 69,708 $ 63,610
=========== =========== ===========
SUPPLEMENTAL NONCASH ACTIVITIES ARISING FROM
INVESTING AND FINANCING ACTIVITIES
Financing of equipment purchases with notes payable
and capital lease obligations..................... $ 363,559 $ 629,104 $ 337,399
=========== =========== ===========
</TABLE>
See accompanying notes.
F-91
<PAGE> 190
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts of Directional
Wireline Services, Inc. ("DWS"), DAMCO Services, Inc. and DAMCO Tong Services,
Inc., hereinafter collectively referred to as "DWS/DAMCO". All significant
intercompany transactions and balances have been eliminated in the combined
financial statements.
DAMCO Services, Inc. was organized in 1968 and began operations in 1969 as
DAMCO Testers, Inc. In 1980, this company was reorganized and, in 1992, its name
was formally changed to DAMCO Services, Inc. DAMCO Tong Services, Inc. began
operations in 1982. DWS was founded in 1973 and also reorganized in 1980.
DWS/DAMCO are under common ownership control and management.
In November 1997, DWS/DAMCO entered into an agreement with Dailey to sell
the operating assets and liabilities of DWS/DAMCO. On January 28, 1998, the
operating assets and liabilities of DWS/DAMCO were acquired for approximately
$61 million in cash by Dailey, subject to a working capital adjustment.
DWS/DAMCO are leading providers of electric wireline and tubing conveyed
perforating services and tubular testing and handling services to the offshore
and onshore oil and gas industry in the U.S. Gulf of Mexico region and Nigeria.
The electric wireline services are utilized in both the exploration and
production phases of an oil and gas well and include pipe recovery, cased hole
logging, electric line perforating services and other cased hole services such
as installation of bridge plugs, packers, retainers, pressure control equipment
and thru-tubing bridge plugs. The tubular testing services consist of
hydrostatic and gas pressure testing services that detect leaks and flaws in
tubulars as they are run into the wellbore. The tubular handling services
include assembling production pipe and tubing, dual completion strings, premium
threaded connections and ultra-high torque tubulars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
DWS/DAMCO consider all investments with a maturity of three months or less
when purchased to be cash and cash equivalents.
Consumable Supplies Inventories
Consumable supplies inventories, consisting primarily of engineering
supplies and explosives, are valued using the first-in, first-out method and are
carried at the lower of cost or market.
Revenue-Producing Tools and Property and Equipment
Revenue-producing tools and property and equipment are stated at cost.
Depreciation is calculated on the straight-line method over the estimated useful
lives of less than 39 years for buildings and improvements, three to five years
for furniture and fixtures, seven years for revenue-producing tools and five
years for vehicles. Maintenance and repairs are charged to expense as incurred.
Major repairs and improvements are capitalized and depreciated. The cost and
accumulated depreciation of property and equipment retired or otherwise disposed
of are removed from the related accounts. Tools manufactured and assembled are
transferred to
F-92
<PAGE> 191
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
revenue-producing tools as completed at the total cost of components,
subassemblies, expendable parts, direct labor costs of each tool.
Impairment of Long-Lived Assets
The carrying value of long-lived assets, principally revenue-producing
tools and property and equipment, is reviewed for potential impairment when
events or changes indicate that the carrying amount of such assets may not be
recoverable. The determination of recoverability is made based upon the
estimated undiscounted future net cash flows of the related asset.
Revenue Recognition
Revenue is recognized as services are performed or equipment is provided in
accordance with contractual provisions.
Foreign Currency Translation
The U.S. dollar is the functional currency for all operations. Accordingly,
foreign currency translation gains and losses are recognized in the combined
statement of operations. Such gains and losses were not significant for any of
the periods presented. DWS/DAMCO do not enter into any transactions with
derivative instruments.
Income Taxes
DWS/DAMCO have elected S corporation status for federal and state income
tax purposes; accordingly, income taxes are the responsibility of the
shareholders of DWS/DAMCO.
3. NOTES PAYABLE
Notes Payable to Affiliated Companies
Notes payable to affiliated companies consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Various automotive notes payable maturing through November
1999, interest payable monthly at fixed rates ranging from
11.80% to 13.95%.......................................... $205,991 $313,645
Other....................................................... -- 75,000
-------- --------
205,991 388,645
Less current maturities..................................... 128,963 203,917
-------- --------
$ 77,028 $184,728
======== ========
</TABLE>
Automotive notes payable are secured by the related vehicles. The other
note payable to an affiliated company was paid in January 1997.
F-93
<PAGE> 192
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE -- (CONTINUED)
Other Notes Payable
Other notes payable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Various automotive notes payable maturing through October
2000, interest payable monthly at fixed rates ranging from
5.9% to 12.95%............................................ $439,798 $343,235
Other equipment notes maturing through February 1999 from
6.22% to 10%.............................................. 25,813 14,777
-------- --------
465,611 358,012
Less current maturities..................................... 213,992 183,988
-------- --------
$251,619 $174,024
======== ========
</TABLE>
Automotive notes payable and other equipment notes are secured by the
related vehicle or equipment.
The scheduled principal payments of notes payable to affiliated companies
and other notes payable for each of the next three years as of September 30 are
as follows:
<TABLE>
<S> <C>
1998...................................................... $342,955
1999...................................................... 253,613
2000...................................................... 75,034
--------
$671,602
========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
DWS/DAMCO are party to legal proceedings arising in the ordinary course of
business. It is the opinion of management that the outcome of these matters will
not have a material adverse effect on DWS/DAMCO's financial position or results
of operations.
DWS/DAMCO lease certain facilities and office space under noncancelable
operating leases from third parties and from an affiliated company which is
owned by the majority shareholder.
Future minimum payments under all noncancelable operating leases (including
those with the affiliated company) with initial or remaining terms in excess of
one year as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998...................................................... $157,500
1999...................................................... 157,500
2000...................................................... 157,500
2001...................................................... 36,300
2002...................................................... 4,800
--------
$513,600
========
</TABLE>
General and administrative and indirect operating expenses included rental
expense of $189,000, $262,000 and $217,000 in 1997, 1996 and 1995, respectively,
including $76,950, $92,000 and $69,000, respectively, of rent expense recognized
under lease agreements with an affiliated company owned by the majority
shareholder.
F-94
<PAGE> 193
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
In 1997, DWS/DAMCO entered into various capital lease arrangements to
acquire equipment. At September 30, 1997, equipment under capital lease, at
cost, was $81,556. Future minimum lease payments for capital leases at September
30, 1997 were as follows:
<TABLE>
<S> <C>
1998........................................................ $20,124
1999........................................................ 20,124
2000........................................................ 20,124
2001........................................................ 20,124
2002........................................................ 14,641
-------
Total minimum lease payments................................ 95,137
Less amount representing interest........................... 17,014
-------
Present value of net minimum lease payments
(including current portion of $14,077).................... $78,123
=======
</TABLE>
5. SETTLEMENT OF SHAREHOLDER LITIGATION
Effective January 1, 1995, DWS/DAMCO settled litigation with the spouse of
a deceased shareholder by making a cash payment of $482,660 and repurchasing the
deceased shareholder's stock for an additional $1,954,340. Also in 1995,
unrelated to the shareholder litigation, DWS/DAMCO repurchased additional
outstanding shares for $69,155. The treasury stock resulting from these
transactions, together with previously unissued stock, was thereafter awarded as
stock bonuses, which were recorded as $2,038,421 of non-cash compensation
expense in 1995.
6. RELATED PARTY TRANSACTIONS
Management fees for certain accounting and administrative services are paid
to an affiliated company owned by the majority shareholder. DWS/DAMCO paid
management fees totaling $122,389 for the nine-month period ended September 30,
1997, and $150,000 for each of the fiscal years ended December 31, 1996 and
1995, which management believes reasonably approximates the value of the related
services rendered.
DWS/DAMCO purchased vehicles from an affiliated company owned by the
majority shareholder. Purchases totaled $334,205 for the nine-month period ended
September 30, 1997 and $368,948 and $381,155 for the fiscal years ended December
31, 1996 and 1995, respectively. In addition, DWS/DAMCO are parties to lease
agreements with an affiliated company as previously described.
In 1991, DWS was assigned all rights, title, and interest in a patent
developed by a shareholder. In exchange for the assignment of the patent, DWS
was required to pay to a company under common ownership of DWS 35% of the
revenues attributable to the actual use of the patent. For the fiscal years
ended December 31, 1996 and 1995, DWS recorded royalty fees totaling $101,955
and $155,780, respectively. In January 1997, DWS paid $350,000, including
$115,437 of accrued royalty fees at December 31, 1996, to settle the royalty
agreement.
7. EMPLOYEE BENEFITS
Profit Sharing Plan
Substantially all employees with one year of service with DWS/DAMCO and who
have worked at least 1,000 hours during the year are eligible to participate in
DWS/DAMCO's defined contribution profit sharing plans. Participants may
contribute up to 5% of their annual compensation for which DWS/DAMCO match
F-95
<PAGE> 194
DIRECTIONAL WIRELINE SERVICES, INC., DAMCO SERVICES, INC.
AND DAMCO TONG SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE BENEFITS -- (CONTINUED)
the contribution 100%. Benefit costs recognized as expense under these plans
were $225,404 for the nine-month period ended September 30, 1997, and $248,706
and $197,480 for the fiscal years ended December 31, 1996 and 1995,
respectively.
Postretirement Health Care Benefits
DSI offers postretirement health care benefits to two retired employees and
their spouses. This plan does not cover any active personnel or other retirees.
At September 30, 1997 and December 31, 1996, the accrued postretirement benefit
costs included accumulated postretirement benefit obligations for retirees of
$86,369 and $88,761, respectively. For the nine months ending September 30, 1997
and fiscal years ending December 31, 1996 and 1995, net periodic postretirement
benefit costs included interest costs of $4,776, $6,584, and $6,815,
respectively.
The postretirement health care benefits consist solely of the payment of
supplemental medical insurance. For measurement purposes, contractual payments
for these health care benefits were used to determine net periodic
postretirement benefit costs.
8. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL INSTRUMENTS
DWS/DAMCO are subject to credit risk and other risks inherent in
international operations. Substantially all of DWS/DAMCO accounts receivable are
due from oil and gas exploration companies and drilling contractors located
primarily in south Texas and the Gulf of Mexico. DWS/DAMCO perform periodic
credit evaluations of their customers' financial condition and generally do not
require collateral.
The following methods and assumptions were used by DWS/DAMCO in estimating
their fair value disclosures for financial instruments.
Cash and Cash Equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Notes Payable to Affiliated Companies and Other Notes Payable: The
carrying amount of the Combined Entities' borrowings under these notes
approximates fair value as all note terms are within 36 months.
F-96
<PAGE> 195
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME AND ANY SALE MADE HEREUNDER DOES NOT IMPLY THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS $275,000,000
<TABLE>
<CAPTION>
PAGE [DAILEY LOGO]
----
<S> <C>
Available Information.................. iii
Disclosure Regarding Forward-Looking 9 1/2% SENIOR NOTES
Statements........................... iv DUE 2008, SERIES B
Prospectus Summary..................... 1
Risk Factors........................... 11
The Exchange Offer..................... 18
The Company............................ 26 PROSPECTUS
Use of Proceeds........................ 26
Capitalization......................... 28
Unaudited Pro Forma Combined Financial
Statements........................... 29 , 1998
Selected Consolidated Financial Data... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 37
Business and Properties................ 45
Management............................. 52
Certain Relationships and Related
Transactions......................... 58
Security Ownership of Management and
Principal Stockholder................ 60
Description of the Exchange Notes...... 61
Certain United States Federal Tax
Considerations....................... 89
Plan of Distribution................... 90
Legal Matters.......................... 91
Experts................................ 91
Index to Financial Statements.......... F-1
</TABLE>
<PAGE> 196
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment of
a dividend or an improper stock repurchase or redemption or any transaction from
which the director derived an improper personal benefit. The Company's Restated
Certificate of Incorporation provides that the Company's directors are not
liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duty, subject to the described exceptions specified by Delaware
law.
Section 145 of the General Corporation Law of the State of Delaware grants
to the Company the authority to indemnify each officer and director of the
Company against liabilities and expenses incurred by reason of the fact that he
is or was an officer or director of the Company if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The determination as to
whether a person seeking indemnification has met the required standard of
conduct is to be made (i) by a majority vote of a quorum of disinterested
members of the board of directors, or (ii) by independent legal counsel in a
written opinion, if such quorum does not exist or if the disinterested directors
so direct, or (iii) by the stockholders. The Bylaws provided for indemnification
of each officer and director of the Company to the fullest extent permitted by
Delaware law.
In a suit brought to obtain a judgment in the corporation's favor, whether
by the Company itself or derivatively by a stockholder, Section 145 of the
General Corporation Law of the State of Delaware only allows the Company to
indemnify for expenses, including attorney's fees, actually and reasonably
incurred in connection with the defense or settlement of the case, and the
Company may not indemnify for amounts paid in satisfaction of a judgment or in
settlement of the claim. In any such action, no indemnification may be paid in
respect of any claim, issue or matter as to which such persons shall have been
adjudged liable to the Company as otherwise approved by the Delaware Court of
Chancery or the court in which the claim was brought. According to the statute,
in any other type of proceeding, the indemnification may extend to judgments,
fines and amounts paid in settlement, actually and reasonably incurred in
connection with such other proceeding, as well as to expenses (including
attorneys' fees).
Section 145 of the General Corporation Law of the State of Delaware also
allows the Company to purchase and maintain insurance on behalf of any person
who is or was an officer or director of the Company against liability asserted
against or incurred by him in any such capacity, whether or not the Company
would have the authority to indemnify such officer or director against such
liability under the provisions of Section 145. The Company has purchased and
maintains a directors' and officers' liability policy for such purposes.
The Company's Bylaws provided for the indemnification of its officers and
directors and the advancement to them of expenses in connection with proceedings
and claims, to the fullest extent permitted under the General Corporation Law of
the State of Delaware. Such indemnification may be made even though directors
and officers wold not otherwise be entitled to indemnification under other
provisions by the Bylaws.
The above discussion of the General Corporation Law of the State of
Delaware and of the Certificate of Incorporation and Bylaws is not intended to
be exhaustive and is qualified in its entirety by such statute and the Restated
Certificate of Incorporation and Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrants
pursuant to the foregoing provisions, the Registrants have been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore is unenforceable.
II-1
<PAGE> 197
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*3.1 -- Restated Certificate of Incorporation.
*3.2 -- Restated Bylaws of the Company.
3.3 -- Amendment to Restated Certificate of Incorporation dated
October 7, 1997.
4.1 -- Form of Class A Common Stock Certificate.
4.2 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Restated Certificate of Incorporation and Restated Bylaws
of the Company defining the rights of the holders of
Class A Common Stock.
4.3 -- Indenture Dated February 13, 1998, by and between the
Company, the Subsidiary Guarantors and the U.S. Trust
Company of Texas, N.A. relating to the Company's 9 1/2%
Senior Notes Due 2008.
4.4 -- Form of Note for the Company's Senior Notes Due 2008.
4.5 -- Registration Rights Agreement dated February 13, 1998
relating to the Outstanding Notes.
4.6 -- See Exhibits 10.1 through 10.16 for additional
instruments defining the rights of holders of long-term
debt of the Company and its Subsidiaries.
5.1 -- Opinion of Fulbright & Jaworski L.L.P.
5.2 -- Opinion of Brown, Drew, Massey & Sullivan.
*10.1 -- Relationship Agreement by and between the Company and
Lawrence Industries, Inc.
*10.2 -- Office Lease Agreement by and between the Company as
lessee and Lawrence International, Inc. as lessor.
*10.3 -- Registration Rights Agreement by and between the Company
and Lawrence Industries, Inc.
+*10.4 -- Dailey Petroleum Services Corp. 1996 Key Employee Stock
Plan.
+*10.5 -- Dailey Petroleum Services Corp. 1996 Non-Employee
Director Stock Option Plan.
*10.6 -- Tax Allocation Agreement by and between the Company and
Lawrence Industries, Inc.
*10.7 -- Form of Indemnification Agreement between the Company and
its directors.
*10.8 -- Form of Indemnification Agreement between the Company and
its executive officers.
**10.9 -- Stock Purchase and Sale Agreement dated May 8, 1997 (the
"Stock Purchase Agreement"), by and among the Company,
ADI, the Shareholders of ADI, and the Preferred
Shareholders of Air Drilling Services, Inc.
**10.10 -- First Amendment to Stock Purchase Agreement dated May 30,
1997, by and among the Company, ADI, the Shareholders of
ADI, and the Preferred Shareholders of Air Drilling
Services, Inc.
**10.11 -- Escrow Agreement dated June 20, 1997, by and among the
Company, the Shareholders and Warrantholders of ADI (the
"Shareholders"), and U.S. Trust Company of Texas, N.A.
(the "Escrow Agent").
***10.12 -- Asset Purchase Agreement dated effective as of November
30, 1997 (the "Asset Purchase Agreement"), by and among
the Company, DWS/DAMCO and the shareholders of each of
DWS, DSI and DTSI.
</TABLE>
II-2
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
******10.13 -- Escrow Agreement dated January 28, 1998, by and among the
Company, DWS, DSI, DTSI, the Shareholder Representatives,
and U.S. Trust Company of Texas, National Association
(the "Escrow Agent").
**10.14 -- Third Amended and Restated Loan Agreement dated June 20,
1997 (the "Loan Agreement"), by and between the Company,
the financial institutions from time to time a party
thereto, and Wells Fargo Bank (Texas), National
Association, as Agent.
10.15 -- First Amendment to the Loan Agreement dated January 28,
1998, by and between the Company, the financial
institutions from time to time a party thereto, and Wells
Fargo Bank (Texas), National Association, as Agent.
**10.16 -- Third Amended and Restated Commercial Security Agreement
dated June 20, 1997, between Wells Fargo Bank (Texas),
National Association, as Agent, the Banks from time to
time a party to the Loan Agreement and the Company.
**10.17 -- Form of Guaranty Agreement dated June 20, 1997 between
Wells Fargo Bank (Texas), National Association, as Agent,
the Banks from time to time a party to the Loan Agreement
and each of the following subsidiaries of the Company:
Dailey Energy Services, Inc., Dailey Petroleum Sales
Corp., International Petroleum Sales Corp., Columbia
Petroleum Services Corp., Dailey Worldwide Services,
Corp., Dailey Environmental Remediation and Technologies,
Inc., Air Drilling International, Inc., and Air Drilling
Services, Inc.
**10.18 -- Form of Security Pledge Agreement dated June 20, 1997,
between Wells Fargo Bank (Texas), National Association,
as Agent, the Banks from time to time a party to the Loan
Agreement and each of the following: the Company; Air
Drilling International, Inc., and Air Drilling Services,
Inc.
**10.19 -- Form of Subsidiary Commercial Security Agreement dated
June 20, 1997, between Wells Fargo Bank (Texas) National
Association, as Agent, the Banks from time to time a
party to the Loan Agreement and each of the following
subsidiaries of the Company: Dailey Energy Services,
Inc., Dailey Petroleum Sales Corp., International
Petroleum Sales Corp., Columbia Petroleum Services Corp.,
Dailey Worldwide Services, Corp., Dailey Environmental
Remediation and Technologies, Inc., Air Drilling
International, Inc., and Air Drilling Services Inc.
+10.20 -- Amended Employment Agreement between the Company and
James F. Farr dated December 31, 1997.
+10.21 -- Amended Employment Agreement between the Company and
William D. Sutton dated December 31, 1997.
+10.22 -- Amended Employment Agreement between the Company and
David T. Tighe dated December 31, 1997.
+****10.23 -- Employment Agreement between the Company and J.D.
Lawrence dated November 27, 1996.
****10.24 -- $250,000 Promissory Note dated January 16, 1997, from
James F. Farr in favor of the Company.
****10.25 -- Security Agreement dated January 16, 1997, between the
Company and James F. Farr.
+*****10.26 -- Stock Option Agreement between the Company and Al Kite
dated April 23, 1997.
+*****10.27 -- Stock Option Agreement between the Company and Bernard
Duroc-Danner dated April 23, 1997.
+10.28 -- 1997 Long-Term Incentive Plan.
</TABLE>
II-3
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
12.1 -- Calculation of earnings to fixed charges.
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
23.4 -- Consent of Brown, Drew, Massey & Sullivan (included in
Exhibit 5.2).
25.1 -- Statement regarding eligibility of trustee.
***27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
</TABLE>
- ---------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 333-04593)
** Incorporated by reference from the Company's current Report on Form 8-K
dated June 20, 1997
*** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the three months ended October 31, 1997
**** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the three months ended January 31, 1997
***** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended April 30, 1997
****** Incorporated by reference from the Company's current Report on Form 8-K
dated January 28, 1998
+ Management Contract
(b) Financial Statement Schedules:
The following financial statement schedule is included in Part II of this
Registration Statement, can be found on the page indicated and should be read in
conjunction with the financial statements and notes thereto:
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
Report of Independent Auditors on Schedule.................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>
All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are omitted because they are
not required under the related instructions, are inapplicable or the required
information is included elsewhere in the financial statements.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4 within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II-4
<PAGE> 200
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 201
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
DAILEY INTERNATIONAL INC.
By: /s/ JAMES F. FARR
------------------------------------
James F. Farr
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. D. LAWRENCE Chairman of the Board and March 4, 1998
- ----------------------------------------------------- Director
J. D. Lawrence
/s/ JAMES F. FARR President and Chief Executive March 4, 1998
- ----------------------------------------------------- Officer and Director
James F. Farr (Principal Executive
Officer)
/s/ WILLIAM D. SUTTON Senior Vice President, March 4, 1998
- ----------------------------------------------------- General Counsel, Corporate
William D. Sutton Secretary and Director
/s/ DAVID T. TIGHE Senior Vice President, Chief March 4, 1998
- ----------------------------------------------------- Financial Officer and
David T. Tighe Director (Principal
Financial and Accounting
Officer)
/s/ BERNARD J. DUROC-DANNER Director March 4, 1998
- -----------------------------------------------------
Bernard J. Duroc-Danner
/s/ AL KITE Director March 4, 1998
- -----------------------------------------------------
Al Kite
</TABLE>
II-6
<PAGE> 202
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
DAILEY ENERGY SERVICES, INC.
By: /s/ JAMES F. FARR
----------------------------------
James F. Farr
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM G. BARCLAY Director March 4, 1998
- -----------------------------------------------------
William G. Barclay
/s/ JAMES F. FARR President and Director March 4, 1998
- ----------------------------------------------------- (Principal Executive
James F. Farr Officer)
/s/ DAVID T. TIGHE Vice President (Principal March 4, 1998
- ----------------------------------------------------- Financial and Accounting
David T. Tighe Officer)
</TABLE>
II-7
<PAGE> 203
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
DAILEY INTERNATIONAL SALES
CORPORATION
By: /s/ JAMES F. FARR
----------------------------------
James F. Farr
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR President and Sole Director March 4, 1998
- ----------------------------------------------------- (Principal Executive
James F. Farr Officer)
/s/ DAVID T. TIGHE Vice President (Principal March 4, 1998
- ----------------------------------------------------- Financial and Accounting
David T. Tighe Officer)
</TABLE>
II-8
<PAGE> 204
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
COLUMBIA PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
------------------------------------
James F. Farr
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR President and Sole Director March 4, 1998
- ----------------------------------------------------- (Principal Executive
James F. Farr Officer)
/s/ DAVID T. TIGHE Vice President (Chief March 4, 1998
- ----------------------------------------------------- Financial and Accounting
David T. Tighe Officer)
</TABLE>
II-9
<PAGE> 205
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
INTERNATIONAL PETROLEUM
SERVICES, INC.
By: /s/ JAMES F. FARR
----------------------------------
James F. Farr
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR President and Sole Director March 4, 1998
- ----------------------------------------------------- (Principal Executive
James F. Farr Officer)
/s/ DAVID T. TIGHE Vice President (Principal March 4, 1998
- ----------------------------------------------------- Accounting Officer)
David T. Tighe
</TABLE>
II-10
<PAGE> 206
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
DAILEY ENVIRONMENTAL
REMEDIATION TECHNOLOGIES, INC.
By: /s/ JAMES F. FARR
----------------------------------
James F. Farr
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR President and Sole Director March 4, 1998
- ----------------------------------------------------- (Principal Executive
James F. Farr Officer)
/s/ DAVID T. TIGHE Vice President and Treasurer March 4, 1998
- ----------------------------------------------------- (Principal Financial and
David T. Tighe Accounting Officer)
</TABLE>
II-11
<PAGE> 207
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
DAILEY WORLDWIDE SERVICES, CORP.
By: /s/ JAMES F. FARR
----------------------------------
James F. Farr
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR President and Sole Director March 4, 1998
- ----------------------------------------------------- (Principal Executive
James F. Farr Officer)
/s/ DAVID T. TIGHE Vice President and Treasurer March 4, 1998
- ----------------------------------------------------- (Principal Financial and
David T. Tighe Accounting Officer)
</TABLE>
II-12
<PAGE> 208
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
AIR DRILLING INTERNATIONAL, INC.
By: /s/ CHAMAN MALHOTRA
----------------------------------
Chaman Malhotra
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR Director March 4, 1998
- -----------------------------------------------------
James F. Farr
/s/ WILLIAM D. SUTTON Director March 4, 1998
- -----------------------------------------------------
William D. Sutton
/s/ DAVID T. TIGHE Vice President and Director March 4, 1998
- -----------------------------------------------------
David T. Tighe
/s/ JAMES C. BRAME Vice President and Director March 4, 1998
- ----------------------------------------------------- (Principal Financial and
James C. Brame Accounting Officer)
/s/ CHAMAN MALHOTRA Chairman of the Board, March 4, 1998
- ----------------------------------------------------- President and Director
Chaman Malhotra (Principal Executive
Officer)
/s/ TOMMY D. RAMSAY Director March 4, 1998
- -----------------------------------------------------
Tommy D. Ramsay
</TABLE>
II-13
<PAGE> 209
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Farr and William D. Sutton, and each of
them, either one of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1998.
AIR DRILLING SERVICES, INC.
By: /s/ CHAMAN MALHOTRA
----------------------------------
Chaman Malhotra
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 4th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. FARR Director March 4, 1998
- -----------------------------------------------------
James F. Farr
/s/ JAMES C. BRAME Vice President, Treasurer and March 4, 1998
- ----------------------------------------------------- Director (Principal
James C. Brame Financial and Accounting
Officer)
/s/ CHAMAN MALHOTRA Chairman of the Board, March 4, 1998
- ----------------------------------------------------- President and Director
Chaman Malhotra (Principal Executive
Officer)
/s/ TOMMY D. RAMSAY Director March 4, 1998
- -----------------------------------------------------
Tommy D. Ramsay
</TABLE>
II-14
<PAGE> 210
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
To the Board of Directors and Stockholders
of Dailey International Inc.
We have audited the consolidated financial statements of Dailey
International Inc., as of April 30, 1997 and 1996, and for each of the three
years in the period ended April 30, 1997, and have issued our report thereon
dated June 27, 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 21(B) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
June 27, 1997
S-1
<PAGE> 211
DAILEY INTERNATIONAL INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended April 30,
1995 Allowance for Bad Debt $1,310,000 $321,000 0 $(275,000) $1,356,000
========== ======== == ========= ==========
Inventory Reserve $ 952,000 0 0 $ (60,000) $ 892,000
========== ======== == ========= ==========
Fiscal year ended April 30,
1996 Allowance for Bad Debt $1,356,000 $256,000 0 $(287,000) $1,325,000
========== ======== == ========= ==========
Inventory Reserve $ 892,000 0 0 $ (88,000) $ 804,000
========== ======== == ========= ==========
Fiscal year ended April 30,
1997 Allowance for Bad Debt $1,325,000 $305,000 0 $(154,000) $1,476,000
========== ======== == ========= ==========
Inventory Reserve $ 804,000 0 0 $(242,000) $ 562,000
========== ======== == ========= ==========
</TABLE>
S-2
<PAGE> 212
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*3.1 -- Restated Certificate of Incorporation.
*3.2 -- Restated Bylaws of the Company.
3.3 -- Amendment to Restated Certificate of Incorporation dated
October 7, 1997.
4.1 -- Form of Class A Common Stock Certificate.
4.2 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Restated Certificate of Incorporation and Restated Bylaws
of the Company defining the rights of the holders of
Class A Common Stock.
4.3 -- Indenture Dated February 13, 1998, by and between the
Company, the Subsidiary Guarantors and the U.S. Trust
Company of Texas, N.A. relating to the Company's 9 1/2%
Senior Notes Due 2008.
4.4 -- Form of Note for the Company's Senior Notes Due 2008.
4.5 -- Registration Rights Agreement dated February 13, 1998
relating to the Outstanding Notes.
4.6 -- See Exhibits 10.1 through 10.16 for additional
instruments defining the rights of holders of long-term
debt of the Company and its Subsidiaries.
5.1 -- Opinion of Fulbright & Jaworski L.L.P.
5.2 -- Opinion of Brown, Drew, Massey & Sullivan.
*10.1 -- Relationship Agreement by and between the Company and
Lawrence Industries, Inc.
*10.2 -- Office Lease Agreement by and between the Company as
lessee and Lawrence International, Inc. as lessor.
*10.3 -- Registration Rights Agreement by and between the Company
and Lawrence Industries, Inc.
+*10.4 -- Dailey Petroleum Services Corp. 1996 Key Employee Stock
Plan.
+*10.5 -- Dailey Petroleum Services Corp. 1996 Non-Employee
Director Stock Option Plan.
*10.6 -- Tax Allocation Agreement by and between the Company and
Lawrence Industries, Inc.
*10.7 -- Form of Indemnification Agreement between the Company and
its directors.
*10.8 -- Form of Indemnification Agreement between the Company and
its executive officers.
**10.9 -- Stock Purchase and Sale Agreement dated May 8, 1997 (the
"Stock Purchase Agreement"), by and among the Company,
ADI, the Shareholders of ADI, and the Preferred
Shareholders of Air Drilling Services, Inc.
**10.10 -- First Amendment to Stock Purchase Agreement dated May 30,
1997, by and among the Company, ADI, the Shareholders of
ADI, and the Preferred Shareholders of Air Drilling
Services, Inc.
**10.11 -- Escrow Agreement dated June 20, 1997, by and among the
Company, the Shareholders and Warrantholders of ADI (the
"Shareholders"), and U.S. Trust Company of Texas, N.A.
(the "Escrow Agent").
***10.12 -- Asset Purchase Agreement dated effective as of November
30, 1997 (the "Asset Purchase Agreement"), by and among
the Company, DWS/DAMCO and the shareholders of each of
DWS, DSI and DTSI.
</TABLE>
<PAGE> 213
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
******10.13 -- Escrow Agreement dated January 28, 1998, by and among the
Company, DWS, DSI, DTSI, the Shareholder Representatives,
and U.S. Trust Company of Texas, National Association
(the "Escrow Agent").
**10.14 -- Third Amended and Restated Loan Agreement dated June 20,
1997 (the "Loan Agreement"), by and between the Company,
the financial institutions from time to time a party
thereto, and Wells Fargo Bank (Texas), National
Association, as Agent.
10.15 -- First Amendment to the Loan Agreement dated January 28,
1998, by and between the Company, the financial
institutions from time to time a party thereto, and Wells
Fargo Bank (Texas), National Association, as Agent.
**10.16 -- Third Amended and Restated Commercial Security Agreement
dated June 20, 1997, between Wells Fargo Bank (Texas),
National Association, as Agent, the Banks from time to
time a party to the Loan Agreement and the Company.
**10.17 -- Form of Guaranty Agreement dated June 20, 1997 between
Wells Fargo Bank (Texas), National Association, as Agent,
the Banks from time to time a party to the Loan Agreement
and each of the following subsidiaries of the Company:
Dailey Energy Services, Inc., Dailey Petroleum Sales
Corp., International Petroleum Sales Corp., Columbia
Petroleum Services Corp., Dailey Worldwide Services,
Corp., Dailey Environmental Remediation and Technologies,
Inc., Air Drilling International, Inc., and Air Drilling
Services, Inc.
**10.18 -- Form of Security Pledge Agreement dated June 20, 1997,
between Wells Fargo Bank (Texas), National Association,
as Agent, the Banks from time to time a party to the Loan
Agreement and each of the following: the Company; Air
Drilling International, Inc., and Air Drilling Services,
Inc.
**10.19 -- Form of Subsidiary Commercial Security Agreement dated
June 20, 1997, between Wells Fargo Bank (Texas) National
Association, as Agent, the Banks from time to time a
party to the Loan Agreement and each of the following
subsidiaries of the Company: Dailey Energy Services,
Inc., Dailey Petroleum Sales Corp., International
Petroleum Sales Corp., Columbia Petroleum Services Corp.,
Dailey Worldwide Services, Corp., Dailey Environmental
Remediation and Technologies, Inc., Air Drilling
International, Inc., and Air Drilling Services, Inc.
+10.20 -- Amended Employment Agreement between the Company and
James F. Farr dated December 31, 1997.
+10.21 -- Amended Employment Agreement between the Company and
William D. Sutton dated December 31, 1997.
+10.22 -- Amended Employment Agreement between the Company and
David T. Tighe dated December 31, 1997.
+****10.23 -- Employment Agreement between the Company and J.D.
Lawrence dated November 27, 1996.
****10.24 -- $250,000 Promissory Note dated January 16, 1997, from
James F. Farr in favor of the Company.
****10.25 -- Security Agreement dated January 16, 1997, between the
Company and James F. Farr.
+*****10.26 -- Stock Option Agreement between the Company and Al Kite
dated April 23, 1997.
+*****10.27 -- Stock Option Agreement between the Company and Bernard
Duroc-Danner dated April 23, 1997.
+10.28 -- 1997 Long-Term Incentive Plan.
</TABLE>
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
12.1 -- Calculation of earnings to fixed charges.
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1).
23.4 -- Consent of Brown, Drew, Massey & Sullivan (included in
Exhibit 5.2).
25.1 -- Statement regarding eligibility of trustee.
***27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
</TABLE>
- ---------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 333-04593)
** Incorporated by reference from the Company's current Report on Form 8-K
dated June 20, 1997
*** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the three months ended October 31, 1997
**** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the three months ended January 31, 1997
***** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended April 30, 1997
****** Incorporated by reference from the Company's current Report on Form 8-K
dated January 28, 1998
+ Management Contract
<PAGE> 1
EXHIBIT 3.3
DAILEY INTERNATIONAL, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Dailey International, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation by
unanimous written consent dated October 6, 1997, unanimously adopted a
resolution proposing and adopting the following amendment to the
Certificate of Incorporation of the Corporation:
(a) That Article 1 of the Company's Certificate
of Incorporation, as amended, be amended and restated in its
entirety to read as follows:
ARTICLE 1
"The name of the Corporation is Dailey International
Inc."
SECOND: That by unanimous written consent, the sole
stockholder of the Company by unanimous written consent dated October
6, 1997, gave its approval to such amendment in accordance with the
provisions of Section 242 of the General Corporation Law of the State
of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 141, 228 and 242
of the General Corporation Law of the State of Delaware.
<PAGE> 2
IN WITNESS WHEREO, the Corporation has caused this Certificate to be
signed by its duly elected Secretary this 7th day of October, 1997.
DAILEY INTERNATIONAL, INC.
By: /s/ William D. Sutton
---------------------------------
William D. Sutton
Secretary
<PAGE> 1
STOCK CERTIFICATE
EXHIBIT 4.1
<TABLE>
<S> <C> <C> <C>
NUMBER [DAILEY INTERNATIONAL, INC. LOGO] SHARES
CUSIP 23380G 10 6
A
DAILEY INTERNATIONAL INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN DIRECTIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE, OF
DAILEY INTERNATIONAL INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of
its duly authorized officers and the facsimile seal to be affixed hereto.
Dated:
Countersigned and Registered:
American Stock Transfer and Trust Company
[DAILEY
INTERNATIONAL, /s/ WILLIAM D. SUTTON /s/ JAMES F. FARR
By INC., SEAL] Secretary President
Authorized Officer
</TABLE>
<PAGE> 2
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACT OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
in common Act _______________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
______________________________________________________________________________,
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated: ______________________
X_______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
X_______________________________________
________________________________________________
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER) WHICH IS
A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM ("STAMP"), THE NEW YORK STOCK
EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM
("MSP"), OR THE STOCK EXCHANGES MEDALLION
PROGRAM ("SEMP") AND MUST NOT BE DATED.
GUARANTEES BY A NOTARY PUBLIC ARE NOT
ACCEPTABLE.
________________________________________________
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
<PAGE> 1
EXHIBIT 4.3
================================================================================
DAILEY INTERNATIONAL INC.
AND
SUBSIDIARY GUARANTORS
INDENTURE
Dated as of February 13, 1998
U.S. TRUST COMPANY OF TEXAS, N.A.
Trustee
9 1/2% Senior Notes due 2008, Series A
9 1/2% Senior Notes due 2008, Series B
================================================================================
Dailey International Inc.: Indenture
Execution Copy
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . 7.08
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02;4.03; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . 2.10
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.02; 6.04; 9.02
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
318(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
- --------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference table shall not, for any purpose, be deemed to be
part of this Indenture.
Dailey International Inc.: Indenture
Execution Copy
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.02. OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . -18-
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT . . -18-
SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . -19-
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . -19-
SECTION 2.02. EXECUTION AND AUTHENTICATION . . . . . . . . . . . . -20-
SECTION 2.03. REGISTRAR AND PAYING AGENT . . . . . . . . . . . . . -21-
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . -22-
SECTION 2.05. HOLDER LISTS . . . . . . . . . . . . . . . . . . . . -22-
SECTION 2.06. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . -22-
SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES . . . . . -25-
SECTION 2.08. REPLACEMENT SECURITIES . . . . . . . . . . . . . . . -26-
SECTION 2.09. OUTSTANDING SECURITIES . . . . . . . . . . . . . . . -26-
SECTION 2.10. TREASURY SECURITIES . . . . . . . . . . . . . . . . . -26-
SECTION 2.11. TEMPORARY SECURITIES . . . . . . . . . . . . . . . . -27-
SECTION 2.12. CANCELLATION . . . . . . . . . . . . . . . . . . . . -27-
SECTION 2.13. DEFAULTED INTEREST . . . . . . . . . . . . . . . . . -27-
SECTION 2.14. PRIVATE PLACEMENT LEGEND . . . . . . . . . . . . . . -27-
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICE TO TRUSTEE . . . . . . . . . . . . . . . . . . -28-
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED . . . . . . . -28-
SECTION 3.03. NOTICE TO HOLDERS . . . . . . . . . . . . . . . . . . -28-
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . -29-
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . -29-
SECTION 3.06. SECURITIES REDEEMED IN PART . . . . . . . . . . . . . -29-
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . -30-
SECTION 4.02. SEC REPORTS . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 4.03. COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . -30-
SECTION 4.04. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . -31-
SECTION 4.05. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . -31-
SECTION 4.06. WAIVER OF STAY, EXTENSION OR USURY LAWS . . . . . . . -31-
SECTION 4.07. PAYMENT OF TAXES AND OTHER CLAIMS. . . . . . . . . . -32-
SECTION 4.08. MAINTENANCE OF PROPERTIES AND INSURANCE. . . . . . . -32-
</TABLE>
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<TABLE>
<S> <C>
SECTION 4.09. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. . -32-
SECTION 4.10. LIMITATION ON SUBORDINATED INDEBTEDNESS. . . . . . . -33-
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS. . . . . . . . . . -33-
SECTION 4.12. LIMITATION ON ASSETS SALES. . . . . . . . . . . . . . -34-
SECTION 4.13. LIMITATION ON LIENS SECURING INDEBTEDNESS. . . . . . -37-
SECTION 4.14. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . -38-
SECTION 4.15. LIMITATION ON TRANSACTIONS WITH RELATED PERSONS . . . -38-
SECTION 4.16. LIMITATION ON CONDUCT OF BUSINESS . . . . . . . . . . -39-
SECTION 4.17. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . -39-
SECTION 4.18. SALE-AND-LEASEBACK TRANSACTIONS . . . . . . . . . . . -41-
SECTION 4.19. ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . -41-
SECTION 4.20. REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . -41-
SECTION 4.21. QUALIFICATION OF INDENTURE . . . . . . . . . . . . . -41-
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC . . . . . . . . . . . . . -42-
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . -42-
ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . -43-
SECTION 6.02. ACCELERATION . . . . . . . . . . . . . . . . . . . . -44-
SECTION 6.03. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . -45-
SECTION 6.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . -45-
SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . -45-
SECTION 6.06. LIMITATION ON REMEDIES . . . . . . . . . . . . . . . -45-
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT . . . . . . . . -46-
SECTION 6.08. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . -46-
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . -46-
SECTION 6.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . -46-
SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . -47-
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . -47-
SECTION 7.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . -48-
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . -49-
SECTION 7.04. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . -49-
SECTION 7.05. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . -49-
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . -49-
SECTION 7.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . -49-
SECTION 7.08. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . -50-
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC . . . . . . . . . . -51-
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . -51-
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . -51-
</TABLE>
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<TABLE>
ARTICLE EIGHT
<S> DISCHARGE OF INDENTURE <C>
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS . . . . . . . . -51-
SECTION 8.02. APPLICATION OF TRUST MONEY . . . . . . . . . . . . . -53-
SECTION 8.03. REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . -53-
SECTION 8.04. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . -53-
SECTION 8.05. SURVIVAL OF CERTAIN OBLIGATIONS . . . . . . . . . . . -54-
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS . . . . . . . . . . . . . -54-
SECTION 9.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . -54-
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT . . . . . . . . . -55-
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . -55-
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . -56-
SECTION 9.06. TRUSTEE PROTECTED . . . . . . . . . . . . . . . . . . -56-
ARTICLE TEN
SUBSIDIARY GUARANTEES
SECTION 10.01. UNCONDITIONAL GUARANTEE . . . . . . . . . . . -56-
SECTION 10.02. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC.,
ON CERTAIN TERMS . . . . . . . . . . . . . . . -57-
SECTION 10.03. RELEASE OF A SUBSIDIARY GUARANTOR . . . . . . -58-
SECTION 10.04. LIMITATION OF SUBSIDIARY GUARANTOR'S
LIABILITY . . . . . . . . . . . . . . . . . . . -58-
SECTION 10.05. CONTRIBUTION . . . . . . . . . . . . . . . . . -59-
SECTION 10.06. EXECUTION AND DELIVERY OF SUBSIDIARY
GUARANTEE . . . . . . . . . . . . . . . . . . . -59-
SECTION 10.07. SEVERABILITY . . . . . . . . . . . . . . . . . -59-
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS . . . . . . . . . -59-
SECTION 11.02. NOTICES . . . . . . . . . . . . . . . . . . . -60-
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS . . -61-
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT . . . . . . . . . . . . . . . . . . . -61-
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . -61-
SECTION 11.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . -62-
SECTION 11.07. LEGAL HOLIDAYS . . . . . . . . . . . . . . . . -62-
SECTION 11.08. GOVERNING LAW . . . . . . . . . . . . . . . . -62-
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . -62-
SECTION 11.10. NO RECOURSE AGAINST OTHERS . . . . . . . . . . -62-
SECTION 11.11. SUCCESSORS . . . . . . . . . . . . . . . . . . -62-
SECTION 11.12. DUPLICATE ORIGINALS . . . . . . . . . . . . . -62-
SECTION 11.13. SEVERABILITY . . . . . . . . . . . . . . . . . -63-
SECTION 11.14. COUNTERPARTS . . . . . . . . . . . . . . . . . -63-
SIGNATURES
</TABLE>
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EXHIBITS AND ANNEXES
<TABLE>
<S> <C>
EXHIBIT A Form of Security . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT A-1 Form of Notation on Security Relating to Subsidiary
Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . A 1-1
EXHIBIT A-2 Form of Legend for Global Security . . . . . . . . . . . A-2-1
EXHIBIT B-1 Certificate to be Delivered upon Exchange or Registration
of Transfer of Securities . . . . . . . . . . . . . . . B-1-1
EXHIBIT B-2 Form of Certificate to be Delivered in Connection with
Transfers to Institutional Accredited Investors . . . . . B-2-1
EXHIBIT B-3 Form of Certificate to be Delivered in Connection with
Regulation S Transfers . . . . . . . . . . . . . . . . . B-3-1
ANNEX A Registration Rights Agreement . . . . . . . . . . . Annex 1 -1
</TABLE>
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INDENTURE, dated as of February 13, 1998, is among DAILEY INTERNATIONAL
INC., a Delaware corporation (the "Company"), the SUBSIDIARY GUARANTORS (as
defined hereinafter) and U.S. TRUST COMPANY OF TEXAS, N.A., as trustee (in such
capacity, the "Trustee").
The Company, the Subsidiary Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 9 1/2% Senior Notes due 2008, Series A (the "Series A
Securities") and the 9 1/2% Senior Notes due 2008, Series B (the "Series B
Securities", and together with the Series A Securities, the "Securities"),
without preference of one series of Securities over the other:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"1997 Indenture" means the indenture dated as of August 19, 1997, among
the Company, the Subsidiary Guarantors and the Trustee, and providing for the
issuance by the Company of senior notes in the aggregate principal amount of
$115,000,000 due 2007, as such indenture is amended, supplemented, modified and
in effect from time to time.
"1997 Guarantees" means the guarantees by the Subsidiary Guarantors of
the senior notes issued and to be issued by the Company pursuant to the 1997
Indenture.
"1997 Series A Notes" means the 9 3/4% senior notes due 2007, Series A,
issued by the Company and sold in transactions exempt from registration under
the Securities Act.
"1997 Series B Notes" means the 9 3/4% senior notes due 2007, Series B,
issued or to be issued by the Company in exchange for the 1997 Series A Notes
pursuant to the registration statement provided for in the 1997 Indenture, as
such registration statement is amended and in effect from time to time.
"Additional Interest" shall have the meaning ascribed to that term in
Section 4(a) of the Registration Rights Agreement.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the lesser of the amount by which (i) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date), but
excluding liabilities under the Subsidiary Guarantee, of such Subsidiary
Guarantor at such date and (ii) the present fair saleable value of the assets
of such Subsidiary Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Subsidiary Guarantor on its
debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary of such Subsidiary Guarantor in respect of the obligations of
such Subsidiary under the Subsidiary Guarantee), excluding debt in respect of
the Subsidiary Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
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"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset" means each of the assets that are owned by the Company or a
Subsidiary on the Issue Date or that are acquired by the Company or a
Subsidiary after the Issue Date.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
exchange or other disposition to any Person (including, without limitation, by
means of a sale-and-leaseback transaction or a merger of consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital
Stock of any Subsidiary held by the Company or any other Subsidiary, (ii) all
or substantially all of the properties and assets of any division or line of
business of the Company or any of its Subsidiaries or (iii) any other
properties or assets of the Company or any of its Subsidiaries other than
transfers of cash, Cash Equivalents, accounts receivable or properties or
assets in the ordinary course of business; provided that the sale, lease,
conveyance or other disposition of all or substantially all of the properties
or assets of the Company and its Subsidiaries, taken as a whole, will be
governed by the provisions of Section 4.17 and/or the provisions of Article 5
and not by the provisions of Section 4.12. For the purposes of this
definition, the term "Asset Sale" also shall not include any of the following:
(a) any transfer of properties or assets to an Unrestricted Subsidiary, if such
transfer is not prohibited under Section 4.11; (b) any transfer of properties
or assets by the Company to a Subsidiary or by a Subsidiary to the Company or a
Subsidiary (in the case of a transfer to a Subsidiary that is not a Wholly
Owned Subsidiary, dispositions shall be excluded pursuant to this clause (b)
only to the extent of the Company's interest in such Subsidiary after giving
effect to such transfer); (c) sales of damaged, worn-out or obsolete equipment
or assets that, in the Company's reasonable judgment, are either (1) no longer
used or (2) no longer useful in the business of the Company or its
Subsidiaries; (d) any lease of any property entered into in the ordinary course
of business and with respect to which the Company or any Subsidiary is the
lessor, except any such lease that provides for the acquisition of such
property by the lessee during or at the end of the term thereof for an amount
that is less than the fair market value thereof at the time the right to
acquire such property is granted; or (e) any transfer that but for this
clause (e) would be an Asset Sale, if (1) the Company elects to designate such
transfers as not constituting Asset Sales and (2) after giving effect to such
transfers, the aggregate fair market value of the properties or assets
transferred in such transaction or any such series of related transactions so
designated by the Company does not exceed $5.0 million.
"Attributable Indebtedness" in respect of a sale-and-leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale-and-leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). As used in the preceding sentence, the
"net rental payments" under any lease for any such period shall mean the sum of
rental and other payments required to be paid with respect to such period by
the lessee thereunder, excluding any amounts required to be paid by such lessee
on account of maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges. In the case of any lease that is terminable by the
lessee upon payment of penalty, such net rental payment shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.
"Average Life" means, as of the date of determination, with respect to
any Indebtedness, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date to the date of each successive
scheduled principal payment of such Indebtedness multiplied by (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
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"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person duly authorized to act on behalf of the board of directors of such
Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day which is not a Legal Holiday.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock and any and all warrants, options and rights with respect
thereto, including each class of common stock and preferred stock of such
Person.
"Capitalized Lease Obligation" means the discounted present value of the
rental obligations of any Person under any lease of Property, which in
accordance with GAAP, is required to be capitalized on the balance sheet of
such Person.
"Cash Equivalents" means (a) the following kinds of investments if, in
the case of instruments referred to in clauses (i) through (iv) below, on the
date of purchase or other acquisition of any such instrument by the Company or
any Subsidiary, the remaining term to maturity is not more than one year:
(i) readily marketable obligations issued or unconditionally guaranteed as to
principal and interest by the United States or by any agency or authority
controlled or supervised by and acting as an instrumentality of the United
States; (ii) repurchase obligations for instruments of the type described in
clause (i) for which delivery of the instrument is made against payment;
(iii) obligations (including, but not limited to, demand or time deposits,
bankers' acceptances and certificates of deposit) issued by a depository
institution or trust company incorporated or doing business under the laws of
the United States, any State thereof or the District of Columbia or a branch or
subsidiary of any such depository institution or trust company operating
outside the United States, provided that such depository institution or trust
company has, at the time of the Company's or such Subsidiary's investment
therein or contractual commitment providing for such investment, capital,
surplus or undivided profits (as of the date of such institution's most
recently published financial statements), in excess of $100,000,000; and
(iv) commercial paper issued by any Person, if such commercial paper has, at
the time of the Company's or any Subsidiary's investment therein or contractual
commitment providing for such investment, credit ratings of A-1 by S&P and P-1
by Moody's; and (b) money market mutual or similar funds having assets in
excess of $100,000,000.
"Change of Control" means (i) an event or series of events by which any
Person or other entity or group of Persons or other entities acting in concert
as a partnership or other group (a "Group of Persons") other than the Lawrence
Group or any member thereof shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 40% or more of the combined voting power of the then
outstanding Voting Stock of the Company, (ii) during any period of two
consecutive years, Continuing Directors cease for any reason to constitute a
majority of the Board of Directors then in office, (iii) the direct or indirect
sale, lease, exchange or other transfer of all or substantially all of the
assets of the Company and the Subsidiaries, taken as a whole, to any Person or
Group of Persons other than the Company or any Subsidiary Guarantor that is a
Wholly Owned Subsidiary, or (iv) the liquidation or dissolution of the Company.
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"Company" means the party named as such above, until a successor
replaces such Person in accordance with the terms of this Indenture, and
thereafter means such successor.
"Company Properties" means all Properties, and equity, partnership or
other ownership interests therein, that are related or incidental to, or used
or useful in connection with, the conduct or operation of any business
activities of the Company or the Subsidiaries, which business activities are
not prohibited by the terms of this Indenture.
"Consolidated EBITDA" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period increased (to the
extent deducted in determining Consolidated Net Income) by the sum of: (i) all
income taxes of such Person and its subsidiaries paid or accrued according to
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or non-recurring gains or losses), (ii) all interest expense of such
Person and its subsidiaries paid or accrued in accordance with GAAP for such
period (including amortization of original issue discount and the interest
portion of deferred payment obligations), (iii) depreciation and depletion of
such Person and its subsidiaries, (iv) amortization of such Person and its
subsidiaries including, without limitation, amortization of capitalized debt
issuance costs and (v) any other non-cash charges to the extent deducted from
Consolidated Net Income.
"Consolidated EBITDA Coverage Ratio" means, with respect to any Person,
the ratio of (1) Consolidated EBITDA of such Person for the period (the "Pro
Forma Period") consisting of the most recent four full fiscal quarters for
which financial information in respect thereof is available immediately prior
to the date of the transaction giving rise to the need to calculate the
Consolidated EBITDA Coverage Ratio (the "Transaction Date") to (2) the
aggregate Fixed Charges which such Person will accrue during the fiscal quarter
in which the Transaction Date occurs and the three fiscal quarters immediately
subsequent to such fiscal quarter (the "Forward Period") on the aggregate
amount of Indebtedness outstanding on the Transaction Date, including any
Indebtedness proposed to be incurred on such date and excluding any
Indebtedness repaid with the proceeds of such Indebtedness (as though all such
Indebtedness was incurred or repaid on the first day of the quarter in which
the Transaction Date occurred). In addition to, but without duplication of,
the foregoing, for purposes of this definition, "Consolidated EBITDA" shall be
calculated after giving effect (without duplication), on a pro forma basis for
the Pro Forma Period (but no longer), to (i) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other Person that, as a
result of such Investment, becomes a subsidiary of such Person, (ii) the
acquisition, during the Reference Period (by merger, consolidation or purchase
of stock or assets) of any business or assets, which acquisition is not
prohibited by this Indenture, including but not limited to Permitted Industry
Investments, as if such acquisition had occurred on the first day of the
Reference Period, (iii) any sales or other dispositions of assets occurring
during the Reference Period, in each case as if such incurrence, Investment,
repayment, acquisition or asset sale had occurred on the first day of the
Reference Period and (iv) interest income reasonably anticipated by the Company
to be received during the Pro Forma Period from Investments in Cash
Equivalents, which Investments exist on the Transaction Date or will exist as a
result of the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio. For purposes of this definition, "Fixed Charges" shall
be calculated after giving effect (without duplication), on a pro forma basis
for the Forward Period, to any Indebtedness incurred or repaid on or after the
first day of the Forward Period and prior to the Transaction Date. For
purposes of calculating the Company's Consolidated EBITDA Coverage Ratio,
Indebtedness of a Subsidiary that is not a Wholly Owned Subsidiary (which
Indebtedness is non-recourse to the Company or any other Subsidiary or any of
their assets) shall be included only to the extent of the Company's pro rata
ownership interest in such Subsidiary.
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"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP, provided
that (i) the net income of (a) any Unrestricted Subsidiary and (b) any other
Person in which such Person or any subsidiary thereof has an interest (which
interest, in the case of those Persons referred to in clause (b), does not
cause the net income of such other Person to be consolidated with the net
income of such Person in accordance with GAAP) will be included only to the
extent of the amount of dividends or distributions actually paid in cash or
Cash Equivalents to such Person or its subsidiaries that are Subsidiary
Guarantors by such other Person in such period; (ii) the net income of any
subsidiary of such Person that is subject to any Payment Restriction will be
excluded to the extent of such Payment Restriction; and (iii) (a) the net
income (or loss) of any other Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition, (b) any net
gain (but not loss) on the sale or other disposition by such Person or any of
its subsidiaries of assets and of the Capital Stock of any subsidiary of such
Person, (c) items which are extraordinary, and (d) the cumulative effect of a
change in accounting principles, will each be excluded.
"Consolidated Net Tangible Assets" as of any date means with respect to
any Person the Consolidated Net Worth of such Person and its consolidated
Subsidiaries as of such date less (i) all write-ups subsequent to the date of
this Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person (other than purchase accounting
adjustments made, in connection with any acquisition of any entity that becomes
a consolidated Subsidiary of such Person after the date of this Indenture to
the book value of the assets of such entity), (ii) all Investments as of such
date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), (iii) all unamortized goodwill,
trademarks, trade names, service marks, brand names, copyrights, patents and
other intangible assets in accordance with GAAP, and (iv) unamortized debt
discount and expense and unamortized deferred charges of such date, all of the
foregoing determined in accordance with GAAP.
"Consolidated Net Worth" as of any date means with respect to any Person
the amount by which the assets of such Person and its subsidiaries on a
consolidated basis exceed (i) the total liabilities of such Person and its
subsidiaries on a consolidated basis, plus (ii) Disqualified Capital Stock of
such Person or Disqualified Capital Stock of any subsidiary of such Person
issued to any Person other than such Person or another wholly-owned subsidiary
of such Person, in each case determined in accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors of the
Company on the Issue Date, any director elected since the date thereof in any
annual meeting of the stockholders upon the recommendation of the Board of
Directors of the Company and any other member of the Board of Directors of the
Company who will be recommended or elected to succeed a Continuing Director by
a majority of Continuing Directors who are then members of the Board of
Directors of the Company.
"Credit Facility" means one or more credit facilities without limitation
as to amount that now is or are or hereafter may be entered into among the
Company or one or more of its Subsidiaries or the Company and one or more of
its Subsidiaries, as the case may be, and the lenders parties thereto,
including any related notes, guarantees, collateral documents, and other
instruments and agreements executed in connection therewith without limitation
as to amount, which term, as of the Issue Date, initially consists of the Third
Amended and Restated Loan Agreement by and among Company, the financial
institutions party thereto and Wells Fargo Bank (Texas), National Association,
as agent, and in each case as amended, modified, supplemented, renewed,
extended, refunded, replaced, restated or refinanced from time to time in whole
or part in one or more credit agreements, loan agreements, instruments or
similar agreements without limitation as to amount, as such may be further
amended, modified, supplemented, extended, refunded, restated, replaced,
renewed or refinanced from time to time.
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"Currency Agreement" means the obligations of any Person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement
or arrangement designed to protect such Person or any of its subsidiaries
against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock of such Person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which, mandatorily or at the option of the holder, it is convertible or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased by such Person or its
subsidiaries, including at the option of the holder, in whole or in part, or
has, upon the happening of an event or the passage of time would have, a
redemption or similar payment due, in each such case on or prior to the
Maturity Date.
"Employee Stock Repurchases" means purchases by the Company of any of
its Capital Stock from officers and other employees for the purpose of enabling
such employees to pay personal income tax obligations with the proceeds;
provided that the aggregate amount of all such purchases shall not exceed
$500,000 during any fiscal year of the Company.
"Equity Interests" means Capital Stock or other equity interests and all
warrants, options or other rights to acquire Capital Stock or other equity
interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Offer" means the offer by the Company, pursuant to an
effective registration statement filed with the SEC, to exchange for any and
all of the Series A Securities a like aggregate principal amount of Series B
Securities in accordance with the terms and provisions of a corresponding
Registration Rights Agreement.
"Exchange Offer Consummation Date" means the date on which an Exchange
Offer is consummated in accordance with the terms and provisions of a
corresponding Registration Rights Agreement.
"Exempt Foreign Subsidiary" means (i) any Subsidiary engaged in business
permitted under this Indenture exclusively outside the United States of
America, irrespective of its jurisdiction of incorporation and (ii) any other
Subsidiary whose assets (excluding any cash and Cash Equivalents) consist
exclusively of Capital Stock or Indebtedness of one or more Subsidiaries
described in clause (i) of this definition, that, in any case, is so designated
by the Company in an Officers' Certificate delivered to the Trustee and (a) is
not a guarantor of, and has not granted any Lien to secure, the Credit Facility
or any other Indebtedness of the Company or any Subsidiary other than another
Exempt Foreign Subsidiary and (b) does not have total assets that, when
aggregated with the total assets of any other Exempt Foreign Subsidiary, exceed
25% of the Company's consolidated total assets, as determined in accordance
with GAAP, as reflected on the Company's most recent quarterly or annual
balance sheet. The Company may revoke the designation of any Exempt Foreign
Subsidiary by notice to the Trustee.
"Fixed Charges" means, with respect to any Person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during such period (except to the
extent accrued in a prior period) in respect of all Indebtedness of such Person
and its consolidated subsidiaries (including (a) original issue discount on any
Indebtedness and (b) the interest
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portion of all deferred payment obligations, calculated in accordance with the
effective interest method, in each case to the extent attributable to such
period) and (ii) dividend requirements on Disqualified Capital Stock of such
Person and its consolidated subsidiaries (whether in cash or otherwise (except
dividends payable in shares of Qualified Capital Stock) (non-cash dividends
being valued as determined in good faith by the Board of Directors of such
Person, as evidenced by a Board Resolution)) paid, accrued or scheduled to be
paid or accrued during such period (except to the extent accrued in a prior
period) and excluding items eliminated in consolidation; provided, however, in
no event shall the term "Fixed Charges" include any original issue discount or
premium paid on the 1997 Series A Notes or 1997 Series B Notes.
For purposes of the definition of Fixed Charges, (i) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Board of Directors of such Person (as evidenced by
a Board Resolution) to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP; (ii) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated, subject to the proviso in the
following clause (iii); (iii) interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate,
a eurocurrency interbank offered rate, or other rate, shall be deemed to have
been based upon the rate actually chosen, or, if none, then based upon such
optional rate chosen as the Company may designate, (provided that, for the
period following the date on which the rate actually chosen ceases to be in
effect, the Company may designate an optional rate other than that actually
chosen, which optional rate shall be deemed to accrue at a fixed per annum
equal to the rate of interest on such optional rate in effect on the date Fixed
Charges are being calculated); and (iv) Fixed Charges shall be increased or
reduced by the net cost (including amortization of discount) or benefit
associated with obligations under Interest Rate Agreements attributable to such
period.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America as of any date of determination.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (present and future) created, incurred, assumed or guaranteed by the
Subsidiary Guarantor (and all renewals, extensions, increases or refundings
thereof) (including the principal of, interest on and fees, premiums, expenses
(including costs of collection), indemnities and other amounts payable in
connection with such Indebtedness, and including any Post-Commencement
Amounts), unless the instrument governing such Indebtedness expressly provides
that such Indebtedness is not senior or superior in right of payment to the
Subsidiary Guarantee. Notwithstanding the foregoing, Guarantor Senior
Indebtedness does not include (i) any Indebtedness of the Subsidiary Guarantor
to the Company or any Subsidiary or any Unrestricted Subsidiary, and (ii) any
amounts payable or other liabilities to trade creditors.
"Holder" means a Person in whose name a Security is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication,
any liability, contingent or otherwise, of such Person (i) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) representing the deferred and unpaid
balance of the purchase price of any property or interest therein (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business of such Person in connection with
obtaining goods, materials or services and due within twelve months (or such
longer period for payment as is customarily extended by such trade creditor) of
the incurrence thereof, which account is not overdue by more than 150 days,
according to the original terms of sale, unless such account payable is being
contested in good faith or
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has been extended), (iv) for the payment of a Capitalized Lease Obligation of
such Person, (v) with respect to the reimbursement of any letter of credit,
banker's acceptance or similar credit transaction, (vi) with respect to
Indebtedness (as otherwise defined in this definition) of another Person
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person (provided that if the obligations so secured have not
been assumed in full by such Person or are not otherwise such Person's legal
liability in full, then such obligations shall be deemed to be in an amount
equal to the greater of (A) the lesser of (1) the full amount of such
obligations, and (2) the fair market value of such assets, as determined in
good faith by the Board of Directors of such Person, which determination shall
be evidenced by a Board Resolution, and (B) the amount of obligations as have
been assumed by such Person or which are otherwise such Person's legal
liability), (vii) to the extent not otherwise included, under Currency
Agreements and Interest Rate Agreements entered into other than in the ordinary
course of such Person's business, (viii) in the case of such Person, the
liquidation preference and any mandatory redemption payment obligations in
respect of Disqualified Capital Stock, and, in the case of a subsidiary of such
Person, the liquidation preference and any mandatory redemption payment
obligations in respect of preferred stock of such subsidiary, and (ix) in
respect of all Indebtedness of others which such Person has guaranteed,
endorsed with recourse (otherwise than for collection, deposit or other similar
transactions in the ordinary course of business), agreed to purchase or
repurchase or in respect of which such Person has agreed contingently to supply
or advance funds or for which such Person has otherwise become liable;
provided, however, Indebtedness arising pursuant to clause (iii) of this
definition as a result of such account payable becoming overdue by more than
150 days shall only be deemed to be incurred at a time when Indebtedness, other
than such Indebtedness, is incurred.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Independent Director" means any director of the Company who is neither
(i) an executive officer or an employee of the Company or of any of its
Subsidiaries or Affiliates, nor (ii) a Related Person.
"Initial Purchaser" means Jefferies & Company, Inc.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (a) an insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization proceeding or other similar case or
proceeding, relative to such Person or to its creditors, as such, or its
assets, (b) any liquidation, dissolution or reorganization proceeding of such
Person, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of such Person.
"Interest Rate Agreement" means the obligations of any Person pursuant
to any interest swap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates.
"Investment" means, in respect of any Person, any investment in another
Person, whether by means of a share purchase, capital contribution, loan,
advance (other than advances to employees for moving and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business)
or similar credit extension constituting Indebtedness of such other Person and
any guaranty of Indebtedness of any other Person; provided that the following
shall not constitute Investments: (a) extension of trade credit or other
advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business,
(b) obligations
Dailey International Inc.: Indenture
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<PAGE> 15
under Interest Rate Agreements and Currency Agreements, but only to the extent
that the same constitute Permitted Indebtedness, (c) endorsements of negotiable
instruments and documents in the ordinary course of business, (d) an
acquisition of assets, Capital Stock or other securities by the Company or any
of its Subsidiaries for consideration consisting of Capital Stock or other
common equity securities of the Company or any of its Subsidiaries, and
(e) stock, obligations and other securities received in settlement of debts
owing to the Company or any of its Subsidiaries as a result of collection
efforts or proceedings or upon the foreclosure or enforcement of any Lien in
favor of the Company or any such Subsidiary, in each case, as to debt owing to
the Company or any such Subsidiary that arose in the ordinary course of
business of the company or any such Subsidiary. For purposes of Section 4.11
and the definition of Permitted Unrestricted Subsidiary Investments, (i) an
"Investment" in an Unrestricted Subsidiary shall be deemed to include and be
valued at the fair market value of the net assets of any Subsidiary at the time
that such Subsidiary is designated an Unrestricted Subsidiary, and (ii) any
Investment in an Unrestricted Subsidiary shall be valued at fair market value
at the time of such Investment (except, however, when such Investment consists
of a loan or advance by a Person to another Person that is of an intercompany
or similar nature between such Persons and arises pursuant to an agreement or
understanding in the ordinary course of business relating to tax sharing,
administrative or similar arrangements, then such Investment shall be valued at
fair market value at the time that the investing Person shall have paid monies
or transferred other consideration to another Person for the benefit of the
Person in whom the agreement to make such loan or advance was made), in each
case as determined by the Board of Directors of the Company and such
Subsidiary, as applicable, in good faith.
"Issue Date" means the first date on which the Series A Securities are
issued under this Indenture.
"Lawrence Group" means Lawrence Industries, Inc., J.D. Lawrence and any
Person related to J.D. Lawrence within the second degree of consanguinity, any
trust for the benefit of one or more of such Persons, and any Person controlled
directly or indirectly by any such Person.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or
equivalent statute or statutes) of any jurisdiction).
"Material Subsidiary" means any Subsidiary of the Company which, as of
the relevant date of determination, would be a "significant subsidiary" as
defined in Reg. Section 230.405 promulgated pursuant to the Securities Act as
in effect on the Issue Date, assuming the Company is the "registrant" referred
to in such definition, except that the 10% amounts referred to in such
definition shall be deemed to be 5%.
"Maturity Date" means February 15, 2008.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means the aggregate cash proceeds received by
the Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash proceeds received upon the sale or other
disposition of, or payments or collections on, any non-cash consideration
received in any Asset Sale, provided that such sale or other disposition was
contemplated by the Company or its applicable Subsidiary in connection with,
and was consummated incident to, such Asset Sale, and in respect to each of the
foregoing receipts of cash proceeds only as and when received, and excluding
any
Dailey International Inc.: Indenture
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<PAGE> 16
other consideration until such time as such consideration is converted into,
and received by the Company or any of its Subsidiaries as, cash), net of all
(i) legal, accounting and investment banking fees and expenses, sales
commissions, relocation, transportation, handling and storage expenses, title,
recording and if applicable, release expenses and other fees and expenses
incurred as a result of such Asset Sale, (ii) taxes paid or payable as a result
of such Asset Sale or required to be accrued as a liability as a consequence
thereof (after taking into account any available and applicable tax credits or
deductions and any applicable tax sharing arrangements), (iii) amounts required
to be applied to the repayment of Indebtedness secured by a Lien on the asset
or assets that were the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than the Company or any Subsidiary) owning a
beneficial interest in the asset or assets that were the subject of such Asset
Sale, (v) amounts required to be paid in order to obtain a necessary consent to
such Asset Sale or by applicable law, and (vi) reserves to adjustments in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Net Proceeds" means (i) in the case of any sale by the Company of
Qualified Capital Stock, the aggregate net cash proceeds received by the
Company, after payment of expenses, commissions and the like incurred in
connection therewith, and (ii) in the case of any exchange, exercise,
conversion or surrender of any outstanding securities or Indebtedness of the
Company for or into shares of Qualified Capital Stock of the Company, the net
book value of such outstanding securities or Indebtedness as adjusted on the
books of the Company on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder of such
Indebtedness or securities to the Company upon such exchange, exercise,
conversion or surrender and less any and all payments made to the holders of
such Indebtedness or securities, and all other expenses incurred by the Company
in connection therewith).
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither
the Company nor any of its Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a Subsidiary Guarantor
or otherwise), or (c) constitutes the lender unless otherwise permitted under
this Indenture; and (ii) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Subsidiaries to
declare pursuant to the express terms governing such Indebtedness a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Obligations" mean the due and punctual payment of principal of and
interest on the Securities when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Company
under this Indenture and the Securities and the due and punctual performance of
all other obligations of the Company under this Indenture and the Securities.
"Officer" means, with respect to any Person, the Chairman of the Board,
the President, any Vice President, the Chief Financial Officer or the Treasurer
of such Person.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Officers or by an Officer and either a Secretary, Assistant
Secretary or Assistant Treasurer of such Person.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company (or any Subsidiary Guarantor, if applicable).
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"Pari Passu Indebtedness" means, with respect to any Net Available
Proceeds from the Asset Sales, Indebtedness of the Company and its Subsidiaries
the terms of which require the Company or such Subsidiary to apply such Net
Available Proceeds to offer to repurchase such Indebtedness.
"Permitted Indebtedness" means (i) Indebtedness under the Original
Securities and any Series B Securities issued in exchange for Series A
Securities of equal principal amount pursuant to an Exchange Offer;
(ii) Indebtedness from time to time outstanding under the Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (a) the sum of (1) 85% of accounts receivable (net of any related
reserves) of the Company and its Subsidiaries plus (2) 50% of the
revenue-producing tools and inventory of the Company and its Subsidiaries, as
such amounts are determined on a consolidated basis in accordance with GAAP and
reflected on the Company's most recent balance sheet prepared in accordance
with GAAP, or (b) $30.0 million, plus all interest and fees under such
agreements and any guarantee of any such Indebtedness; (iii) the Subsidiary
Guarantees of the Securities (and any assumption of the obligations guaranteed
thereby); (iv) Permitted Refinancing Indebtedness; (v) Indebtedness of the
Company to any Wholly Owned Subsidiary, and any Indebtedness of any Wholly
Owned Subsidiary to the Company or to any Wholly Owned Subsidiary; provided,
that in each case, such Indebtedness has not been incurred in contemplation of
any subsequent issuance or transfer of any Capital Stock or any other event
which would result in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any other subsequent transfer of any such Indebtedness
(except to the Company or a Wholly Owned Subsidiary), and if incurred in
contemplation of any of the foregoing events, then such Indebtedness shall be
deemed to be incurred and shall be treated as an incurrence of Indebtedness for
purposes of Section 4.09 at the time the Wholly Owned Subsidiary in question
ceased to be a Wholly Owned Subsidiary; (vi) Permitted Operating Obligations;
(vii) other Indebtedness outstanding at any time in an aggregate principal
amount not to exceed $10.0 million; (viii) Indebtedness outstanding on the
Issue Date; and (ix) Indebtedness under the 1997 Series B Notes, the 1997
Guarantees and the 1997 Indenture. Permitted Refinancing Indebtedness that
constitutes a refinancing of amounts referred to in clauses (ii) and (vii)
shall be deemed to be incurred pursuant to and subject to the limitations in
clauses (ii) and (vii), respectively. The Company may elect at any time that
amounts of Indebtedness incurred under clauses (ii) or (vii) be deemed to be
incurred pursuant to the first paragraph of Section 4.09 (if then permitted to
be so incurred), in which event such amounts so incurred shall be deemed not to
be incurred under clause (ii) or (vii); provided, however, any such
Indebtedness deemed not to be incurred under clause (ii) shall still be treated
as Indebtedness under and governed by the Credit Facility for purposes of all
other provisions of this Indenture.
"Permitted Industry Investments" means (i) capital expenditures,
including, without limitation, acquisitions of Company Properties and interests
therein; (ii) exchanges of Company Properties for other Company Properties of
at least equivalent value as determined in good faith by the Board of Directors
of the Company; (iii) Investments by the Company or any Subsidiary in any
Subsidiary (or in any Person that becomes a Subsidiary as a result of such
Investment) that are not subject to any Payment Restriction; and
(iv) Investments by the Company or any Subsidiary in any Person of which less
than 50% of the issued and outstanding Equity Interests is owned by the Company
or another Subsidiary of the Company; provided that the aggregate of all
Investments by the Company and any Subsidiary pursuant to this clause (iv)
shall at not time exceed 15% of the Consolidated Net Tangible Assets of the
Company.
"Permitted Investments" means Cash Equivalents and Permitted Industry
Investments (in each case, other than Investments in Unrestricted
Subsidiaries).
"Permitted Liens" means (i) Liens for taxes, assessments and
governmental charges not yet delinquent or being contested in good faith and
for which such adequate reserves have been established to the extent required
by GAAP, (ii) landlord's, carriers, warehouseman's, storage, mechanics',
workmen's, materialmen's, operator's or similar Liens arising in the ordinary
course of business,
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(iii) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business and encumbrances consisting of
zoning restrictions, easements, licenses, restrictions on the use of Company
Properties or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from
the Company Properties subject thereto or interfere with the ordinary conduct
of the business of the Company or the Subsidiaries, (iv) Liens on Company
Properties which arise out of operation of law, (v) judgment and attachment
Liens not giving rise to an Event of Default or Liens created by or existing
from any litigation or legal proceeding that are currently being contested in
good faith by appropriate proceedings and for which adequate reserves have been
made, (vi) (a) Liens upon any Property of any Person existing at the time of
acquisition thereof by the Company or any Subsidiary, (b) Liens upon any
Property of a Person existing at the time such Person is merged or consolidated
with the Company or any Subsidiary or existing at the time of the sale or
transfer of any such Property of such Person to the Company or any Subsidiary,
or (c) Liens upon any Property of a Person existing at the time such Person
becomes a Subsidiary; provided that in each case such Lien has not been created
in contemplation of such sale, merger, consolidation, transfer or acquisition,
and provided further that in each such case no such Lien shall extend to or
cover any Property of the Company or any Subsidiary other than the Property
being acquired and improvements thereon, (vii) Liens existing on the Issue
Date, (viii) Liens on deposits made in the ordinary course of business,
including, without limitation, pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation and deposits to
secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a similar nature incurred in the ordinary course
of business, (ix) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or instruments
of the Company or any Subsidiary on deposit with or in possession of such bank,
(x) Liens upon any Property which were created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or
refund, the cost (including the cost of construction) of such Property;
provided that (A) no such Lien shall extend to or cover any Property of the
Company or any Subsidiary other than the Property so acquired and improvements
thereon and (B) the Lien securing any such Indebtedness shall be created within
90 days of such acquisition, (xi) Liens securing Indebtedness that constitutes
Permitted Indebtedness pursuant to clause (i), (ii), (iii), (iv) (but only to
the extent secured at the time of such renewal, extension, refunding or
repurchase, and no such Lien shall extend to any other Property of the Company
or any Subsidiary), and (vi) of the definition of Permitted Indebtedness,
(xii) any interest or title of a lessor under any Capitalized Lease Obligation
or operating lease and (xiii) Liens securing obligations under or in respect of
either Currency Agreements or Interest Rate Agreements.
"Permitted Operating Obligations" means Indebtedness of the Company or
any Subsidiary in respect of one or more standby letters of credit, bid,
performance or surety bonds, or other reimbursement obligations, issued for the
account of, or entered into by, the Company or any Subsidiary in the ordinary
course of business, or in lieu of any thereof or in addition to any thereto,
guarantees and letters of credit supporting any such obligations and
Indebtedness (in each case, other than for an obligation for borrowed money,
other than borrowed money represented by any such letter of credit, bid,
performance or surety bond, or reimbursement obligation itself, or any
guarantee and letter of credit related thereto).
"Permitted Refinancing Indebtedness" means (i) Senior Indebtedness of
the Company or any Subsidiary, the net proceeds of which are used solely to
renew, extend, refinance, refund or repurchase outstanding Securities, 1997
Series A Notes or 1997 Series B Notes, including the amount of reasonable fees
and expenses and premium, if any, incurred by the Company or such Subsidiary in
connection therewith; or (ii) Indebtedness of the Company or any
Dailey International Inc.: Indenture
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Subsidiary, the net proceeds of which are used to renew, extend, refinance,
refund or repurchase (including, without limitation, pursuant to a Change of
Control Offer as required by the terms of the Securities) outstanding
Indebtedness of the Company or any Subsidiary, provided that (a) if the
Indebtedness (including the Securities) being renewed, extended, refinanced,
refunded or repurchased is pari passu with or subordinated in right of payment
to either the Securities or the Subsidiary Guarantees, then such Indebtedness
is pari passu with or subordinated in right of payment to, as the case may be,
the Securities or the Subsidiary Guarantees at least to the same extent as the
Indebtedness being renewed, extended, refinanced, refunded or repurchased,
(b) such Indebtedness is scheduled to mature no earlier than the Indebtedness
being renewed, extended, refinanced, refunded or repurchased, and (c) such
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is greater than the Average Life of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased; provided, further, that such Indebtedness
(to the extent that such Indebtedness constitutes Permitted Refinancing
Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees and expenses and premium, if any, incurred by the Company or
such Subsidiary in connection therewith.
"Permitted Unrestricted Subsidiary Investments" means Investments in
Unrestricted Subsidiaries in a cumulative aggregate amount (in cash or the fair
market value of property other than cash, as determined in good faith by the
Board of Directors of the Company) not to exceed the sum of (i) $10.0 million
and (ii) cash or cash equivalent distributions made from any Unrestricted
Subsidiary and received, after the Issue Date, as such by the Company, provided
that any amount included in this clause (ii) shall be deducted from any amounts
referred to in clause (y)(3) of Section 4.11. Notwithstanding the foregoing,
Permitted Unrestricted Subsidiary Investments shall also include any
Investments in Unrestricted Subsidiaries to the extent such Investment consists
of (a) Qualified Capital Stock of the Company or (b) amounts referred to in
clause (y)(2) of Section 4.11, which Investments shall be excluded from the sum
in the previous sentence, provided that the amount of any Investments pursuant
to this clause (b) shall be deducted from amounts referred to in clause (y)(2)
of Section 4.11.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Post-Commencement Amounts" means all interest and fees accrued or
accruing after the commencement of any Insolvency or Liquidation Proceeding in
accordance with and at the contract rate (including, without limitation, any
non-usurious rate applicable upon default) and all premiums, expenses
(including costs of collection), indemnities and other amounts that would have
accrued or been incurred after the commencement of any Insolvency or
Liquidation Proceeding in any case as specified in any agreement or instrument
creating, evidencing, or governing any Senior Indebtedness or any Guarantor
Senior Indebtedness, as the case may be, whether or not, pursuant to applicable
law or otherwise, the claim for such interest, fees, premiums, expenses,
indemnities or other amounts is allowed and non-avoidable as a claim in such
Insolvency or Liquidation Proceeding.
The term "principal" of a debt security means the principal amount of
the security plus the premium, if any, on the security.
"Private Placement Legend" means the legend initially set forth on the
Securities in the form set forth in Exhibit A attached hereto.
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The term "pro forma" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act, as
amended.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock,
partnership interests and other equity or ownership interests in any other
Person.
"Public Equity Offering" means an underwritten public offer and sale of
common stock (that is Qualified Capital Stock) of the Company pursuant to a
registration statement that has been declared effective by the SEC pursuant to
the Securities Act (other than a registration statement on Form S-8 or
otherwise relating to equity securities issuable under any employee benefit
plan of the Company).
"Purchase Money Obligations" means indebtedness evidenced by a note,
debenture, bond or other security or investment (whether or not secured by any
lien or other security interest) issued to or assumed in favor of a vendor as
all or part of the purchase price of property acquired by the Company or any
Subsidiary; provided, however, that such term shall not include any account
payable or any other indebtedness incurred, created or assumed in the ordinary
course of business in connection with the obtaining of material, products or
services.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" has the meaning attributed thereto in
Rule 144A under the Securities Act.
"Registration Default" shall have the meaning ascribed thereto in a
Registration Rights Agreement.
"Registration Rights Agreement" means (i) the Registration Rights
Agreement dated as of February 13, 1998, among the Company, the Subsidiary
Guarantors and the Initial Purchaser relating to the Original Securities, a
copy of which is attached hereto as Annex A, and (ii) any similar agreement
that the Company and the Subsidiary Guarantors may enter into in relation to
any other Series A Securities, in each case, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S under the Securities Act.
"Related Person" means (i) any Affiliate of the Company, (ii) any
individual or other Person who directly or indirectly holds 10% or more of the
combined voting power of the then outstanding Voting Stock of the Company,
(iii) any relative of any individual referred to in clauses (i), (ii) and (iv)
hereof by blood, marriage or adoption not more remote than first cousin and
(iv) any officer or director of the Company.
"Representative" means the indenture trustee or other trustee, agent or
representative for any issue of Senior Indebtedness or Guarantor Senior
Indebtedness.
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
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officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or
a Subsidiary, prior to the scheduled maturity or prior to any scheduled
repayment of principal or sinking fund payment, as the case may be, in respect
of Indebtedness of the Company or any Subsidiary that is subordinate in right
to the Securities or the Subsidiary Guarantees, provided, however, that any
such acquisition shall be deemed not to be a Restricted Debt Prepayment to the
extent it is made (i) in exchange for or with the proceeds from the
substantially concurrent issuance of Qualified Capital Stock or (ii) in
exchange for or with the proceeds from the substantially concurrent issuance of
Indebtedness, in a principal amount (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon the
acceleration thereof, with an original issue price) not to exceed the lesser of
(a) the principal amount of Indebtedness being acquired in exchange therefor
(or with the proceeds therefrom) and (b) if such Indebtedness being acquired
was issued at an original issue discount, the original issue price thereof plus
amortization of the original issue discount at the time of the incurrence of
the Indebtedness being issued in exchange therefor (or the proceeds of which
will finance such acquisition), and provided further that any such Indebtedness
shall have an Average Life not less than the Average Life of the Indebtedness
being acquired, and shall contain subordination and default provisions no less
favorable, in any material respect, to holders of the Securities than those
contained in such Indebtedness being acquired.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than Permitted Investments and other than Permitted Unrestricted Subsidiary
Investments) or (iii) Restricted Debt Prepayment.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Group and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Indebtedness" means all Indebtedness of the Company (present and
future) created, incurred, assumed or guaranteed by the Company (and all
renewals, extensions or refundings thereof) (including the principal of,
interest on and fees, premiums, expenses (including costs of collection),
indemnities and other amounts payable in connection with such Indebtedness, and
including any Post-Commencement Amounts), unless the instrument governing such
Indebtedness expressly provides that such Indebtedness is not senior or
superior in right of payment to the Securities. Notwithstanding the foregoing,
Senior Indebtedness of the Company does not include (i) any Indebtedness of the
Company to any Subsidiary or any Unrestricted Subsidiary and (ii) any amounts
payable or other liabilities to trade creditors.
"Stock Payment" means, with respect to any Person, (a) the declaration
or payment by such Person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in Qualified
Capital Stock of the Company), or the making by such Person or any of its
subsidiaries of any other distribution in respect of, such Person's Capital
Stock or any warrants, rights or options to purchase or acquire shares of any
class of such Capital Stock (except for the issuance of Qualified Capital Stock
pursuant to the exercise thereof), or (b) the redemption, repurchase,
retirement
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or other acquisition for value by such Person or any of its subsidiaries,
directly or indirectly, of such Person's or any of its subsidiaries' Capital
Stock or any warrants, rights or options to purchase or acquire shares of any
class of such Capital Stock other than, in the case of the Company, through the
issuance in exchange therefor solely of Qualified Capital Stock of the Company;
provided, however, that in the case of a Subsidiary, the term "Stock Payment"
shall not include (i) any such payment with respect to its Capital Stock or
warrants, rights or options to purchase or acquire shares of any class of its
Capital Stock payable to the Company or a Wholly Owned Subsidiary, or
(ii) Employee Stock Repurchases.
A "subsidiary" of any Person means (i) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more wholly owned subsidiaries of such Person or by such Person and one
or more wholly owned subsidiaries of such Person, (ii) a partnership in which
such Person or a wholly owned subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but only if
such Person or its wholly owned subsidiary is entitled to receive more than
fifty percent of the assets of such partnership upon its dissolution, or
(iii) any other Person (other than a corporation or partnership) in which such
Person, a wholly owned subsidiary of such Person or such Person and one or more
wholly owned subsidiaries of such Person, directly or indirectly, at the date
of determination thereof, has (x) at least a majority ownership interest or
(y) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Subsidiary" means any subsidiary of the Company; provided, that an
Unrestricted Subsidiary shall not be deemed a subsidiary of the Company for
purposes of this Indenture.
"Subsidiary Guarantee" means, individually and collectively, the
guarantees given by the Subsidiary Guarantors pursuant to Article Ten,
including a notation in the Securities substantially in the form attached
hereto as Exhibit A-1.
"Subsidiary Guarantor" means (i) each of Dailey Energy Services, Inc., a
Delaware corporation; Dailey International Sales Corporation, a Delaware
corporation; Columbia Petroleum Services Corp., a Delaware corporation;
International Petroleum Services, Inc., a Delaware corporation; Dailey
Environmental Remediation Technologies, Inc., a Texas corporation; Dailey
Worldwide Services, Corp., a Texas corporation; Air Drilling International,
Inc., a Delaware corporation; and Air Drilling Services, Inc., a Wyoming
corporation; (ii) each of the Company's Subsidiaries that becomes a guarantor
of the Securities in compliance with the provisions of Article Ten and
(iii) each of the Company's Subsidiaries executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms of this Indenture.
"Transfer Restricted Security" has the meaning attributed thereto in the
Registration Rights Agreement; provided, however, that the Trustee shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether or not any Security is a Transfer Restricted Security.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended and in force at the date as of which this Indenture was executed until
such time as this Indenture is qualified under the TIA, and thereafter as in
effect on the date on which this Indenture is qualified under the TIA, except
as provided in Section 9.03.
"Trust Officer" means any officer or assistant officer within the
corporate trust department of the Trustee assigned by the Trustee to administer
its corporate trust matters.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
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"U.S. Legal Tender" means such coin or currency of the United States as
at the time of payment shall be legal tender for the payment of public and
private debts.
"United States" means the United States of America.
"Unrestricted Subsidiary" means (i) any subsidiary of the Company which
at the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary (including any newly acquired or newly
formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if:
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of
designation, and will at all times thereafter, consist of Non-Recourse
Indebtedness; (c) the Company certifies that such designation complies with
Section 4.11; and (d) such Subsidiary, either alone or in the aggregate with
all other Unrestricted Subsidiaries, does not operate, directly or indirectly,
all or substantially all of the business of the Company and the Subsidiaries.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a Board Resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions. If, at any time, such Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture, and any Indebtedness of such Subsidiary shall be deemed to be
incurred as of such date. The Board of Directors of the Company may designate
any Unrestricted Subsidiary to be a Subsidiary; provided that immediately after
giving effect to such designation, the Company could incur at least $1.00 of
additional Indebtedness (excluding Permitted Indebtedness) pursuant to the
first paragraph of Section 4.09 on a pro forma basis taking into account such
designation.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
board of directors or other governing body of such Person.
"Wholly Owned Subsidiary" means a Subsidiary to the extent (i) all of
the Capital Stock or other ownership interests in such Subsidiary, other than
any directors' qualifying shares mandated by applicable law, is owned directly
or indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction
in order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Subsidiary and, by contract or otherwise,
controls the management and business of such Subsidiary and derives the
economic benefits of ownership of such Subsidiary to substantially the same
extent as if such Subsidiary were a Wholly Owned Subsidiary.
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SECTION 1.02. OTHER DEFINITIONS.
TERM DEFINED IN SECTION
"Agent Members" . . . . . . . . . . . . . . . . . . 2.07
"Asset Sale Offer". . . . . . . . . . . . . . . . . 4.12
"Asset Sale Offer Purchase Date". . . . . . . . . . 4.12
"Asset Sale Offer Trigger Date" . . . . . . . . . . 4.12
"Bankruptcy Law". . . . . . . . . . . . . . . . . . 6.01
"Change of Control Notice". . . . . . . . . . . . . 4.17
"Change of Control Offer" . . . . . . . . . . . . . 4.17
"Change of Control Purchase Date" . . . . . . . . . 4.17
"Change of Control Purchase Price". . . . . . . . . 4.17
"Custodian" . . . . . . . . . . . . . . . . . . . . 6.01
"DTC" . . . . . . . . . . . . . . . . . . . . . . . 2.01
"Event of Default". . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . 4.12
"Funding Guarantor" . . . . . . . . . . . . . . . .10.05
"Global Security" . . . . . . . . . . . . . . . . . 2.01
"Legal Holiday" . . . . . . . . . . . . . . . . . .11.07
"Offer Amount". . . . . . . . . . . . . . . . . . . 4.12
"Offer Period". . . . . . . . . . . . . . . . . . . 4.12
"Original Securities" . . . . . . . . . . . . . . . 2.02
"Paying Agent". . . . . . . . . . . . . . . . . . . 2.03
"Payment Restriction" . . . . . . . . . . . . . . . 4.14
"Physical Securities" . . . . . . . . . . . . . . . 2.01
"Project Period". . . . . . . . . . . . . . . . . . 4.12
"Registrar" . . . . . . . . . . . . . . . . . . . . 2.03
"Related Party Transaction" . . . . . . . . . . . . 4.15
"Securities" . . . . . . . . . . . . . . . Introductory Paragraph
"Security Register" . . . . . . . . . . . . . . . 2.06
"Series A Securities" . . . . . . . . . . . . Introductory Paragraph
"Series B Securities" . . . . . . . . . . . . Introductory Paragraph
"U.S. Government Obligations" . . . . . . . . . . . 8.02
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms, if used in this Indenture, have the following meanings:
"indenture securities" means the Securities and the Subsidiary
Guarantees.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the
Subsidiary Guarantors and any other obligor on the Securities or the
Subsidiary Guarantees.
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All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them therein.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) any gender used in this Indenture shall be deemed to
include the neuter, masculine or feminine genders;
(6) provisions apply to successive events and transactions;
(7) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other Subdivision, and reference herein to any Article, Section or
other subdivision thereof shall, without further reference, mean such
Article, Section or other subdivision of this Indenture, unless the
context otherwise provides; and
(8) when used with reference to the Securities, the expression
"of like tenor" refers to Securities of the same series.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or notations of Subsidiary
Guarantees, as the case may be, as evidenced by their execution of such
Securities or notations of Subsidiary Guarantees, as the case may be.
Except as indicated in the next succeeding paragraph, Securities
(including the notations thereon relating to the Subsidiary Guarantees and the
Trustee's certificate of authentication) shall be issued initially in the form
of one or more permanent global securities in registered form in substantially
the form set forth in Exhibits A, A-1 and A-2 (each being herein called a
"Global Security") deposited with the Trustee, as custodian for The Depository
Trust Company ("DTC"), duly executed by the Company and authenticated by the
Trustee as hereinafter provided, and each shall bear the legend set forth on
Exhibit A. Subject to the limitation set forth in Section 2.02, the principal
amounts of the Global Securities may be increased or decreased from time to
time by adjustments made on the records of the Trustee, as custodian for DTC,
as hereinafter provided.
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Securities (including the notations thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication) originally issued
and sold in reliance on any exemption from registration under the Securities
Act other than Rule 144A shall be issued, and Securities originally offered and
sold in reliance on Rule 144A may be issued, in the form of permanent
certificated securities in registered form in substantially the form set forth
in Exhibits A and A-1 ("Physical Securities"). The Securities may also have
such insertions, omissions, substitutions and variations as may be permitted by
or consistent with this Indenture. The provisions of Exhibits A, A-1 and A-2
are part of this Indenture. The Securities may have notations, legends and
endorsements required by law, stock exchange rule or usage. The Company shall
approve the form of the Securities and any notation, legend or endorsement on
them, subject to the applicable requirements, if any, of Section 2.06. Each
Security shall be dated the date of its authentication.
The terms and provisions contained in the Securities and the Subsidiary
Guarantees shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company, the Subsidiary Guarantors
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.
The Series A Securities and the Series B Securities shall be considered
collectively to be a single class for all purposes of this Indenture,
including, without limitation, waivers, amendments, redemptions and offers to
purchase.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer and the Secretary or an Assistant Secretary of the Company
shall sign the Securities for the Company by manual or facsimile signature.
The Company's seal shall be reproduced on the Physical Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall be valid
nevertheless.
A Security shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture. Each Security shall be dated the date of its
authentication.
The Trustee shall authenticate (i) the Series A Securities for original
issue on the Issue Date in the aggregate principal amount of $275,000,000 (the
"Original Securities"), (ii) additional Series A Securities for original issue
from time to time after the Issue Date in such principal amounts as may be set
forth in a written order of the Company described in this sentence and
(iii) the Series B Securities from time to time for issue only in exchange for
a like principal amount of Series A Securities, in each case upon a written
order of the Company signed by one Officer and the Secretary or an Assistant
Secretary of the Company, which written order shall specify (A) the amount of
Securities to authenticated and the date of original issue thereof, (B) whether
the Securities are Series A Securities or Series B Securities and (C) the
amount of Securities to be issued in global form or definitive form. The
aggregate principal amount of Securities outstanding at any time may not exceed
$275,000,000 plus such additional principal amounts as may be issued and
authenticated pursuant to clause (ii) of this paragraph, except as provided in
Section 2.08.
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At any time after the execution and delivery of this Indenture, the
Company may deliver Series A Securities executed by the Company and having the
notations of Subsidiary Guarantees executed by the Subsidiary Guarantors to the
Trustee for authentication, together with a request from the Company for the
authentication and delivery of such Series A Securities, and the Trustee in
accordance with such request shall authenticate and deliver such Series A
Securities with the notations of Subsidiary Guarantees thereon as provided in
this Indenture. Such request from the Company shall specify the principal
amount of the Series A Securities to be authenticated and the date on which the
original issue of Series A Securities is to be authenticated. In addition, on
or before an Exchange Offer Consummation Date, the Company may deliver Series B
Securities executed by the Company and having the notations of Subsidiary
Guarantees executed by the Subsidiary Guarantors to the Trustee for
authentication, together with a request from the Company for the authentication
and delivery of such Series B Securities, and the Trustee in accordance with
such request shall authenticate and deliver such Series B Securities with the
notations of Subsidiary Guarantees thereon as provided in this Indenture. Such
request from the Company shall specify the principal amount of the Series B
Securities to be authenticated and the date on which the Series B Securities
are to be exchanged for an equal principal amount of Series A Securities.
In connection with the transfer of an entire Global Security to
beneficial owners pursuant to this Section, the Global Security shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall upon a request from the Company authenticate and
deliver, to each beneficial owner identified by DTC, in exchange for its
beneficial interest in the Global Security, an equal aggregate principal amount
of Physical Securities of authorized denominations.
The Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
The Trustee may appoint an authenticating agent to authenticate
Securities. An authenticating agent may authenticate Securities whenever the
Trustee may do so except on original issuance. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with
the Company or its Affiliates.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency designated pursuant to
Section 4.04 where Securities may be presented for registration of transfer or
for exchange (the "Registrar") and an office or agency designated pursuant to
Section 4.04 where Securities may be presented for payment (the "Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may have one or more co-registrars and one
or more additional paying agents. The term "Paying Agent" includes any
additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. Such agency agreement shall provide for
reasonable compensation for such services. The agreement shall implement the
provisions of this Indenture that relate to such Agent and applicable
provisions of the TIA. The Company shall notify the Trustee of the name and
address of any such Agent and shall furnish the Trustee with an executed
counterpart of any such agency agreement. If the Company fails to maintain or
act as Registrar or Paying Agent, the Trustee shall act as such and shall be
duly compensated therefor.
The Registrar or a co-registrar and a Paying Agent shall be maintained
by the Company in the City of New York. The Company initially designates the
Trustee as the Registrar and Paying Agent.
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SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
On or before each due date of the principal, premium (if any) and
interest on any Security, the Company shall deposit with the Paying Agent
immediately available funds sufficient to pay such principal, premium (if any)
and interest becoming due. The Company shall require each Paying Agent other
than the Trustee to hold in trust for the benefit of Holders or the Trustee all
money held by such Paying Agent for the payment of principal, premium (if any)
or interest on the Securities, and to notify the Trustee of any Default by the
Company or any Subsidiary Guarantor in making any such payment. While any such
Default continues, the Trustee may require the Paying Agent to pay all money
held by it to the Trustee. Except as provided in the immediately preceding
sentence, the Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon doing so, such Paying Agent (other than the
Company or a Subsidiary) shall have no further liability for the money. If the
Company or a Subsidiary or any of their Affiliates acts as Paying Agent, it
shall segregate and hold as separate trust funds for the benefit of the Holders
and the Trustee all money held by it as Paying Agent.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the name and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause to be furnished to the
Trustee at least 5 Business Days before each semiannual interest payment date,
and at such other times as the Trustee may request in writing, a list in such
form and as of such date as the Trustee may reasonably require of the names and
addresses of Holders, and the Company shall otherwise comply with TIA Section
312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
The Company shall cause to be kept a register (the "Security Register")
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. The Security Register shall be in written form or any other form
capable of being converted into written form within a reasonable time. At all
reasonable times and during normal business hours, the Security Register shall
be open to inspection by the Trustee.
Subject to the provisions of this Section 2.06 and Section 2.07, upon
surrender for registration of transfer of any Security at the office or agency
of the Company designated pursuant to Section 4.04, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of like tenor and of any
authorized denomination and of a like aggregate principal amount, each such
Security having the notation of Subsidiary Guarantees thereon.
Furthermore, any Holder of a Global Security shall, by acceptance of
such Global Security, be deemed to have agreed that transfers of beneficial
interests in such Global Security may be effected only through a book-entry
system maintained by DTC (or its agent), and that ownership of a beneficial
interest in a Global Security shall be required to be reflected in book-entry
form.
At the option of any Holder, Securities may be exchanged for other
Securities of like tenor and of any authorized denomination and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
the office or agency of the Company designated pursuant to Section 4.04.
Further, as provided in a Registration Rights Agreement and subject to the
limitations set forth therein, at the option of any Holder, Series A Securities
may be exchanged, pursuant to a corresponding Exchange Offer, for Series B
Securities of like aggregate principal amount, upon surrender of the Series A
Securities to be exchanged at such office or agency or otherwise pursuant to
such Exchange Offer.
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Whenever any Securities are so surrendered for exchange, the Company shall
execute, the Subsidiary Guarantors shall execute notations of Subsidiary
Guarantees on, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities and the Subsidiary Guarantees noted thereon issued upon
any registration of transfer or exchange of Securities shall be the valid
obligations of the Company and the respective Subsidiary Guarantors, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. As a special condition to
registration of transfer or exchange of any Transfer Restricted Securities
involving removal of a Private Placement Legend (other than pursuant to an
effective registration statement under the Securities Act), the Holder
requesting such registration of transfer or exchange shall furnish the Opinion
of Counsel called for by Section 2.14. The following additional special
conditions shall apply to the indicated types of transfers or exchanges:
(a) Respecting any requested registration of transfer or
exchange of Transfer Restricted Securities in the form of Physical
Securities, such Physical Securities shall be accompanied, in the sole
discretion of the Company, by the following additional information and
documents, as applicable:
(1) if such Physical Security is being delivered to the
Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (in substantially the form of Exhibit A-3); or
(2) if such Physical Security is being transferred to a
Qualified Institutional Buyer in accordance with Rule 144A under
the Securities Act, a certification to that effect (in
substantially the form of Exhibit A-3); or
(3) if such Physical Security is being transferred to
an Institutional Accredited Investor, delivery of a certification
to that effect (in substantially the form of Exhibit A-3), a
Transferee Certificate for Institutional Accredited Investors in
the form of Exhibit A-4 and an Opinion of Counsel to the effect
that such transfer is in compliance with the Securities Act; or
(4) if such Physical Security is being transferred in
reliance on Regulation S, delivery of a certification to that
effect (substantially in the form of Exhibit A-3), a Transferor
Certificate for Regulation S Transfers in the form of Exhibit A-5
and an Opinion of Counsel to the effect that such transfer is in
compliance with the Securities Act; or
(5) if such Physical Security is being transferred in
reliance on Rule 144, delivery of a certification to that effect
(substantially in the form of Exhibit A-3) and an Opinion of
Counsel to the effect that such transfer is in compliance with
the Securities Act; or
(6) if such Physical Security is being transferred in
reliance on another exemption from the registration requirements
of the Securities Act, a certification to that
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effect (in substantially the form of Exhibit A-3) and an Opinion
of Counsel to the effect that such transfer is in compliance with
the Securities Act.
(b) Respecting any requested exchange of a Physical Security
for a beneficial interest in a Global Security, such Physical Security
shall be accompanied, in the sole discretion of the Company, by the
following additional information and documents:
(1) a certification, substantially in the form of
Exhibit A-3, that such Physical Security is being transferred to
a Qualified Institutional Buyer; and
(2) written instructions directing the Registrar to
make, or to direct DTC to make, an endorsement on the Global
Security to reflect an increase in the aggregate amount of the
Securities represented by the Global Security;
whereupon the Registrar shall cancel such Physical Security and cause,
or direct DTC to cause, in accordance with the standing instructions and
procedures existing between DTC and the Registrar, the aggregate
principal amount of Securities represented by the Global Security to be
increased accordingly. If no Global Security is then outstanding, the
Company shall issue and the Trustee shall upon a request from the
Company authenticate a new Global Security in the appropriate amount.
(c) Any Person having a beneficial interest in a Global
Security may upon request to the Registrar exchange such beneficial
interest for a Physical Security. Upon receipt by the Registrar of
written instructions (or such other form of instructions as is customary
for DTC) from DTC or its nominee on behalf of any Person having a
beneficial interest in a Global Security and upon receipt by the
Registrar of a written order or such other form of instructions as is
customary for DTC or the Person designated by DTC as having such a
beneficial interest containing registration instructions and, in the
case of any such transfer or exchange of a beneficial interest in
Transfer Restricted Securities, the following additional information and
documents:
(1) if such beneficial interest is being transferred to
the Person designated by DTC as being the beneficial owner, a
certification from such Person to that effect (in substantially
the form of Exhibit A-3); or
(2) if such beneficial interest is being transferred to
a Qualified Institutional Buyer in accordance with Rule 144A
under the Securities Act, a certification to that effect (in
substantially the form of Exhibit A-3); or
(3) if such beneficial interest is being transferred to
an Institutional Accredited Investor, delivery of a certification
to that effect (substantially in the form of Exhibit A-3), a
Transferee Certificate for Institutional Accredited Investors in
the form of Exhibit A-4 and an Opinion of Counsel to the effect
that such transfer is in compliance with the Securities Act; or
(4) if such beneficial interest is being transferred in
reliance on Regulation S, delivery of a certification to that
effect (substantially in the form of Exhibit A-3), a Transferor
Certificate for Regulation S Transfers in the form of Exhibit A-5
and an Opinion of Counsel to the effect that such transfer is in
compliance with the Securities Act; or
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(5) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit A-3) and an Opinion of Counsel to the effect that such
transfer is in compliance with the Securities Act; or
(6) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements
of the Securities Act, a certification to that effect (in
substantially the form of Exhibit A-3) and an Opinion of Counsel
to the effect that such transfer is in compliance with the
Securities Act,
then the Registrar will cause, in accordance with the standing
instructions and procedures existing between DTC and the Registrar, the
aggregate principal amount of the Global Security to be reduced and,
following such reduction, the Company will execute and, upon receipt of
a request from the Company, the Trustee will authenticate and deliver to
the transferee a Physical Security. Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this
Section 2.06(c) shall be registered in such names and in such authorized
denominations as DTC, pursuant to instructions from Agent Members or
otherwise, shall instruct the Registrar in writing. The Registrar shall
deliver such Physical Securities to the Persons in whose names such
Physical Securities are so registered.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to the Exchange Offer or Section
2.11, 3.06 or 9.05 not involving any transfer.
Neither the Trustee, the Registrar nor the Company shall be required
(i) to issue, register the transfer of or exchange any Physical Security during
a period of 30 days before a selection of Securities to be redeemed, or (ii) to
register the transfer of or exchange any Physical Security so selected for
redemption in whole or in part, except the unredeemed portion of any such
Security being redeemed in part.
SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
Each Global Security shall be (i) registered in the name of DTC or its
nominee, (ii) delivered to the Trustee as custodian for DTC and (iii) bear the
legend set forth in Exhibit A-2.
Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Indenture with respect to any Global Security held on their
behalf by DTC, or the Trustee as its custodian, or under such Global Security,
and DTC may be treated by the Company, the Subsidiary Guarantors, the Trustee
and any agent of the Company, the Subsidiary Guarantors or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Subsidiary Guarantors, the Trustee or any agent of the Company, the Subsidiary
Guarantors or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by DTC or shall impair, as between DTC
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Security.
Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to DTC, its successors or their
respective nominees. Interests of beneficial owners in a Global Security may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of DTC and the provisions of Section 2.06. In addition,
Physical Securities shall be
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transferred to all beneficial owners in exchange for their beneficial interests
in a Global Security if, and only if, either (1) DTC notifies the Company that
it is unwilling or unable to continue as depositary for the Global Security and
a successor depositary is not appointed by the Company within 90 days of such
notice, (2) an Event of Default has occurred and is continuing and the
Registrar has received a request from DTC to issue Physical Securities in lieu
of all or a portion of the Global Security (in which case the Company shall
deliver Physical Securities within 30 days of such request) or (3) the Company
determines not to have the Securities represented by the Global Security and
notifies DTC and the Registrar thereof.
In connection with the transfer of an entire Global Security to
beneficial owners pursuant to this Section, the Global Security shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall upon request of the Company authenticate and
deliver, to each beneficial owner identified by DTC, in exchange for its
beneficial interest in the Global Security, an equal aggregate principal amount
of Physical Securities of authorized denominations.
The Holders of a Global Security may grant proxies or otherwise
authorize any Persons, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
SECTION 2.08. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee or the Registrar
or if the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the requirements of the Trustee are met.
An indemnity bond may be required by the Trustee, the Company or any Subsidiary
Guarantor that is sufficient in the judgment of the Company, the Subsidiary
Guarantors and the Trustee to protect the Company, the Subsidiary Guarantors,
the Trustee or any Agent from any loss which any of them may suffer if a
Security is replaced. The Company may charge for its expenses (including fees
and expenses of the Trustee) in replacing a Security.
SECTION 2.09. OUTSTANDING SECURITIES.
Securities outstanding at any time are all Securities authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation and those described in this Section 2.09 as not outstanding.
Except as set forth in Section 2.10, a Security does not cease to be
outstanding because the Company, the Subsidiary Guarantors or any of their
respective Subsidiaries or Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.08, it ceases to be
outstanding and interest on it ceases to accrue unless the Trustee receives
proof satisfactory to it that the replaced Security is held by a bona fide
purchaser.
If the principal amount of any Security is considered paid under Section
4.01, it ceases to be outstanding and interest on it ceases to accrue.
SECTION 2.10. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, any Subsidiary Guarantor or an Affiliate of the Company shall
be considered as though they are not outstanding, except that for the
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purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which the Trustee
actually knows are so owned shall be so disregarded.
SECTION 2.11. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and, upon written order of the Company, the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate and deliver definitive
Securities in exchange for temporary Securities surrendered to it.
SECTION 2.12. CANCELLATION.
The Company or any Subsidiary Guarantor at any time may deliver
Securities to the Trustee for cancellation. The Registrar and Paying Agent
shall forward to the Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee shall cancel all Securities surrendered for
registration or transfer, exchange, payment or cancellation and shall destroy
cancelled Securities or retain cancelled Securities in accordance with the
Trustee's standard retention policy unless the Company directs their return to
the Company. Except as provided in Section 2.08, the Company may not issue new
Securities to replace Securities that it has paid or delivered to the Trustee
for cancellation.
Securities that are mandatorily or optionally redeemed by the Company or
that are purchased by the Company pursuant to an Asset Sale Offer or a Change
of Control Offer, or that are otherwise acquired by the Company, will be
surrendered to the Trustee for cancellation.
SECTION 2.13. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner (plus interest on such
defaulted interest to the extent lawful) to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the
Securities and in Section 4.01. The Company shall fix the special record date
and payment date. At least 10 days before the special record date, the Company
shall mail to each Holder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.14. PRIVATE PLACEMENT LEGEND.
(a) All Series A Securities originally issued hereunder shall bear
the Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar shall deliver
only Securities that bear the Private Placement Legend unless, and the Trustee
is hereby authorized to deliver Securities without the Private Placement Legend
if, (i) there is delivered to the Trustee an Opinion of Counsel to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act,
(ii) such Security has been sold pursuant to an effective registration
statement under the Securities Act, which fact has been certified to the
Trustee in an Officers' Certificate or (iii) notwithstanding the foregoing,
upon consummation of an Exchange Offer, the Company shall issue and the Trustee
shall authenticate Series B Securities in exchange for Series A Securities
accepted for exchange in the corresponding Exchange Offer, which Series B
Securities shall not bear the Private Placement Legend, and the Registrar shall
rescind any restriction on the transfer of such Securities, in each case unless
the Holder of such Series A Securities is either (A) a broker-dealer, (B) a
Person participating in the distribution of such Series A Securities or (C) a
Person who is an affiliate (as defined in Rule 144A) of the Company. Upon the
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transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Registrar shall deliver Securities that do not bear the
Private Placement Legend.
(b) By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such a Security acknowledges the restrictions on
transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICE TO TRUSTEE.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the redemption price and the
principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section 3.01 at
least 35 days before the redemption date (unless a shorter notice period shall
be satisfactory to the Trustee). Any notice given pursuant to this Section
3.01 may be cancelled at any time prior to notice of such redemption being
mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed in multiples of $1,000 pro rata, by lot or
by any other method that the Trustee considers fair and appropriate and, if the
Securities are listed on any securities exchange, by a method that complies
with the requirements of such exchange. The Trustee shall make the selection
from outstanding Securities not previously called for redemption. The Trustee
may select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them it selects
shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption. The Trustee shall notify the Company
promptly of the Securities or portions of Securities to be called for
redemption.
The provisions of the first paragraph of this Section 3.02 shall not
apply with respect to any redemption affecting only a Global Security, whether
such Global Security is to be redeemed in whole or in part. In case of any
such redemption in part, the unredeemed portion of the principal amount of the
Global Security shall be in an authorized denomination.
SECTION 3.03. NOTICE TO HOLDERS.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption by first-class mail to each Holder of
Securities to be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
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(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in the payment of the
redemption price or accrued interest, interest on Securities called for
redemption ceases to accrue on and after the redemption date;
(6) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued; and
(7) the subparagraph of paragraph 5 of the Securities pursuant
to which the Securities called for redemption are being redeemed.
If any of the Securities to be redeemed is in the form of a Global
Security, then the Company shall modify such notice to the extent necessary to
accord with the procedures of DTC or its successors applicable to redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the redemption date
at the redemption price. Upon surrender to the Paying Agent, such Securities
shall be paid at the redemption price, plus accrued interest to the redemption
date. Failure to give notice or any defect in the notice to any Holder shall
not affect the validity of the notice to any Holder.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before the redemption date, the Company shall deposit with the
Paying Agent immediately available funds sufficient to pay the redemption price
of, and accrued interest on, the Securities to be redeemed on that date. The
Paying Agent shall promptly return to the Company any money so deposited which
is not required for that purpose upon the written request of the Company,
except with respect to monies owed as obligations to the Trustee pursuant to
Article Seven.
If any Security called for redemption shall not be so paid upon
redemption because of the failure of the Company to comply with the preceding
paragraph, interest will continue to be payable on the unpaid principal,
including from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case
at the rate provided in the Securities and in Section 4.01.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is to be redeemed in part, the Company
shall issue and execute and the Trustee shall authenticate for the Holder a new
Security or Securities equal in aggregate principal amount to the unredeemed
portion of the Security surrendered.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of, and premium (if any) and
interest on, the Securities on the dates and in the manner provided in the
Securities and this Indenture. Principal of, and premium (if any) and interest
on, the Securities shall be considered paid on the date due if the Trustee or
Paying Agent holds on that date money deposited by the Company designated for
and sufficient to pay all principal, premium (if any) and interest then due.
The Company shall pay interest on overdue principal at the rate borne by
the Securities and shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
The Company shall notify the Trustee and any Paying Agent immediately
upon the occurrence of any Registration Default and, with respect to payments
of Additional Interest, the Company shall notify the Trustee and any Paying
Agent prior to the date of any interest payment of the amount of Additional
Interest payable to each Holder.
SECTION 4.02. SEC REPORTS.
Each of the Company and the Subsidiary Guarantors shall file with the
Trustee within 15 days after it files them with the SEC copies of the annual
reports and of the information, documents, and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which each of the Company and the Subsidiary Guarantors is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If
the Company is not subject to the requirements of such Section 13 or 15(d) of
the Exchange Act, the Company shall file on a timely basis with the SEC, to the
extent such filings are accepted by the SEC and whether or not the Company has
a class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15 of the Exchange Act. The Company
shall also file with the Trustee (with exhibits), and provide to each Holder of
Securities or, upon request, to as prospective Holder of Securities (without
exhibits), without cost to such Holder or prospective Holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the SEC or the date on which the Company would
be required to file such reports and documents if the Company were so required
and, if filing such reports and documents with the SEC is not accepted by the
SEC or is prohibited under the Exchange Act, the Company shall supply, at its
cost, copies of such reports and documents (including any exhibits thereto) to
any Holder of Securities promptly upon written request. The Company and each
of the Subsidiary Guarantors also shall comply with the other provisions of TIA
Section 314(a).
SECTION 4.03. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that a review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officer or Officers, as applicable, with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of such Officer's knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or
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Event of Default shall have occurred, describing all such Defaults or Events of
Default of which such Officer may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of such
Officer's knowledge no event has occurred and remains in existence by reason of
which payments on account of the principal of or interest, if any, on the
Securities are prohibited. Such Officers' Certificate shall comply with TIA
Section 314(a)(4).
(b) The Company and the Subsidiary Guarantors will, so long as any of
the Securities are outstanding, deliver to the Trustee forthwith upon any
Officer becoming aware of any Default or Event of Default or default in the
performance of any covenant, agreement or condition contained in this
Indenture, an Officers' Certificate specifying such Default or Event of Default
and what action the Company or any Subsidiary Guarantor proposes to take with
respect thereto.
SECTION 4.04. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the City of New York, an office or agency
where Securities may be surrendered for registration of transfer or exchange or
for presentation for payment and where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. Until otherwise designated
by the Company to the Trustee, the Company's office or agency in the City of
New York for the foregoing purposes will be the office of the Trustee
maintained for such purpose. If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and demands may be
made or served at the address of the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the City of New
York for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
SECTION 4.05. CORPORATE EXISTENCE.
Subject to Article Five, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership or other existence of each Material
Subsidiary in accordance with the respective organizational documents of the
Company and each Material Subsidiary and the material rights (charter and
statutory) and material franchises of the Company and the Material
Subsidiaries; provided, that the Company shall not be required to preserve any
such right or franchise, or the corporate existence of any Material Subsidiary,
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
and that the loss thereof is not, and foreseeably will not be, adverse to the
payment and performance of the obligations under the Securities and otherwise
under this Indenture.
SECTION 4.06. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent that
each may lawfully do so) that it will not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension, or usury law or other law, which would prohibit or forgive the
Company or any Subsidiary Guarantor from paying all or any portion of the
principal of and/or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
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lawfully do so) the Company and each Subsidiary Guarantor hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 4.07. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company and each Material Subsidiary will pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (1) all
taxes, assessments and governmental charges levied or imposed upon the Company
or any Material Subsidiary or upon the income, profits or property of the
Company or any Material Subsidiary other than any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings and for which appropriate provision has been
made in accordance with GAAP, and (2) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a Lien (other than a
Permitted Lien) upon the property of the Company or any Material Subsidiary, in
each case except to the extent the failure to do so would have, in the judgment
of the Company, a material adverse effect on the Company and the Subsidiaries
taken as a whole.
SECTION 4.08. MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Company shall cause all material Property used or useful in
the conduct of its business or the business of any Subsidiary to be maintained
and kept in good condition, repair and working order (ordinary wear and tear
excepted) and supplied with all necessary equipment and shall cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company or any Subsidiary from discontinuing the operation or
maintenance of any such Property, or disposing of it, if such discontinuance or
disposal is, in the judgment of the Company or such Subsidiary, desirable in
the conduct of its business and not adverse to the payment and performance of
the obligations under the Securities and otherwise under this Indenture.
(b) The Company shall provide or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company are adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States or an agency or instrumentality
thereof, in such amounts, with such deductibles, and by such methods as shall
be either (i) consistent with past practices of the Company or the applicable
Subsidiary or (ii) customary, in the reasonable, good faith opinion of the
Company, for corporations similarly situated in the industry, unless the
failure to provide such insurance (together with all other such failures) would
not have a material adverse effect on the financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole.
SECTION 4.09. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS.
The Company will not, and will not permit any of the Subsidiaries to
directly or indirectly, issue, incur, assume, guarantee, become liable,
contingently or otherwise, with respect to or otherwise become responsible for
the payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default with
respect to the Securities shall have occurred and be continuing at the time or
as a consequence at the incurrence of such Indebtedness, the Company may incur
Indebtedness and any Subsidiary may incur Indebtedness, if on
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the date of the incurrence, the Company's Consolidated EBITDA Coverage Ratio
would have been greater than 2.0 to 1.0.
For purposes of determining any particular amount of Indebtedness
incurred under this Section 4.09, (i) guarantees by the Company or any of the
Subsidiaries of Indebtedness of the Company or any of the Subsidiaries
otherwise included in the determination of such amount shall not also be
included, and (ii) any Indebtedness of the Company or any Subsidiary incurred
for, or related to, a Person other than another Subsidiary or the Company, as
applicable, shall be deemed to be in an amount equal to the greater of (a) the
lesser of (1) the full amount of the Indebtedness of such other Person or
(2) the fair market value of the assets and properties of the Company or such
Subsidiary, as to which the holder or holders of such Indebtedness are
expressly limiting the obligations of the Company or such Subsidiary, the value
of which assets and properties of the Company or any Subsidiary will be
determined in good faith by the Board of Directors of the Company or such
Subsidiary, as applicable (which determination shall be evidenced by a Board
Resolution of the applicable Person), and (b) the amount of the Indebtedness of
such other Person as has been expressly contractually assumed or guaranteed by
the Company or such Subsidiary.
Notwithstanding anything to the contrary in this Section 4.09, no
Subsidiary that is not already a Subsidiary Guarantor shall incur any
Indebtedness with respect to any Indebtedness of the Company or any other
Subsidiary unless such Subsidiary, the Company and the Trustee execute and
deliver a supplemental indenture evidencing such Subsidiary Guarantor's
Subsidiary Guarantee of the Securities, such Subsidiary Guarantee to be a
senior unsecured obligation of such Subsidiary.
SECTION 4.10. LIMITATION ON SUBORDINATED INDEBTEDNESS.
Neither the Company nor any Subsidiary Guarantor may, directly or
indirectly, in any event incur any Indebtedness that by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any
other Indebtedness of the Company or such Subsidiary Guarantor, as the case may
be, unless such Indebtedness is also by its terms (or by the terms of any
agreement governing such Indebtedness) made expressly subordinate to the
Securities or the Subsidiary Guarantee of such Subsidiary Guarantor, as the
case may be, to the same extent and in the same manner as such Indebtedness is
subordinated pursuant to subordination provisions that are most favorable to
the holders of any other Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be.
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not permit any of the Subsidiaries to,
directly or indirectly, make any Restricted Payment, if at the time of such
Restricted Payment, or on a pro forma basis after giving effect thereto:
(x) a Default or an Event of Default under this Indenture has
occurred and is continuing;
(y) the aggregate amount expended for all Restricted Payments
subsequent to the Issue Date exceeds the sum of (without duplication):
(1) 50% of aggregate Consolidated Net Income of the
Company (or if such Consolidated Net Income is a loss, minus 100%
of such loss) earned on a cumulative basis during the period
beginning on the first day of the month containing the Issue Date
and ending on the last date of the Company's fiscal quarter
immediately preceding such Restricted Payment; plus
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(2) 100% of the aggregate Net Proceeds received by the
Company from any Person other than a Subsidiary from the issuance
and sale subsequent to the Issue Date of Qualified Capital Stock
(excluding (A) any Qualified Capital Stock paid as a dividend on
any Capital Stock or as interest on any Indebtedness, (B) the
issuance of Qualified Capital Stock upon the conversion of, or in
exchange for, any Qualified Capital Stock and (C) any Qualified
Capital Stock with regard to issuances and sales financed
directly or indirectly using funds borrowed from the Company or
any Subsidiary, until and to the extent such borrowing is
repaid); plus
(3) to the extent not otherwise included in
Consolidated Net Income, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the
Company or a Subsidiary after the date of this Indenture from any
Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Subsidiary (valued in each case as
provided in the definition of Investment) other than amounts
constituting Permitted Unrestricted Subsidiary Investments; and
(4) $5.0 million; or
(z) the Company would not be able to incur $1.00 of additional
Indebtedness (excluding Permitted Indebtedness) as provided in the first
paragraph of Section 4.09.
The foregoing provisions of this covenant will not prevent the payment
of any dividend within 60 days after the date of its declaration if the
dividend would have been permitted on the date of declaration; provided,
however, that payments made in accordance with this paragraph shall be counted
for purposes of computing amounts expended pursuant to subclause (y) in the
immediately preceding paragraph.
SECTION 4.12. LIMITATION ON ASSETS SALES.
The Company may not, and may not permit any of its Subsidiaries to,
engage in an Asset Sale unless:
(i) the Company (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee for an Asset
Sale or series of related Asset Sales involving assets of the Company or
its Subsidiaries having an aggregate value of more than $5.0 million) of
the assets or Capital Stock issued or sold or otherwise disposed of and
(ii) the consideration therefor received by the Company or such
Subsidiary is in the form of cash and Cash Equivalents or Permitted
Industry Investments;
provided that the amount of any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Securities or the Subsidiary Guarantees) that are assumed
by the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Subsidiary from further liability shall be
deemed to be cash for purposes of this provision (but shall not be deemed to be
"Excess Proceeds" as defined below); and provided further, that the Company or
such Subsidiary may accept proceeds from such Asset Sale in other than cash and
Cash Equivalents or Permitted Industry Investments or any combination of the
foregoing if the aggregate amount of all proceeds from all Asset Sales after
the Issue Date that are other than cash, Cash Equivalents or Permitted
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Industry Investments after such Asset Sale, does not exceed 15% of Consolidated
Net Tangible Assets at the date of such Asset Sale.
Within 365 days after the receipt of any Net Available Proceeds from any
Asset Sale, the Company (or the Subsidiary, as the case may be) may:
(i) apply all or any part of the Net Available Proceeds
therefrom to repay Senior Indebtedness of the Company or Guarantor
Senior Indebtedness of a Subsidiary Guarantor or
(ii) invest all or any part of the Net Available Proceeds
thereof in Permitted Industry Investments made by the Company or a
Subsidiary or, to the extent not so applied during such 365-day period,
to such investments specifically identified during such 365-day period
reasonably anticipated in good faith by the Board of Directors of the
Company to be expended within 180 days after being specifically
identified (such 180-day period, the "Project Period").
Pending the final application of any such Net Available Proceeds, the Company
may temporarily reduce borrowings under any revolving credit facility or
otherwise invest such Net Available Proceeds in any manner that is not
prohibited by this Indenture. Any Net Available Proceeds from Asset Sales
occurring on or after the Issue Date that are not applied or invested within
365 days of the receipt thereof (or if later, within 35 Business Days following
an applicable Project Period) as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds". When the aggregate
amount of Excess Proceeds equals or exceeds $10.0 million (the date of such
occurrence, the "Asset Sale Offer Trigger Date"), the Company shall make an
offer to all Holders of Securities (an "Asset Sale Offer") to purchase the
maximum principal amount of Securities that may be purchased out of such Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon to the date of
purchase in accordance with the procedures set forth below in this Section 4.12
and Additional Interest (if any) as set forth in an in force Registration
Rights Agreement; provided, however, that, if the Company is required to apply
such Excess Proceeds to repurchase, or to offer to repurchase, any Pari Passu
Indebtedness, the Company shall only be required to offer to repurchase the
maximum principal amount of Securities that may be purchased out of the amount
of such Excess Proceeds multiplied by a fraction, the numerator of which is the
aggregate principal amount of Securities outstanding and the denominator of
which is the aggregate principal amount of Securities outstanding plus the
aggregate principal amount of Pari Passu Indebtedness outstanding. To the
extent that the aggregate amount of Securities and Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than the amount that the
Company is required to repurchase, the Company may use any of such remaining
Excess Proceeds for general corporate purposes. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will not enter into or suffer to exist or permit any
Subsidiary to enter into or suffer to exist any agreement that would place any
restriction of any kind (other than pursuant to law or regulation) on the
ability of the Company to make an Asset Sale Offer following any Asset Sale.
In the event that, pursuant to this Section 4.12, the Company shall be
required to commence an Asset Sale Offer, it shall follow the procedures
specified below.
(a) The Asset Sale Offer shall be made to all Holders and
shall remain open for a period of at least 20 Business Days following
its commencement (after giving effect, to the extent provided above in
this Section 4.12, to any then outstanding Pari Passu Indebtedness, the
"Offer Period").
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(b) If the Asset Sale Offer Purchase Date is on or after an
interest record date and on or before the related interest payment date,
any accrued and unpaid interest thereon, if any (including, if any,
Additional Interest), shall be paid to the Person in whose name a
Security is registered at the close of business on such record date, and
no additional interest shall be payable to Holders who tender Securities
pursuant to the Asset Sale Offer.
(c) Within 10 Business Days following any Asset Sale Offer
Trigger Date, the Company shall send, by first class mail, a notice to
each of the Holders at such Holder's registered address, with a copy to
the Trustee. The notice, which shall govern the terms of the Asset Sale
Offer, shall contain all instructions and materials necessary to enable
such Holders to tender Securities pursuant to the Asset Sale Offer, and
shall state:
(1) (A) that the Asset Sale Offer Trigger Date has
occurred pursuant to Section 4.12, and that the Company is
offering to purchase the maximum principal amount of Securities
that may be purchased out of the Excess Proceeds (after giving
effect, to the extent provided above in this Section 4.12, to any
then outstanding Pari Passu Indebtedness, the "Offer Amount") at
an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest
thereon, if any (including, if any, Additional Interest), to the
date of purchase, which shall be a Business Day (the "Asset Sale
Offer Purchase Date") that is not earlier than 30 Business Days
nor later than 60 Business Days from the date such notice is
mailed, unless otherwise required by applicable law and (B) the
amount of the Offer Amount and the date of the Asset Sale Offer
Purchase Date;
(2) the amount of accrued and unpaid interest, if any
(including, if any, Additional Interest), as of the Asset Sale
Offer Purchase Date;
(3) that any Securities or portions thereof subject to
the Asset Sale Offer not tendered or accepted for payment shall
continue to accrue interest;
(4) that, unless the Company defaults in the payment of
the purchase price for the Securities payable pursuant to the
Asset Sale Offer, any such Securities or portions thereof
accepted for payment pursuant to the Asset Sale Offer shall cease
to accrue interest after the Asset Sale Offer Purchase Date;
(5) that Holders electing to have any Securities or
portions thereof purchased pursuant to any Asset Sale Offer shall
be required to surrender such Securities, duly endorsed for
transfer with the form entitled "Option of Holder to Elect
Purchase" on the reverse of such Securities completed, to the
Company or a Paying Agent at the address specified in the notice
at least 3 Business Days before the Asset Sale Offer Purchase
Date;
(6) that Holders shall be entitled to withdraw their
election if the Company or the Paying Agent, as the case may be,
receives, before the expiration of the Offer Period, a facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing its
election to have such Securities or portions thereof purchased;
(7) that, if (A) the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount or
(B) less than all of the Securities tendered pursuant
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to the Asset Sale Offer are accepted for payment by the Company
for any reason consistent with this Indenture, the Trustee shall
select the Securities to be purchased in compliance with the
requirements of the principal national securities exchange, if
any, on which the Securities are listed or, if the Securities are
not so listed, on a pro rata basis, by lot or by such method as
the Trustee deems fair and appropriate; provided that Securities
accepted for payment in part will only be purchased in integral
multiples of $1,000; and
(8) that Holders whose Securities were purchased only
in part shall be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(d) If any of the Securities subject to an Asset Sale Offer is
held of record by DTC, then (x) the Company shall modify such notice to
the extent necessary to accord with the procedures of DTC applicable to
repurchases, (y) the Company or its designated agent may accept as
tendered for repurchase pursuant to this Section 4.12 Securities
tendered by means of book entry in accordance with normal procedures of
DTC and (z) the Trustee will return to the Holder of a Global Security
that is being purchased in part, such Global Security with a notation
duly noted on it adjusting the principal amount thereof to be equal to
the unpurchased portion of such Global Security.
(e) On the Asset Sale Offer Purchase Date, the Company shall:
(i) accept for payment the maximum principal amount of Securities or
portions thereof tendered pursuant to the Asset Sale Offer that can be
purchased out of the Excess Proceeds, (ii) deposit with the Paying Agent
the aggregate purchase price of all Securities or portions thereof
accepted for payment and (iii) deliver or cause to be delivered to the
Trustee all Securities tendered pursuant to the Asset Sale Offer. The
Company or the Paying Agent, as the case may be, shall promptly mail to
each Holder of Securities or portions thereof accepted for payment an
amount equal to the purchase price for such Securities, and the Company
will execute and the Trustee shall promptly authenticate and mail to any
such Holder of Securities accepted for payment in part a new Security
equal in principal amount to any unpurchased portion of the Securities,
and any Security not accepted for payment in whole or in part shall be
promptly returned to the Holder of such Security. The Company shall
announce the results of the Asset Sale Offer to Holders of the
Securities on or as soon as practicable after the Asset Sale Offer
Purchase Date. The Company shall comply with the requirements of
Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations thereunder, if applicable, in connection with any Asset Sale
Offer.
SECTION 4.13. LIMITATION ON LIENS SECURING INDEBTEDNESS.
The Company will not, and will not permit any of the Subsidiaries to,
create, incur, assume or suffer to exist any Liens (other than Permitted Liens)
upon any of their respective Properties securing (i) any Indebtedness of the
Company, unless the Securities are equally and ratably secured or (ii) any
Indebtedness of any Subsidiary Guarantor, unless the Securities or the
Subsidiary Guarantees, as the case may be, are equally and ratably secured;
provided that if such Indebtedness is expressly subordinated to the Securities
or the Subsidiary Guarantees, the Lien securing such Indebtedness will be
subordinated and junior to the Lien securing the Securities or the Subsidiary
Guarantees, with the same relative priority as such subordinated Indebtedness
will have with respect to the Securities or the Subsidiary Guarantees, as the
case may be.
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SECTION 4.14. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create or suffer to exist or allow to become effective any
consensual encumbrance or restriction of any kind (i) on the ability of any of
the Subsidiaries (a) to pay dividends or make other distributions on its
Capital Stock or make payments on any Indebtedness owed to the Company or any
other Subsidiary, (b) to make loans or advances to the Company or any other
Subsidiary, or (c) to transfer any of its Property to the Company or any other
Subsidiary, or (ii) on the ability of such Person or any other subsidiary of
such Person to receive or retain any such (a) dividends, distributions or
payments, (b) loans or advances, or (c) transfers of Property (any such
restriction being referred to herein as a "Payment Restriction"), except for
such encumbrances or restrictions existing under or by reason of (1) the Credit
Facility as in effect from time to time, (2) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of the
Company or any Subsidiary, (3) any instrument governing Indebtedness of a
Person acquired by the Company or a Subsidiary at the time of such acquisition,
which encumbrance or restriction is not applicable to any Person, other than
the Person, or the Property of the Person, so acquired, provided that such
Indebtedness was not incurred in anticipation of such acquisition, (4) with
respect to clauses (i)(c) and (ii)(c) above, Purchase Money Obligations for
Property acquired in the ordinary course of business, (5) Indebtedness existing
pursuant to a written agreement in effect on the date of this Indenture,
(6) Indebtedness under this Indenture, or (7) Indebtedness incurred to
refinance, refund, extend or renew Indebtedness referred to in clauses (1),
(3), (4) or (5) above; provided that the Payment Restrictions contained therein
are not materially more restrictive than those provided for in the Indebtedness
being refinanced, refunded, extended or renewed.
SECTION 4.15. LIMITATION ON TRANSACTIONS WITH RELATED PERSONS.
Neither the Company nor any of the Subsidiaries will (i) sell, lease,
transfer or otherwise dispose of any of its Property to, (ii) purchase any
property from, (iii) make any Investment (other than Permitted Unrestricted
Subsidiary Investments and other Investments that do not breach the provisions
of Section 4.11) in, or (iv) enter into any contract or agreement with or for
the benefit of, a Related Person of the Company or any Subsidiary (other than
the Company or any such Subsidiary in which no Related Person (other than the
Company or another Wholly Owned Subsidiary) owns, directly or indirectly, an
equity interest) (a "Related Party Transaction"), unless (a) such Related Party
Transaction or series of associated Related Party Transactions is on terms that
are no less favorable to the Company or such Subsidiary, as the case may be,
than those that could be obtained in a comparable arm's length transaction with
an unrelated third party, (b) with respect to any Related Party Transaction or
series of associated Related Party Transactions involving aggregate payments in
excess of $1.0 million, the Company delivers, within 30 days of such Related
Party Transaction or series of associated Related Party Transactions, an
Officers' Certificate to the Trustee certifying that such Related Party
Transaction or series of associated Related Party Transactions complies with
the immediately preceding clause (a), and (c) with respect to a Related Party
Transaction or series of associated Related Party Transactions involving
payments of $5.0 million or more, the Company delivers, within 30 days of such
Related Party Transaction or series of associated Related Party Transactions,
an Officers' Certificate to the Trustee certifying that (1) such Related Party
Transaction or series of associated Related Party Transactions complies with
clause (a) above and (2) such Related Party Transaction or series of associated
Related Party Transactions has been approved by a majority of the independent
directors of the Company. Notwithstanding anything to the contrary in the
foregoing, the foregoing restrictions shall not apply to (A) Related Party
Transactions that are approved by the Board of Directors of the Company and
such Subsidiary, if applicable, as in the best interests of the Company or such
Subsidiary, which transactions together with all other Related Party
Transactions in a related series involve or have an aggregate value not
exceeding $1.0 million in each fiscal year, (B) fees and compensation paid to
or agreements with officers, directors, employees or consultants of the Company
or any Subsidiary, in each case that are
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reasonable, as determined by the Board of Directors or senior management
thereof in good faith; (C) Employee Stock Repurchases, (D) transactions
described under the heading "Certain Relationships and Related Transactions" in
the Offering Circular of the Company dated August 14, 1997, relating to the
issuance of the Securities, and (E) Restricted Payments that are not prohibited
by the provision of Section 4.11.
SECTION 4.16. LIMITATION ON CONDUCT OF BUSINESS.
The Company and the Subsidiaries will be operated in a manner such that
their business activities will be in the oilfield services business and related
products and services, including, but not limited to, (i) rental of downhole
tools, general oil field equipment, petrochemical equipment and industrial and
other equipment (which may include equipment not used in the oil and gas
industry), (ii) drilling services, (iii) pipeline testing services, and
(iv) such other businesses as are reasonably necessary or desirable to
facilitate the conduct and operations of the foregoing businesses.
SECTION 4.17. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer to purchase all of the then outstanding Securities (a "Change of
Control Offer") from the Holders of such Securities, at a purchase price (the
"Change of Control Purchase Price") in cash equal to 101% of the aggregate
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the Change of Control Purchase Date (as defined below), in accordance with
the procedures set forth in paragraphs (b), (c) and (d) of this Section. The
Company shall, subject to the provisions described below, be required to
purchase all Securities properly tendered pursuant to a Change of Control Offer
and not withdrawn.
(b) The Change of Control Offer shall remain open for at least 20
Business Days and until the close of business on the fifth Business Day prior
to the Change of Control Purchase Date (as defined below) and in any event, for
such period as required by applicable law.
(c) Not later than the 30th day following the occurrence of a Change
of Control, the Company shall mail to the Trustee and to each Holder of the
Securities a notice (the "Change of Control Notice") stating:
(1) that a Change in Control has occurred and that such Holder
has the right to require the Company to repurchase such Holder's
Securities, or portion thereof, at the Change of Control Purchase Price;
(2) any information regarding such Change of Control required
to be furnished pursuant to Section 14(e) of the Exchange Act and any
other applicable securities laws and regulations thereunder;
(3) a purchase date (the "Change of Control Purchase Date")
which shall be on a Business Day and no earlier than 30 days nor later
than 60 days after the occurrence of the Change of Control;
(4) that any Security, or portion thereof, not tendered or
accepted for payment will continue to accrue interest;
(5) that unless the Company defaults in making payments
therefor, or payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the
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Change of Control Offer shall cease to accrue interest after the Change
of Control Purchase Date; and
(6) the instructions a Holder must follow in order to have his
Securities repurchased in accordance with paragraph (d) of this
Section 4.17.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right.
(d) To exercise the repurchase right, the Holder must deliver, on or
before the fifth calendar day prior to the Change of Control Purchase Date,
written notice to the Company (or an agent designated by the Company for such
purpose) of the Holder's exercise of such right, together with (i) the Security
or Securities with respect to which the right is being exercised, duly endorsed
for transfer with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, and (ii) if the Change of Control Purchase
Date falls between any record date for the payment of interest on the
Securities and the next succeeding interest payment date, an amount equal to
the interest which the Holder is entitled to receive on such interest payment
date; provided, however, that with respect to Securities held of record by DTC,
(y) the Company shall modify such notice to the extent necessary to accord with
the procedures of DTC applicable to repurchases, and (z) the Company or its
designated agent may accept as tendered for repurchase pursuant to this
Section 4.17 Securities tendered by means of a book entry in accordance with
the normal procedures of DTC, provided that any such interest amount shall be
delivered by the Holder to the Company or its designated agent.
Notwithstanding the foregoing, if prior to the date that a Change of Control
Notice is required to be mailed, a notice of optional redemption of all of the
outstanding Securities has been mailed in accordance with the terms of this
Indenture, the Company's obligation to send the Change of Control Notice shall
be suspended (unless the Company shall default in the payment of the redemption
price or accrued interest).
(e) On the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Notice, (ii) if the Company appoints a depository or Paying
Agent, deposit with such depository or Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof tendered to the Company.
DTC, the Company or the Paying Agent, as the case may be, shall promptly mail
to the Holder of Securities so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders of Physical Securities a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date. For purposes of this
Section 4.17, the Trustee shall act as the Paying Agent.
(f) The Company, to the extent applicable and if required by law,
will comply with Sections 13 and 14 of the Exchange Act and the provisions of
Regulation 14E and any other tender offer rules under the Exchange Act and any
other federal and state securities laws, rules and regulations which may then
be applicable to any offer by the Company to purchase the Securities pursuant
to the provisions of this Section 4.17.
(g) The Company shall not be required to make a Change of Control
Offer following a Change of Control if a third party makes the Change of
Control Offer in the manner, at the time and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control
Offer made by the Company and purchases all Securities validly tendered and not
withdrawn under such Change of Control Offer.
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SECTION 4.18. SALE-AND-LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Subsidiaries to, enter
into any sale-and-leaseback transaction; provided that the Company or any
Subsidiary, as applicable, may enter into a sale-and-leaseback transaction if
(i) the Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to such sale-and-leaseback transaction
pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first
paragraph of Section 4.09 and (b) created a Lien to secure such Indebtedness
pursuant to Section 4.13, (ii) the fair market value of the consideration of
such sale-and-leaseback transaction is at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the Property that is the
subject of such sale-and-leaseback transaction, and (iii) the transfer of
assets in such sale-and-leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, Section 4.12.
SECTION 4.19. ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES.
The Company (i) may not, and may not permit any Wholly Owned Subsidiary
to, transfer, convey, sell or otherwise dispose of any Capital Stock of any
Wholly Owned Subsidiary to any Person (other than the Company or a Wholly Owned
Subsidiary), unless (a) such transfer, conveyance, sale or other disposition is
of all the Capital Stock of such Wholly Owned Subsidiary and (b) the cash Net
Available Proceeds from such transfer, conveyance, sale or other disposition
are applied in accordance with Section 4.12, and (ii) may not permit any Wholly
Owned Subsidiary of the Company to issue any of its Capital Stock or any
warrants, options or other rights to acquire Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital Stock) to
any Person other than to the Company or a Wholly Owned Subsidiary; except, in
the case of both clauses (i) and (ii) in this Section 4.19, with respect to
dispositions or issuances by a Wholly Owned Subsidiary of the Company as
contemplated in clauses (i) and (ii) of the definition of "Wholly Owned
Subsidiary".
SECTION 4.20. REGISTRATION RIGHTS AGREEMENT.
The Company will comply with all of the terms and provisions of each
Registration Rights Agreement, including, without limitation, its obligation to
pay Additional Interest (as defined therein) and to notify the Trustee
immediately of the occurrence of any Registration Default (as defined therein)
thereunder.
SECTION 4.21. QUALIFICATION OF INDENTURE.
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the corresponding Registration Rights
Agreement and shall pay all costs and expenses (including attorneys' fees for
the Company and the Trustee) incurred in connection therewith. In connection
with any such qualification of this Indenture under the TIA, the Trustee shall
be entitled to receive from the Company any such Officers' Certificates,
Opinions of Counsel or other documentation as it may reasonably request.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC.
The Company shall not consolidate with or merge with any Person or
convey, transfer or lease all or substantially all of its Property to any
Person, unless:
(1) the Company survives such merger or the Person formed by
such consolidation or into which the Company is merged or that acquires
by conveyance or transfer, or which leases, all or substantially all of
the Property of the Company is a Person organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and expressly assumes, by supplemental indenture, the due
and punctual payment of the principal of, and premium, if any, and
interest on all the Securities and the performance of every other
covenant and obligation of the Company under this Indenture;
(2) immediately before and after giving effect to such
transaction no Default or Event of Default exists;
(3) immediately after giving effect to such transaction on a
pro forma basis, the Consolidated Net Worth of the Company (or, if not
the Company, the surviving or transferee entity) is equal to or greater
than the Consolidated Net Worth of the Company immediately before such
transaction; and
(4) immediately after giving effect to such transaction on a
pro forma basis, the Company (or, if not the Company, the surviving or
transferee entity) would be able to incur $1.00 of additional
Indebtedness (excluding Permitted Indebtedness) under the test described
in the first paragraph of Section 4.09.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and
an Opinion of Counsel stating that the proposed transaction and such
supplemental indenture comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation, merger, conveyance, lease or transfer in
accordance with Section 5.01, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor had been named as the Company herein, and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants under this Indenture and the Securities.
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ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs upon:
(1) default in the payment of principal of, or premium, if
any, on, the Securities when due at maturity, upon repurchase, upon
acceleration or otherwise, including failure of the Company to
repurchase the Securities required to be repurchased, at the required
purchase price, upon a Change of Control or an Asset Sale Offer, and
failure to make, when due, any optional redemption payment;
(2) default in the payment of any installment of interest on
the Securities when due (including any interest payable in connection
with optional redemption payments) and continuance of such default for
30 days;
(3) default on any other Indebtedness of the Company, any
Subsidiary Guarantor or any other Subsidiary if either (a) such default
results from the failure to pay principal of, premium, if any, or
interest on, any such Indebtedness when due in excess of $5.0 million
and continuance of such default beyond any applicable cure, forbearance
or notice period, or (b) as a result of such default, the maturity of
such Indebtedness has been accelerated prior to its scheduled maturity,
without such default and acceleration having been rescinded or annulled
within a period of 10 days, and the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default, or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(4) default in the performance, or breach, of any other
covenant of the Company or any Subsidiary Guarantor in this Indenture
and failure to remedy such default within a period of 45 days after
written notice thereof from the Trustee or Holders of 25% in principal
amount of the outstanding Securities;
(5) the entry by a court of one or more judgments or orders
against the Company, any Subsidiary Guarantor or any other Subsidiary in
an aggregate amount in excess of $5.0 million and which are not covered
by insurance written by third parties that has not been vacated,
discharged, satisfied or stayed pending appeal within 60 days from the
entry thereof;
(6) a Subsidiary Guarantee by a Subsidiary Guarantor that is a
Material Subsidiary shall cease to be in full force and effect (other
than a release of a Subsidiary Guarantee by designation of such
Subsidiary Guarantor as an Unrestricted Subsidiary or as otherwise
provided under this Indenture in connection with the sale, liquidation
or other transfer of such Subsidiary Guarantor) or any Subsidiary
Guarantor shall deny, disaffirm or seek to revoke its obligations with
respect thereto;
(7) the Company or any Material Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
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(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing that it generally is unable to
pay its debts as the same become due; or
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief (with respect to the petition
commencing such case) against the Company or any Material
Subsidiary in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any Material
Subsidiary or for all or substantially all of its respective
Property, or
(C) orders the liquidation of the Company or any
Material Subsidiary, and the order or decree remains unstayed and
in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clauses (7) and (8) of Section 6.01) under Section 6.01 occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the outstanding Securities may declare the
unpaid principal of (or the Change of Control Purchase Price if the Event of
Default includes failure to pay the Change of Control Purchase Price), and
accrued and unpaid interest on, all the Securities then outstanding to be due
and payable, by a notice in writing to the Company (and to the Trustee, if
given by Holders) and upon any such declaration such principal amount, premium,
if any, and accrued and unpaid interest shall become immediately due and
payable, notwithstanding anything contained in this Indenture or the Securities
to the contrary. If an Event of Default specified in clauses (7) or (8) of
Section 6.01 occurs, all unpaid principal of, and accrued interest on, the
Securities then outstanding will become due and payable, without any
declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of the then outstanding
Securities, by written notice to the Company, the Subsidiary Guarantors and the
Trustee, may rescind and annul a declaration of acceleration and its
consequences if (i) the Company or any Subsidiary Guarantor has paid or
deposited with such Trustee a sum sufficient to pay (a) all overdue
installments of interest on all the Securities, (b) the principal of, and
premium, if any, on any Securities that has become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in the Securities, (c) to the extent that payment of such
interest is lawful, interest on the defaulted interest at the rate or rates
prescribed therefor in the Securities, and (d) all money paid or advanced by
the Trustee thereunder and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel; (ii) all Events of
Default, other than the non-payment of the principal of any Securities that
have
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become due solely by such declaration of acceleration, have been cured or
waived as provided in this Indenture; and (iii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. No
such rescission will affect any subsequent Event of Default or impair any right
consequent thereon.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue,
in its own name and as trustee of an express trust, any available remedy by
proceeding at law or in equity to collect the payment of principal or interest
on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 6.07 and 9.02, the Holders of at least a majority in
principal amount of Securities then outstanding by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default or Event of Default in payment of principal, premium, if any, or
interest on the Securities, including any optional redemption payments or
Change of Control Offer or Asset Sale Offer payments.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Securities will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on such Trustee, provided that the Trustee may refuse to follow
any direction that (i) conflicts with law or this Indenture, (ii) is unduly
prejudicial to the rights of other Holders, or (iii) may involve the Trustee in
personal liability.
SECTION 6.06. LIMITATION ON REMEDIES.
Subject to Section 6.07, no Holder of any of the Securities will have
any right to institute any proceeding, judicial or otherwise, or for the
appointment of a receiver or trustee or pursue any remedy under this Indenture,
unless:
(i) such Holder has previously given notice to the Trustee of
a continuing Event of Default,
(ii) the Holders of not less than 25% in principal amount of
the outstanding Securities have made written request to such Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee under this Indenture,
(iii) such Holder or Holders have offered and, if requested,
provided to such Trustee indemnity satisfactory to the Trustee against
the costs, expenses and liabilities to be incurred in compliance with
such request,
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(iv) such Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding, and
(v) no direction inconsistent with such written request has
been given to such Trustee during such 60-day period by the Holders of a
majority in principal amount of the outstanding Securities.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over other Holders.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the Holder of any
Securities will have the right, which is absolute and unconditional, to receive
payment of the principal of, premium, if any, and interest on such Securities
on the stated maturity therefor or redemption or purchase dates thereof and to
institute suit for the enforcement of any such payment, and such right may not
be impaired without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of interest or principal specified in
Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any Subsidiary Guarantor for the whole amount of principal of and interest
on the Securities remaining unpaid and such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation and expenses of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
(a) The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Holders allowed in any judicial proceedings relative to the
Company, the Subsidiary Guarantors, their creditors or their property and may
collect and receive any money or other property payable or deliverable on any
such claims and to distribute the same.
(b) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article Six, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
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Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such rights and powers vested in it by this Indenture
and use the same degree of care and skill in such exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth (or incorporated by reference) in this Indenture
and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine such certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph (c) does not limit the effect of paragraph
(b) of this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 or any other direction permitted
by this Indenture, and the Trustee shall be entitled from time to time
to request such a direction.
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(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or document,
but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney, to the extent reasonably required by such inquiry or
investigation.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights
or powers.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) For all purposes under this Indenture, the Trustee shall not be
deemed to have notice or knowledge of any Event of Default (other than under
Section 6.01(1) or (2)) unless a Trust Officer knows of such Event of Default
or unless written notice of any Event of Default (other than under
Section 6.01(1) or (2)) is received by the Trustee in accordance with and at
its address specified in Section 11.02 hereof and such notice references the
Securities generally, the Company or this Indenture.
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or its
Subsidiaries or Affiliates with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest, it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee and receive such permission or resign. Any
Agent may do the same with like rights and duties. Further, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement of the Company in this Indenture or any statement in the
Securities other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to each Holder pursuant to Section 11.02 a notice of the
Default within 90 days after it occurs. Except in the case of a Default in any
payment on any Security, the Trustee may withhold the notice if and so long as
the board of directors, executive committee or a trust committee of its
directors and/or officers in good faith determines that withholding the notice
is in the interests of Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15, beginning with May 15, 1998, and for
so long as Securities remain outstanding, the Trustee shall mail to each Holder
a brief report dated as of such May 15 that complies with TIA Section 313(a),
but only if such report is required in any year under TIA Section 313(a). The
Trustee also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the SEC and each stock exchange on which
the Securities are listed in accordance with TIA Section 313(d). The Company
shall notify the Trustee in writing if the Securities become listed on any
national securities exchange or of any delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay the Trustee from time to time reasonable
compensation (including compensation for extraordinary services relating to
default administration) for its services (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust). The Company shall reimburse the Trustee upon request for
all reasonable out-of-pocket expenses, disbursements and advances incurred by
it. Such expenses may include the reasonable compensation and expenses of the
Trustee's agents and counsel.
The Trustee shall not be under any obligation to institute any suit, or
take any remedial action under this Indenture, or to enter any appearance or in
any way defend any suit in which it may be a defendant, or to take any steps in
the execution of the trusts created hereby or thereby or in the enforcement of
any rights and powers under this Indenture, until it shall be indemnified to
its satisfaction against any and all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture, including compensation for services, costs, expenses,
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outlays, counsel fees and other disbursements, and against all liability not
due to its negligence or willful misconduct. The Company shall indemnify the
Trustee against any loss or liability incurred by it in connection with the
acceptance and administration of the trust and its duties hereunder as Trustee,
Registrar and/or Paying Agent, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Trustee shall notify
the Company of any claim for which the Trustee may seek indemnity; however,
unless the position of the Company is prejudiced by such failure, the failure
of the Trustee to promptly notify the Company shall not limit the Trustee's
right to indemnification. The Company shall defend each such claim and the
Trustee shall cooperate in the defense. The Trustee may retain separate
counsel and the Company shall reimburse the Trustee for the reasonable fees and
expenses of such counsel. The Company need not pay for any settlement made
without its consent.
The Company need not reimburse any expense or indemnify against any loss
or liability incurred by the Trustee through the Trustee's negligence or
willful misconduct.
To satisfy the Company's payment obligations in this Section, the
Trustee shall have a claim prior to that of the Holders of the Securities on
all money or property held or collected by the Trustee, except that held in
trust to pay principal of and interest on particular Securities.
When the Trustee incurs expenses or renders services after the
occurrence of any Event of Default specified in Sections 6.01(7) or (8), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the termination of
this Indenture, as provided by Section 8.05.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the Trustee and Company, in writing. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting as Trustee
hereunder.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall transfer all property held by it as
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Trustee to the successor Trustee, subject to the claim provided for in Section
7.07, the resignation or removal of the retiring Trustee shall become
effective, the Company shall promptly pay all amounts due and payable to the
retiring Trustee pursuant to Section 7.07, and the successor Trustee shall have
all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 shall continue for the benefit of the
retiring Trustee with respect to expenses and liabilities incurred by it prior
to such replacement.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in principal amount of the Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder who has
been a Holder of a Security for at least six months may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee. Any successor Trustee shall comply with TIA Section
310(a)(5).
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust assets to, another corporation, the
successor corporation without any further act shall be the successor Trustee;
provided such corporation or association shall be otherwise eligible and
qualified under this Article.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee (together
with its parent bank holding company, if any) shall always have a combined
capital and surplus of at least $200,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall also comply with TIA
Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS.
(a) This Indenture shall cease to be of further effect (subject to
Section 8.05) when all outstanding Securities theretofore authenticated and
issued hereunder have been delivered (other than any Securities which shall
have been destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 2.08) to the Trustee for cancellation and the Company
has paid all sums payable hereunder and under the Securities.
(b) In addition to the provisions of Section 8.01(a), at the
Company's option, either (i) the Company and the Subsidiary Guarantors shall be
deemed to have been discharged from their obligations with respect to the
Securities and the provisions of this Indenture (subject to Section 8.05) on
the 91st
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day after the applicable conditions set forth below have been satisfied or
(ii) the Company and the Subsidiary Guarantors shall cease to be under any
obligation to comply with any term, provision or condition set forth in
Sections 4.02, 4.03, 4.07 through 4.19, 5.01(2), 5.01(3), 5.01(4) and the last
paragraph of Section 10.01 with respect to the Securities, and Sections 6.01(3)
(to the extent that such default results from the breach of any of the terms,
provisions or conditions of any of the foregoing Sections referred to in this
clause (ii)), 6.01(4) (to the extent that such default results from the breach
of any of the terms, provisions or conditions of any of the foregoing Sections
referred to in this clause (ii)), 6.01(5) and (with respect to Material
Subsidiaries) 6.01(7) shall cease to be operative, at any time after the
applicable conditions set forth below have been satisfied:
(1) the Company or any Subsidiary Guarantor shall have
deposited or caused to be deposited irrevocably with the Trustee as
trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders (A) money or (B) U.S.
Government Obligations, which through the payment of interest and
principal in respect thereof in accordance with their terms will provide
(without any reinvestment of such interest or principal), not later than
one day before the due date of any payment, money or (C) a combination
of (A) and (B), in an amount sufficient, in the opinion (with respect to
(B) and (C)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee at or prior to the time of such deposit, to pay and
discharge each installment of principal of, and premium (if any) and
interest on, the outstanding Securities on the dates such installments
are due;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or shall occur as a result of
such deposit (other than a Default or an Event of Default resulting from
one or more contemporaneous borrowings or issuances, the net proceeds of
which are used, in whole or part, to fund such deposit) and such deposit
will not result in a breach or violation of, or constitute a default
under, any other material instrument (other than this Indenture) to
which the Company or a Subsidiary Guarantor or any Subsidiary is a party
or by which any of them is bound, as evidenced to the Trustee in an
Officers' Certificate delivered to the Trustee concurrently with such
deposit;
(3) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Company's
exercise of its option under this Section 8.01 and will be subject to
federal income tax on the same amount and in the same manner and at the
same time as would have been the case if such option had not been
exercised, provided that in the case of the Securities being discharged
pursuant to clause (i) of this Section 8.01(b), such opinion shall be
based upon and shall identify a ruling by the Internal Revenue Service
or a change in law to that effect (it being understood that (A) such
Opinion of Counsel shall also state, if applicable, that such ruling or
change in law is consistent with the conclusions reached in such Opinion
of Counsel and (B) the Trustee shall be under no obligation to
investigate the basis of correctness of such ruling);
(4) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Company's exercise of its option under
this Section 8.01 will not result in any of the Company, the Trustee or
the trust created by the Company's deposit of funds hereunder becoming
or being deemed to be an "investment company" under the Investment
Company Act of 1940, as amended;
(5) the Company or any Subsidiary Guarantor shall have paid or
duly provided for payment of all amounts then due to the Trustee
pursuant to Section 7.07; and
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(6) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for in this Indenture relating to the
satisfaction and discharge of this Indenture have been complied with.
(c) The Company or any Subsidiary Guarantor may make an irrevocable
deposit pursuant to this Section 8.01.
SECTION 8.02. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with the provisions of the Securities and this Indenture to the
payment of principal of and interest on the Securities. Money and securities
so held in trust need not be segregated from other funds except to the extent
required by law.
The term "U.S. Government Obligations" means direct obligations of the
United States for the payment of which the full faith and credit of the United
States is pledged.
SECTION 8.03. REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any money or securities held by them at any time in excess of amounts
required to pay principal of or interest on the Securities, which if such
request is made prior to the discharge of this Indenture, shall be money or
securities which in the opinion of a nationally recognized firm of independent
public accountants expressed in a certification thereof to the Trustee are in
excess of amounts required to pay principal of or interest on the Securities.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains
unclaimed for one year; provided, however, that the Trustee or such Paying
Agent before being required to make any such repayment, may at the expense of
the Company cause to be published once in a newspaper of general circulation in
the City of New York or mail to each such Holder notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such publication or mailing any unclaimed balance
of such money then remaining will be paid to the Company. After repayment to
the Company, any Holder entitled to such money shall thereafter, as an
unsecured general creditor, look (unless an applicable law designates another
Person) only to the Company for payment, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease.
SECTION 8.04. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Subsidiary Guarantors' obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.01 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 8.01; provided, however, that if the Company or any
Subsidiary Guarantor has made any payment of interest on or principal of any
Securities because of the reinstatement of its obligations, the Company or such
Subsidiary Guarantor shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
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SECTION 8.05. SURVIVAL OF CERTAIN OBLIGATIONS.
Notwithstanding the satisfaction and discharge of this Indenture and of
the Securities referred to in Section 8.01(b)(i) and Section 8.01(b)(ii), the
respective obligations of the Company, the Subsidiary Guarantors and the
Trustee under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.12, 4.01
(with respect to Section 8.01(b)(i)), 4.04, 6.07, 7.07, 7.08, 8.02, 8.03, 8.04,
10.03, and 10.04 shall survive until the Securities are no longer outstanding,
and thereafter the obligations of the Company and the Trustee under Sections
7.07, 8.02, 8.03 and 8.04 shall survive. Nothing contained in this Article
Eight shall abrogate any of the obligations or duties of the Trustee under this
Indenture.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Sections 5.01, 10.02 or 10.06;
(3) to provide for uncertificated Securities in addition to,
or in place of, certificated Securities;
(4) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA; or
(5) to make any change that would provide any additional
benefit or rights to the Holders or that does not adversely affect the
rights of any Holder.
Notwithstanding the above, the Trustee and the Company may not make any
change that adversely affects the legal rights of any Holders hereunder.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee may amend or supplement this Indenture or the
Securities with the written consent of the Subsidiary Guarantors and the
Holders of at least a majority of the principal amount of the Securities then
outstanding, and the Holders of a majority in principal amount of the
Securities, together with the Subsidiary Guarantors, may waive compliance by
the Company or any Subsidiary with any provision of this Indenture or the
Securities. However, without the consent of each Holder affected, an
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment, supplement or waiver;
(2) reduce the rate of interest on the Securities;
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(3) reduce the principal amount of the Securities or extend
the maturity schedule of the Securities or modify the redemption or
repurchase provisions of the Securities;
(4) waive a default in the payment of the principal of,
premium (if any) or interest on the Securities;
(5) make any Security payable in money other than that stated
in the Security;
(6) contractually subordinate the right of payment of the
Securities in a manner that is adverse to the Holders; or
(7) make any change in Section 6.04 or Section 6.07 hereof or
in this sentence of this Section 9.02.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof. Any amendment, waiver or consent shall be deemed effective
upon receipt by the Trustee of the necessary consents and shall not require
execution of any supplemental indenture to be effective.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders of each Security affected
thereby, with a copy to the Trustee, a notice briefly describing the amendment,
supplement or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such amendment, waiver, consent or supplemental indenture. Except as
otherwise provided in Section 6.04 and this Section 9.02, the Holders of a
majority in aggregate principal amount of the Securities then outstanding may
waive compliance in a particular instance by the Company or the Subsidiary
Guarantors with any provisions of this Indenture or the Securities.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
A consent to an amendment, supplement or waiver by a Holder of a
Security shall bind the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security.
However, until an amendment, supplement or waiver becomes effective, any such
Holder or subsequent Holder may revoke the consent as to his Security or
portion of a Security. For such revocation to be effective, the Trustee must
receive the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it makes a change described in any of clauses (1)
through (7) of Section 9.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
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SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company
or the Trustee so determines, the Company in exchange for the Security shall
issue and the Trustee shall authenticate a new Security that reflects the
changed terms.
SECTION 9.06. TRUSTEE PROTECTED.
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture or waiver, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Securities, if
required by Section 9.02, the Trustee shall sign any amendment or supplement or
waiver authorized pursuant to this Article if the amendment or supplement or
waiver does not adversely affect the rights, duties, liabilities or immunities
of the Trustee. If it does adversely affect the rights, duties, liabilities or
immunities of the Trustee, the Trustee may but need not sign it. In signing
such amendment or supplement or waiver the Trustee shall be entitled to
receive, and (subject to Article Seven) shall be fully protected in relying
upon, an Opinion of Counsel stating that such amendment or supplement or waiver
is authorized or permitted by and complies with this Indenture, is the legal,
valid and binding obligation of the Company or the applicable Subsidiary, or
any combination of the foregoing Persons as applicable, enforceable against it
or them, as applicable, in accordance with its terms (subject to customary
qualifications and exceptions), and that all necessary governmental consents
have been obtained. The Company may not sign an amendment or supplement until
the Board of Directors of the Company approves it.
ARTICLE TEN
SUBSIDIARY GUARANTEES
SECTION 10.01. UNCONDITIONAL GUARANTEE.
Each Subsidiary Guarantor hereby unconditionally, jointly and severally,
guarantees (such guarantee to be referred to herein as the "Subsidiary
Guarantee") to each Holder of Securities authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, that:
(1) the principal of, premium, if any, and interest on the
Securities will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Securities, if any, to the extent
lawful, and all other obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and
(2) in case of any extension of time of payment or renewal of
any Securities or of any such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at stated maturity, by acceleration
or otherwise,
subject, however, in the case of clauses (1) and (2) above, to the limitations
set forth in Section 10.04.
Failing payment when due of any amount so guaranteed or any performance
so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly
and severally obligated to pay the same
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immediately. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action
to enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby, to the extent permitted by law,
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice, notice of intent to
accelerate, notice of acceleration, and all other notices and all demands
whatsoever and covenants that this Subsidiary Guarantee will not be discharged
except by complete performance of the obligations contained in the Securities,
this Indenture and in this Subsidiary Guarantee. If any Holder or the Trustee
is required by any court or otherwise to return to the Company, any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or any Subsidiary Guarantor, any amount paid
by the Company or any Subsidiary Guarantor to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Subsidiary Guarantor agrees it shall not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between
each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article Six,
such obligations (whether or not due and payable) shall forthwith become due
and payable by each Subsidiary Guarantor for the purpose of this Subsidiary
Guarantee.
The Company agrees to cause (a) each Person (other than an Unrestricted
Subsidiary and any Exempt Foreign Subsidiary) that shall become a Material
Subsidiary after the date of the Issue Date, and (b) each Subsidiary that is
not a Subsidiary Guarantor on the Issue Date that after the Issue Date incurs
any Indebtedness with respect to any Indebtedness of the Company or any other
Subsidiary, to execute and deliver a supplement to this Indenture agreeing to
be bound by its terms applicable to a Subsidiary Guarantor and pursuant to
which such Person will guarantee the payment of the Securities on the same
terms and conditions as the Subsidiary Guarantees by the Subsidiary Guarantors.
SECTION 10.02. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.
(a) Except as set forth in Article Five, nothing contained in this
Indenture or in any of the Securities shall prevent any consolidation or merger
of a Subsidiary Guarantor with or into the Company or another Subsidiary
Guarantor or shall prevent any sale or conveyance of the property of a
Subsidiary Guarantor as an entirety or substantially as an entirety, to the
Company or another Subsidiary Guarantor.
(b) Except as set forth in Article Five hereof, nothing contained in
this Indenture or in any of the Securities shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into a Person other than the Company
or a Subsidiary Guarantor that is a Wholly Owned Subsidiary (whether or not
affiliated with the Subsidiary Guarantor that is a Wholly Owned Subsidiary), or
successive consolidations or mergers in which a Subsidiary Guarantor or its
successor or successors shall be a party or parties, or shall prevent any sale
or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety, to a Person other than the Company or another
Subsidiary Guarantor that is a Wholly Owned Subsidiary (whether or not
affiliated with the Subsidiary Guarantor that is a Wholly Owned Subsidiary)
authorized to acquire and operate the same; provided, however, that,
(i) immediately after such transaction, and giving effect thereto, no Default
or Event of Default shall have
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occurred as a result of such transaction and be continuing, (ii) such
transaction shall not violate any of the covenants in Sections 4.02, 4.09
through 4.16, 4.18 and 4.19, and (iii) except to the extent that Section 10.03
would result in the release of such Subsidiary Guarantor, each Subsidiary
Guarantor hereby covenants and agrees that, upon any such consolidation,
merger, sale or conveyance, such Subsidiary Guarantor's Subsidiary Guarantee
set forth in this Article Ten, and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed by such Subsidiary Guarantor, shall be expressly assumed (in the
event that the Subsidiary Guarantor is not the surviving Person in the merger),
by supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee, by the Person formed by such consolidation, or into
which the Subsidiary Guarantor shall have merged, or by the Person that shall
have acquired such property. In the case of any such consolidation, merger,
sale or conveyance and upon the assumption by the successor Person, by
supplemental indenture executed and delivered to the Trustee and satisfactory
in form to the Trustee of the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Subsidiary
Guarantor, such successor Person shall succeed to and be substituted for the
Subsidiary Guarantor with the same effect as if it had been named herein as a
Subsidiary Guarantor.
SECTION 10.03. RELEASE OF A SUBSIDIARY GUARANTOR.
Upon the sale or other disposition of a Subsidiary Guarantor (or all or
substantially all of its properties and assets), which is otherwise in
compliance with the terms of this Indenture, including but not limited to the
provisions of Section 10.02, such Subsidiary Guarantor shall be deemed released
from all of the Subsidiary Guarantee and related obligations in this Indenture;
provided, however, that any such termination shall occur only to the extent
that all obligations of such Subsidiary Guarantor under all of its guarantees
of, and under all of its pledges of assets or other security interests which
secure, other Indebtedness of the Company or any Subsidiary shall also
terminate or be released upon such sale or transfer. Each Subsidiary Guarantor
that is designated as an Unrestricted Subsidiary in accordance with this
Indenture shall be released from all of its Subsidiary Guarantee and related
obligations set forth in this Indenture for so long as it remains an
Unrestricted Subsidiary. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officers' Certificate and an Opinion of Counsel certifying that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture. Any Subsidiary Guarantor not so released remains liable for
the full amount of principal of and interest on the Securities as provided in
this Article Ten.
SECTION 10.04. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor and by its acceptance hereof each beneficiary
hereof, hereby confirms that it is the intention of all such parties that
Subsidiary Guarantee by such Subsidiary Guarantor not constitute a fraudulent
transfer or conveyance for purposes of any federal or state law. To effectuate
the foregoing intention, each such beneficiary and each Subsidiary Guarantor
hereby irrevocably agree that the obligations of each Subsidiary Guarantor
under its Subsidiary Guarantee shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities (including,
but not limited to, Guarantor Senior Indebtedness of each Subsidiary Guarantor)
of such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to Section 10.05, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. This
Section 10.04 is for the benefit of the creditors of each Subsidiary Guarantor,
and, for purposes of applicable fraudulent transfer and fraudulent conveyance
law, any Indebtedness of a Subsidiary Guarantor pursuant to the Credit Facility
shall be deemed to have been incurred prior to the incurrence by such
Subsidiary Guarantor of its liability under the Subsidiary Guarantee.
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SECTION 10.05. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor
(including the Funding Guarantor) for all payments, damages and expenses
incurred by that Funding Guarantor in discharging the Company's obligations
with respect to the Securities or any other Subsidiary Guarantor's obligations
with respect to the Subsidiary Guarantee.
SECTION 10.06. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its guarantee set forth in Section 10.01, each Subsidiary
Guarantor hereby agrees to execute its Subsidiary Guarantee in substantially
the form of Exhibit A-1 to be endorsed on each Security ordered to be
authenticated and delivered by the Trustee and each Subsidiary Guarantor agrees
that this Indenture shall be executed on behalf of each Subsidiary Guarantor by
its President or one of its Vice Presidents and attested to by an Officer or a
Secretary or Assistant Secretary. Each Subsidiary Guarantor hereby agrees that
its Subsidiary Guarantee set forth in Section 10.01 shall remain in full force
and effect notwithstanding any failure to endorse on each Security a notation
of such Subsidiary Guarantee. Each such Subsidiary Guarantee shall be signed
on behalf of each Subsidiary Guarantor by one Officer, (who shall have been
duly authorized by all requisite corporate actions) prior to the authentication
of the Security on which it is endorsed, and the delivery of such Security by
the Trustee, after the authentication thereof hereunder, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of
the Subsidiary Guarantors. Such signatures upon the Subsidiary Guarantee may
be by manual or facsimile signature of such officers and may be imprinted or
otherwise reproduced on the Subsidiary Guarantee, and in case any such officer
who shall have signed the Subsidiary Guarantee shall cease to be such officer
before the Security on which such Subsidiary Guarantee is endorsed shall have
been authenticated and delivered by the Trustee or disposed of by the Company,
such Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed the Subsidiary Guarantee had not ceased to be such
officer of the Subsidiary Guarantor.
SECTION 10.07. SEVERABILITY.
In case any provision of any Subsidiary Guarantee shall be invalid,
illegal or unenforceable, that portion of such provision that is not invalid,
illegal or unenforceable shall remain in effect, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by operation of TIA Section 318(c), the imposed duties
shall control.
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SECTION 11.02. NOTICES.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by certified or registered mail (return
receipt requested) or sent by overnight air courier guaranteeing next-day
delivery, addressed as follows or by facsimile transmission:
If to the Company or any Subsidiary Guarantor:
Dailey International Inc.
One Lawrence Center
2507 North Frazier
Conroe, Texas 77305
Telecopy No.: (409) 760-3304
Attention: Chief Financial Officer
Until written notice is given to the Trustee to the contrary, the
office or agency maintained in the City of New York by the
Company where Securities may be surrendered for registration of
transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served, shall be the offices
of the Trustee located in the City of New York which are so
designated immediately hereinafter.
If to the Trustee:
For registration, transfer, exchange, payment and notices
and demands to or upon Company in respect of the
Securities (with copy of each such notice or demand sent
to Trustee's office in Dallas, Texas as set forth below):
By hand:
U.S. Trust Company of Texas, N.A.
111 Broadway, L.L.
New York, New York 10006
Telephone: (212) 374-4056
Attention: Corporate Trust
By mail:
U.S. Trust Company of Texas, N.A.
P. O. Box 841
Cooper Station
New York, New York 10276
For all other communications relating to the Securities:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
Telephone: (214) 754-1254
Facsimile No.: (214) 754-1303
Attention: Corporate Trust
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The Company or any Subsidiary Guarantor or the Trustee, by notice to the
other, may designate additional or different addresses for subsequent notices
or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; 5 Business Days after being deposited in the United States mail,
postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile;
the next Business Day after timely delivery to the courier, if sent for
overnight delivery by a courier guaranteeing next-day delivery; and the second
Business Day after timely delivery to the courier, if sent for second-day
delivery by a courier guaranteeing second-day delivery.
Any notice or communication mailed to a Holder shall be mailed to him by
first-class mail at his address as it appears on the registration books of the
Registrar and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it. If the Company mails notice or
communications to Holders it shall mail a copy to the Trustee and each Agent at
the same time. All notices or communications shall be in writing.
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Subsidiary Guarantors, the Trustee, the Registrar and anyone
else shall have the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, the Company
and/or such Subsidiary Guarantor, as the case may be, shall furnish to the
Trustee:
(1) an Officers' Certificate stating that, in the opinion of
the signers, the conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, such conditions precedent have been complied with.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of each such person, he
or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such person, such covenant or condition has been complied with.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules for its
functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday, or a day on which banks and
trust companies in The City of New York are not required by law or executive
order to be open. If a payment date is a Legal Holiday at a place of payment,
payment may be made at the place on the next succeeding day that is not a Legal
Holiday, without additional interest.
SECTION 11.08. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES AND THE SUBSIDIARY GUARANTEES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE
EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.10. NO RECOURSE AGAINST OTHERS.
ALL LIABILITY DESCRIBED IN PARAGRAPH 18 OF THE SECURITIES OF ANY
DIRECTOR, OFFICER, EMPLOYEE OR STOCKHOLDER, AS SUCH, OF THE COMPANY, THE
SUBSIDIARY GUARANTORS OR THE TRUSTEE IS WAIVED AND RELEASED.
SECTION 11.11. SUCCESSORS.
All agreements of the Company and Subsidiaries in this Indenture and the
Securities shall bind their successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 11.12. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
instrument.
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SECTION 11.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SECTION 11.14. COUNTERPARTS.
This Indenture may be executed in one or more counterparts, and by each
of the parties hereto on separate counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first written above.
Dated: February 13, 1998
DAILEY INTERNATIONAL INC.
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President and Chief Executive
Officer
U.S. TRUST COMPANY OF TEXAS, N.A.,
Trustee
By /s/ Peter C. Gerrer
--------------------------------
Name: Peter C. Gerrer
Title: Vice President
SUBSIDIARY GUARANTORS:
DAILEY ENERGY SERVICES, INC., a
Delaware corporation
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President
DAILEY INTERNATIONAL SALES
CORPORATION, a Delaware corporation
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President
COLUMBIA PETROLEUM SERVICES CORP.,
a Delaware corporation
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President
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INTERNATIONAL PETROLEUM SERVICES,
INC., a Delaware corporation
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President
DAILEY ENVIRONMENTAL REMEDIATION
TECHNOLOGIES, INC., a Texas
corporation
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President
DAILEY WORLDWIDE SERVICES, CORP., a
Texas corporation
By /s/ James F. Farr
--------------------------------
JAMES F. FARR
President
AIR DRILLING INTERNATIONAL, INC., a
Delaware corporation
By /s/ David T. Tighe
--------------------------------
DAVID T. TIGHE
Vice President
AIR DRILLING SERVICES, INC., a
Wyoming corporation
By /s/ David T. Tighe
--------------------------------
DAVID T. TIGHE
Vice President
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EXHIBIT A
[Form of Security]
[If a Series A Security or a Series B Security constituting a Transfer
Restricted Security --
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTES
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTES EVIDENCED HEREBY RESELL OR
OTHERWISE TRANSFER THE NOTES EVIDENCED HEREBY, EXCEPT (A) TO DAILEY
INTERNATIONAL INC. (THE "COMPANY"), (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO U.S. TRUST COMPANY OF TEXAS, N.A., AS TRUSTEE, A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES TO
FOREIGN PURCHASERS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTES EVIDENCED
HEREBY ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE NOTES EVIDENCED HEREBY WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF SUCH NOTES, THE HOLDER MUST PRIOR TO SUCH
TRANSFER, FURNISH TO U.S. TRUST COMPANY OF TEXAS, N.A., AS TRUSTEE, A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE). IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE COMPANY AND U.S. TRUST COMPANY OF TEXAS, N.A., AS TRANSFER
AGENT, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTES EVIDENCED
HEREBY IF THE PROVISIONS OF SECTION 2.14(a)(i) OF THE INDENTURE ARE SATISFIED.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S.
PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE
SECURITIES ACT.
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REGISTERED
9 1/2% SENIOR NOTE DUE 2008
CUSIP:__________________
No. R-_________________ $______________
DAILEY INTERNATIONAL INC.
(a Delaware corporation)
promises to pay to __________________________
or registered assigns
the principal sum of ____________________ Dollars on February 15, 2008
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Dated: DAILEY INTERNATIONAL INC.
Attest: By:
- -------------------------- ----------------------------------
Secretary President
[Seal]
Authenticated:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
By
-----------------------------------
Authorized Signatory
OR
as Authenticating Agent
By
-----------------------------------
Authorized Signatory
[Seal]
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A-2 Execution Copy
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[Reverse Side of Security]
DAILEY INTERNATIONAL INC.
9 1/2% Senior Note Due 2008
1. Interest.
Dailey International Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at 9 1/2% per
annum from ___________ ____, ______ until maturity. The Company will pay
interest semiannually on February 15 and August 15 of each year, commencing
___________ ______, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Securities will accrue from the most recent date to which interest has been
paid or duly provided for or, if no interest has been paid, from the date of
original issuance; provided that if there is no existing Default or Event of
Default in the payment of interest, and if this Security is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date, except in the case of the original issuance of Securities, in
which case interest shall accrue from the date of authentication. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Accrued but unpaid interest on any Series A Security that is exchanged for a
Series B Security pursuant to the Registration Rights Agreement shall be paid
on or before the first interest payment date on the Series B Securities.
The interest rate on the Securities is subject to increase under certain
circumstances described in Section 4 of the Registration Rights Agreement.
The Company shall pay interest on overdue principal of and interest on
overdue installments of interest, to the extent lawful, at a rate equal to the
rate of interest otherwise payable on the Securities.
2. Method of Payment.
The Company will pay interest on the Securities to the persons who are
registered holders of Securities at the close of business on the February 1 or
August 1 immediately preceding the interest payment date even though Securities
are cancelled after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal of and interest on the Securities in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company may pay principal or interest
by check payable in such money or by wire transfer of immediately available
funds. If paying by check, the Company may mail such check to a Holder's
registered address.
3. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-registrar without notice.
The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
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4. Indenture and Subsidiary Guarantees.
The Company issued the Securities under an Indenture dated as of
February 13, 1998 (the "Indenture") among the Company, the Subsidiary
Guarantors, and the Trustee. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the Indenture or on the date
of any amendment thereto, to the extent required by Section 9.03 of the
Indenture. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. The Securities are general unsecured
obligations of the Company limited to $275,000,000 aggregate principal amount
in the case of Securities issued on the Issue Date. Payment on each Security
is guaranteed on a senior unsecured basis, jointly and severally, by the
Subsidiary Guarantors pursuant to Article Ten of the Indenture.
5. Optional Redemption.
At any time or in part from time to time on and after February 15, 2003,
the Company may, at its option, redeem all or any portion of the Securities at
the redemption prices (expressed as percentages of the principal amount of the
Securities) set forth below, plus, in each case, accrued interest thereon to
the applicable redemption date, if redeemed during the 12-month period
beginning on February 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2003 . . . . . . . . . . . 104.750%
2004 . . . . . . . . . . . 103.167%
2005 . . . . . . . . . . . 101.583%
2006 and thereafter . . . . 100.000%
</TABLE>
In addition, at any time or from time to time on or before February 15,
2001, up to 35% of the aggregate principal amount of the Securities originally
issued may be redeemed, at the option of the Company, upon not less than 30 or
more than 60 days' notice, from the Net Proceeds of one or more Public Equity
Offerings, at a price equal to 109.50% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of redemption,
provided that (i) at least 65% of the aggregate principal amount of the
Securities originally issued remains outstanding immediately after each such
redemption, and (ii) each such redemption occurs within 60 days following the
closing of each such Public Equity Offering.
In the case of any redemption of Securities, interest installments due
and payable on or prior to the date of redemption will be payable to Holders of
such Securities of record at the close of business on the relevant Record Date
referred to on the face hereof. Securities (or portions thereof) for whose
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the date of redemption. In the event of
redemption or purchase of this Series __ Security in part only, a new Series __
Security or Securities for the unredeemed or unpurchased portion hereof shall
be issued in the name of the Holder hereof upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund obligations.
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6. Notice of Redemption.
Notice of redemption will be mailed to the registered address of each
Holder of Securities to be redeemed at least 30 days but not more than 60 days
before the redemption date. If less than all Securities are to be redeemed,
the Trustee shall select pro rata, by lot or by any other method considered
fair and appropriate by the Trustee and, if the Securities are listed on any
securities exchange, by a method that complies with the requirements of such
exchange, the Securities to be redeemed in multiples of $1,000. Securities in
denominations larger than $1,000 may be redeemed in part.
7. Change of Control.
Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase all of the then outstanding Securities
(a "Change of Control Offer"), and shall purchase, on a Business Day (the
"Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of a Change of Control, all of the then outstanding
Securities validly tendered pursuant to such Change of Control Offer, at a
purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
Change of Control Purchase Date. The Change of Control Offer is required to
remain open for at least 20 Business Days and until the close of business on
the fifth Business Day prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the occurrence of such Change of Control, mail to
the Trustee and to each Holder of the Securities notice of the Change of
Control Offer, which notice shall govern the terms of the Change of Control
Offer and shall state, among other things, the procedures that Holders of the
Securities must follow to accept the Change of Control Offer.
8. Asset Sale Offer.
In the event of certain Asset Sales, the Company may be required to make
an Asset Sale Offer to purchase all or any portion of each Holder's Securities,
at 100% of the principal amount thereof plus accrued and unpaid interest, if
any, to the Asset Sale Offer Purchase Date.
9. Restrictive Covenants.
The Indenture imposes certain limitations on, among other things, the
ability of the Company or Subsidiaries to merge or consolidate with any other
Person or sell, lease or otherwise transfer all or substantially all of its
properties or assets, the ability of the Company or the Subsidiaries to dispose
of certain assets, to pay dividends and make certain other distributions and
payments, to make certain investments or redeem, retire, repurchase or acquire
for value shares of capital stock, to incur additional Indebtedness or incur
encumbrances against certain property, to engage in other business activities,
and to enter into certain transactions with Related Persons, all subject to
certain limitations described in the Indenture.
10. Denominations, Transfer, Exchange.
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar
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need not transfer or exchange any Securities selected for redemption. Also, it
need not transfer or exchange any Securities for a period of 30 days before a
selection of Securities to be redeemed.
11. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it
for all purposes and neither the Company, the Trustee nor any Agent shall be
affected by notice to the contrary.
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
one year, the Trustee or Paying Agent will pay the money back to the Company at
its request. After that, all liability of the Trustee and such Paying Agents
with respect to such money shall cease.
13. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Supplement, Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Securities, and any past default or noncompliance
with any provision may be waived with the consent of the Holders of a majority
in principal amount of the Securities. Without the consent of any Holder, the
Company may amend or supplement the Indenture or the Securities to, among other
things, cure any ambiguity, defect or inconsistency or to provide for
uncertificated Securities in addition to, or in place of, certificated
Securities or to make any change that does not adversely affect the rights of
any Holder.
15. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor corporation
will be released from those obligations.
16. Defaults and Remedies.
An event of default generally is: default in payment of principal on
the Securities; default for 30 days in payment of interest on the Securities;
failure by the Company or any Subsidiary Guarantor for 45 days after notice to
comply with any of its other agreements in the Indenture; certain defaults
under or acceleration prior to maturity of other indebtedness; certain final
judgments against the Company or Subsidiaries; a failure of any Subsidiary
Guarantee of a Material Subsidiary to be in full force and effect or denial by
any Subsidiary Guarantor of its obligations with respect thereto; and certain
events of bankruptcy or insolvency. Subject to certain limitations in the
Indenture, if an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Securities
may declare all the Securities to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization relating to the Company or any Material
Subsidiary, all outstanding Securities shall become due and payable immediately
without further action or notice. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it
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enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee in its exercise of any trust or power. The Company must furnish an
annual compliance certificate to the Trustee.
17. Trustee Dealings with Company.
U.S. Trust Company of Texas, N.A., the Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Subsidiaries or
Affiliates with the same rights it would have if it were not Trustee, subject,
however, to required actions on the part of the Trustee in the event it
acquires any conflicting interest.
18. No Recourse Against Others.
A DIRECTOR, OFFICER, EMPLOYEE OR STOCKHOLDER, AS SUCH, OF THE COMPANY,
ANY SUBSIDIARY GUARANTOR OR THE TRUSTEE, SHALL NOT HAVE ANY LIABILITY FOR ANY
OBLIGATIONS OF THE COMPANY, ANY SUBSIDIARY GUARANTOR OR THE TRUSTEE, UNDER THE
SECURITIES OR THE INDENTURE OR FOR ANY CLAIM BASED ON, IN RESPECT OF OR BY
REASON OF, SUCH OBLIGATIONS OR THEIR CREATION. EACH HOLDER BY ACCEPTING A
SECURITY WAIVES AND RELEASES ALL SUCH LIABILITY. THE WAIVER AND RELEASE ARE
PART OF THE CONSIDERATION FOR THE ISSUE OF THE SECURITIES AND THE SUBSIDIARY
GUARANTEES.
19. Authentication.
This Security shall not be valid until the Trustee or an authenticating
agent signs the certificate of authentication on the other side of this
Security.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to Holders. No representation is
made as to the accuracy of such numbers as printed on the Securities and
reliance may be placed only on the other identification numbers printed hereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to: Secretary, Dailey
International Inc., One Lawrence Center, 2507 North Frazier, Conroe, Texas
77305.
22. Governing Law.
THIS INDENTURE AND THE SECURITIES AND THE SUBSIDIARY GUARANTEES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE
EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
Dailey International Inc.: Indenture
A-7 Execution Copy
<PAGE> 79
[If a Series A Security, the following:
23. Exchange Option.
At the option of the Holders hereof, the Series A Securities may be
exchanged, pursuant to the Registration Rights Agreement, for a like aggregate
principal amount of Series B Securities.]
Dailey International Inc.: Indenture
A-8 Execution Copy
<PAGE> 80
[Form of Assignment]
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
-------------------------------------------------------
-------------------------------------------------------
(Insert assignee's soc. sec. or tax ID no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Security)
Date:
--------------------------
Signature Guarantee:
--------------------
Dailey International Inc.: Indenture
A-9 Execution Copy
<PAGE> 81
[Form of Option of Holder to Elect Purchase]
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.12 or Section 4.17 of the Indenture, check the
appropriate box:
Section 4.12 [ ]
Section 4.17 [ ]
If you want to have only part of this Security purchased by the Company
pursuant to Section 4.12 or 4.17 of the Indenture, state the amount (in
integral multiples of $1,000):
$
-----------------------------
Date: Signature:
------------------------- --------------------------
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:
------------------------------
Dailey International Inc.: Indenture
A-10 Execution Copy
<PAGE> 82
EXHIBIT A-1
[Form of Notation on Security
Relating to Subsidiary Guarantee]
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the Subsidiary
Guarantors (as defined in the Indenture referred to in the Security upon which
this notation is endorsed, and each hereinafter referred to as a "Subsidiary
Guarantor," which term includes any successor or additional Subsidiary
Guarantor under the Indenture) have unconditionally guaranteed (a) the due and
punctual payment of the principal of, premium (if any), and interest on the
Securities, whether at maturity, acceleration, redemption or otherwise, (b) the
due and punctual payment of interest on the overdue principal of and interest
on the Securities, if any, to the extent lawful, (c) the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee, all in accordance with the terms set forth in the Indenture, and
(d) in case of any extension of time of payment or renewal of any Securities or
any of such other obligations, the same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at stated maturity, by acceleration or otherwise. Capitalized terms used
herein have the meanings assigned to them in the Indenture unless otherwise
indicated.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Subsidiary Guarantors shall have any personal
liability under this Subsidiary Guarantee by reason of his or its status as
such stockholder, officer, director or incorporator.
This Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions hereof and in the Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Security upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized signatories.
Subsidiary Guarantors:
DAILEY ENERGY SERVICES, INC., a
Delaware corporation
By
---------------------------------
Name:
Title:
Dailey International Inc.: Indenture
A-1 - 1 Execution Copy
<PAGE> 83
DAILEY INTERNATIONAL SALES
CORPORATION,
a Delaware corporation
By
---------------------------------
Name:
Title:
COLUMBIA PETROLEUM SERVICES CORP.,
a Delaware corporation
By
---------------------------------
Name:
Title:
INTERNATIONAL PETROLEUM SERVICES,
INC., a Delaware corporation
By
---------------------------------
Name:
Title:
DAILEY ENVIRONMENTAL REMEDIATION
TECHNOLOGIES, INC., a Texas
corporation
By
---------------------------------
Name:
Title:
DAILEY WORLDWIDE SERVICES, CORP., a
Texas corporation
By
---------------------------------
Name:
Title:
Dailey International Inc.: Indenture
A-1 - 2 Execution Copy
<PAGE> 84
AIR DRILLING INTERNATIONAL, INC., a
Delaware corporation
By
---------------------------------
Name:
Title:
AIR DRILLING SERVICES, INC., a
Wyoming corporation
By
---------------------------------
Name:
Title:
Dailey International Inc.: Indenture
A-1 - 3 Execution Copy
<PAGE> 85
EXHIBIT A-2
[Form of Legend For Global Securities]
Any Global Security authenticated and delivered hereunder shall bear a
legend in addition to the Private Placement Legend, if required pursuant to
Section 2.14, in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
Dailey International Inc.: Indenture
A-2 - 1 Execution Copy
<PAGE> 86
EXHIBIT B-1
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 1/2% Senior Notes due 2008, Series A, and
9 1/2% Senior Notes due 2008, Series B
(the "Securities"), of Dailey International Inc.
This Certificate relates to $_______ principal amount of Securities held
in the form of *[ ] a beneficial interest in a Global Security or *[ ] Physical
Securities by _______________ (the "Transferor").
The Transferor:*
[ ] has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by DTC a
Physical Security or Physical Securities in definitive, registered form of
authorized denominations and in an aggregate principal amount equal to its
beneficial interest in such Global Security (or the portion thereof indicated
above); or
[ ] has requested that the Registrar by written order exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.06 of such Indenture, and that the
transfer of these Securities does not require registration under the Securities
Act of 1933, as amended (the "Act") because *:
[ ] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of subparagraph (a)(1) or (c)(1) of Section
2.06 of the Indenture).
[ ] Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
[ ] Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act).
[ ] Such Security is being transferred in reliance on Regulation S under
the Act.
[ ] Such Security is being transferred in reliance on Rule 144 under the
Act.
Dailey International Inc.: Indenture
B-1 - 1 Execution Copy
<PAGE> 87
[ ] Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------
[Authorized Signatory]
Date:
-------------------------------
- ----------
* Check applicable box.
Dailey International Inc.: Indenture
B-1 - 2 Execution Copy
<PAGE> 88
EXHIBIT B-2
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS TO
INSTITUTIONAL ACCREDITED INVESTORS
__________________ , ____
U.S. Trust Company of Texas, N.A.
- ---------------------------------
- ---------------------------------
Re: Dailey International Inc. Indenture (the "Indenture")
relating to 9 1/2% Senior Notes due 2008, Series A,
or 9 1/2% Senior Notes due 2008, Series B
Ladies and Gentlemen:
In connection with our proposed purchase of 9 1/2% Senior Notes due
2008, Series A, or 9 1/2% Series Notes due 2008, Series B (the "Securities"),
of Dailey International Inc. (the "Company"), we confirm that:
1. We have received such information as we deem necessary in order
to make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Securities, we will do so only
(A) to the Company or any subsidiary thereof, (B) inside the United States in
accordance with Rule 144A under the Securities Act to a "qualified
institutional buyer" (as defined therein), (C) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee a signed letter substantially in the form hereof, (D) outside the
United States in accordance with Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing Securities from us a notice advising such purchaser that
resales of the Securities are restricted as stated herein.
4. We understand that, on any proposed resale of Securities, we will
be required to furnish to you and the Company, such certification, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Securities purchased by us will bear a legend to
the foregoing effect.
Dailey International Inc.: Indenture
B-2 - 1 Execution Copy
<PAGE> 89
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Securities,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or their investment, as the case may be, for an indefinite
period.
6. We are acquiring the Securities purchased by us for our account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion, for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act.
You and the Company and your and their respective counsel are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
---------------------------------
[Authorized Signatory]
Dailey International Inc.: Indenture
B-2 - 2 Execution Copy
<PAGE> 90
EXHIBIT B-3
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION
WITH REGULATION S TRANSFERS
__________________ , ____
U.S. Trust Company of Texas, N.A.
- ---------------------------------
- ---------------------------------
Re: Dailey International Inc. ("the Company")
9 1/2% Senior Notes due 2008, Series A, and
9 1/2% Senior Notes due 2008, Series B (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $__________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S (as amended, "Regulation S") under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a person in
the United States or targeted at any identifiable group of U.S. citizen
abroad;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts (as defined in Rule 902(b) of
Regulation S) have been made in the United States in contravention of
the requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
Dailey International Inc.: Indenture
B-3 - 1 Execution Copy
<PAGE> 91
You and the Company and your and their respective counsel are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy thereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Defined terms used herein without definition have the respective meanings
provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
----------------------------
[Authorized Signature]
Dailey International Inc.: Indenture
B-3 - 2 Execution Copy
<PAGE> 92
ANNEX A
================================================================================
DAILEY INTERNATIONAL INC.
and the
SUBSIDIARY GUARANTORS
identified herein
$275,000,000
9 1/2% Senior Notes due 2008
REGISTRATION RIGHTS AGREEMENT
February 13, 1998
Jefferies & Company, Inc.
================================================================================
<PAGE> 93
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . 8
6. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . 13
7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. Rules 144 and 144A . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Underwritten Registrations . . . . . . . . . . . . . . . . . . . . . 16
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
a. Remedies . . . . . . . . . . . . . . . . . . . . . . . 16
b. No Inconsistent Agreements . . . . . . . . . . . . . . 16
c. No Piggyback on Registrations . . . . . . . . . . . . . 16
d. Amendments and Waivers . . . . . . . . . . . . . . . . 16
e. Notices . . . . . . . . . . . . . . . . . . . . . . . . 17
f. Successors and Assigns . . . . . . . . . . . . . . . . 17
g. Counterparts . . . . . . . . . . . . . . . . . . . . . 17
h. Governing Law; Submission to Jurisdiction . . . . . . . 17
i. Severability . . . . . . . . . . . . . . . . . . . . . 18
j. Headings . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-i-
<PAGE> 94
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of February 13, 1998 by and among Dailey International, Inc., a
Delaware corporation (the "Company"), Dailey Energy Services, Inc., Dailey
International Sales Corporation, Columbia Petroleum Services Corp.,
International Petroleum Services, Inc., Dailey Environmental Remediation
Technologies, Inc., Dailey Worldwide Services, Corp., Air Drilling
International, Inc. and Air Drilling Services, Inc. (the "Subsidiary
Guarantors" and, together with the Company, the "Issuers") and Jefferies &
Company, Inc. (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated
February 6, 1998, among the Company, the Subsidiary Guarantors and the Initial
Purchaser (the "Purchase Agreement"). In order to induce the Initial Purchaser
to enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights provided for in this Agreement to the Initial Purchaser and
its direct and indirect transferees. The execution and delivery of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: As defined in Section 4(a) hereof.
Advice: As defined in the last paragraph of Section 5 hereof.
Affiliate: With respect to any specified person, "Affiliate"
shall mean any other person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
Business Day: Any day except a Saturday, a Sunday or a day on
which banking institutions in New York, New York generally are required or
authorized by law or other government action to be closed.
Company: As defined in the preamble hereof.
Consummate or consummate: When used to qualify the term
"Exchange Offer" shall mean validly and lawfully to issue and deliver the
Exchange Notes pursuant to the Exchange Offer for all Notes validly tendered
and not validly withdrawn pursuant thereto in accordance with the terms of this
Agreement.
Consummation Date: The date that is 30 Business Days immediately
following the date that the Exchange Offer Registration Statement shall have
been declared effective by the SEC.
Effectiveness Period: As defined in Section 3(a) hereof.
<PAGE> 95
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC pursuant thereto.
Exchange Date: As defined in Section 2(d) hereof.
Exchange Notes: The 9 1/2% Senior Notes due 2008, Series B, of
the Company, unconditionally guaranteed on a joint and severed basis by each of
the Subsidiary Guarantors, issued pursuant to the Indenture, and that are
identical to the Notes in all material respects, except that the provisions
regarding restrictions on transfer shall be modified, as appropriate, and the
issuance thereof pursuant to the Exchange Offer shall have been registered
pursuant to an effective Registration Statement in compliance with the
Securities Act.
Exchange Offer: An offer to issue, in exchange for any and all
of the Notes, a like aggregate principal amount of Exchange Notes, which offer
shall be made by the Company pursuant to Section 2 hereof.
Exchange Offer Registration Statement: As defined in Section
2(a) hereof.
Indemnified Person: As defined in Section 7(a) hereof.
Indenture: The Indenture, dated as of February __, 1998, among
the Issuers and U.S. Trust Company of Texas, N.A., as trustee thereunder,
pursuant to which the Notes are issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Issue Date: As defined in Section 2(a).
Issuers: As defined in the preamble hereof.
Notes: The 9 1/2% Senior Notes due 2008, Series A, of the
Company, unconditionally guaranteed on a joint and several basis by each of the
Subsidiary Guarantors and, issued pursuant to the Indenture.
Participating Broker-Dealer: As defined in Section 2(e) hereof.
Private Exchange: As defined in Section 2(c) hereof.
Private Exchange Notes: As defined in Section 2(c) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated pursuant to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Notes, Exchange
Notes or Private Exchange Notes covered by such Registration Statement, and all
other amendments and supplements to any such prospectus, including post-
effective amendments, and all material incorporated by reference or deemed to
be incorporated by reference, if any, in such prospectus.
Registration Default: As defined in Section 4(a) hereof.
-2-
<PAGE> 96
Registration Statement: Any registration statement of the
Company and the Subsidiary Guarantors that covers any of the Notes, Exchange
Notes or Private Exchange Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 158: Rule 158 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 174: Rule 174 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 424: Rule 424 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Shelf Registration: As defined in Section 3 hereof.
Shelf Registration Statement: As defined in Section 3 hereof.
Special Counsel: Baker & Botts, L.L.P., special counsel to the
holders of Transfer Restricted Securities, or such other counsel as shall be
agreed upon by the Issuers and holders of a majority in aggregate principal
amount of Transfer Restricted Securities, the expenses of which holders of
Transfer Restricted Securities will be reimbursed by the Issuers pursuant to
Section 6.
TIA: The Trust Indenture Act of 1939, as amended.
Transfer Restricted Securities: The Notes, upon original
issuance thereof, and at all times subsequent thereto, each Exchange Note as to
which Section 3(a)(ii) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Note upon original issuance
thereof
-3-
<PAGE> 97
and at all times subsequent thereto, until in the case of any such Note,
Exchange Note or Private Exchange Note, as the case may be, the earliest to
occur of (i) the date on which any such Note has been exchanged by a person
other than a Participating Broker-Dealer for an Exchange Note (other than with
respect to an Exchange Note as to which Section 3(a)(ii) hereof applies)
pursuant to the Exchange Offer, (ii) with respect to Exchange Notes received by
Participating Broker-Dealers in the Exchange Offer, the earlier of (x) the date
on which such Exchange Note has been sold by such Participating Broker-Dealer
by means of the Prospectus contained in the Exchange Offer Registration
Statement and (y) the date on which the Exchange Offer Registration Statement
has been effective under the Securities Act for a period of one year after the
Consummation Date, (iii) a Shelf Registration Statement covering such Note,
Exchange Note or Private Exchange Note has been declared effective by the SEC
and such Note, Exchange Note or Private Exchange Note, as the case may be, has
been disposed of in accordance with such effective Shelf Registration
Statement, (iv) the date on which such Note, Exchange Note or Private Exchange
Note, as the case may be, is distributed to the public pursuant to Rule 144 (or
any similar provisions then in effect) or is saleable pursuant to Rule 144(k)
promulgated by the SEC pursuant to the Securities Act or (v) the date on which
such Note, Exchange Note or Private Exchange Note, as the case may be, ceases
to be outstanding for purposes of the Indenture or any other indenture under
which such Exchange Note or Private Exchange Note was issued.
Trustee: The trustee under the Indenture.
Underwritten Registration or Underwritten Offering: A
registration in connection with which securities are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
2. EXCHANGE OFFER.
a. To the extent not prohibited by any applicable law or applicable
interpretation of the SEC or the staff of the SEC, the Issuers shall (A)
prepare and, on or prior to 60 days after the date of original issuance of the
Notes (the "Issue Date"), file with the SEC a Registration Statement under the
Securities Act with respect to an offer by the Company to the holders of the
Notes to issue and deliver to such holders, in exchange for Notes, a like
principal amount of Exchange Notes, (B) use their best efforts to cause the
Registration Statement relating to the Exchange Offer to be declared effective
by the SEC under the Securities Act on or prior to 180 days after the Issue
Date, and (C) commence the Exchange Offer and use best efforts to issue, on or
prior to the Consummation Date, the Exchange Notes. The offer and sale of the
Exchange Notes pursuant to the Exchange Offer shall be registered pursuant to
the Securities Act on the appropriate form (the "Exchange Offer Registration
Statement") and duly registered or qualified under all applicable state
securities or Blue Sky laws and will comply with all applicable tender offer
rules and regulations under the Exchange Act and state securities or Blue Sky
laws. The Exchange Offer shall not be subject to any condition, other than
that the Exchange Offer does not violate any applicable law or interpretation
of the SEC or the staff of the SEC. Upon consummation of the Exchange Offer in
accordance with this Section 2, the Issuers shall have no further registration
obligations other than with respect to (i) Private Exchange Notes, (ii)
Exchange Notes held by Participating Broker-Dealers and (iii) Notes or Exchange
Notes as to which Section 3(a)(ii) hereof applies. No securities shall be
included in the Exchange Offer Registration Statement other than the Exchange
Notes.
b. The Issuers may require each holder of Notes as a condition to
its participation in the Exchange Offer to represent to the Issuers and their
counsel in writing (which may be contained in the applicable letter of
transmittal) that at the time of the consummation of the Exchange Offer (i) any
Exchange Notes received by such holder will be acquired in the ordinary course
of its business, (ii) such holder will
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have no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) such holder is not an Affiliate of an Issuer, or if it is an
Affiliate of an Issuer, it will comply with the registration and prospectus
delivery requirements of the Securities Act, to the extent applicable.
c. To the extent not prohibited by applicable law or applicable
interpretation of the SEC or the staff of the SEC, if, prior to consummation of
the Exchange Offer, the Initial Purchaser holds any Notes acquired by it and
having, or which are reasonably likely to be determined to have, the status of
an unsold allotment in the initial distribution, or any other holder of Notes
is not entitled to participate in the Exchange Offer, the Company upon the
request of the Initial Purchaser or any such holder shall, simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
the Initial Purchaser and any such holder, in exchange (the "Private Exchange")
for such Notes held by the Initial Purchaser and any such holder, a like
principal amount of debt securities of the Company, guaranteed by each of the
Subsidiary Guarantors on an unsecured senior basis, that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are issued pursuant to the same indenture as the Exchange Notes). The
Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
d. Unless the Exchange Offer would not be permitted by any
applicable law or interpretation of the SEC or the staff of the SEC, the
Company shall mail the Exchange Offer Prospectus and appropriate accompanying
documents, including appropriate letters of transmittal, to each holder of
Notes providing, in addition to such other disclosures as are required by
applicable law:
i. that the Exchange Offer is being made pursuant to this
Agreement and that all Notes validly tendered will be accepted for
exchange;
ii. the date of acceptance for exchange (the "Exchange Date"),
which date shall in no event be later than the Consummation Date (unless
otherwise required by applicable law);
iii. that holders of Notes electing to have a Note exchanged
pursuant to the Exchange Offer will be required to surrender such Note,
together with the enclosed letters of transmittal, to the institution
and at the address (located in the city of New York) specified in the
notice prior to the close of business on the Exchange Date; and
iv. that holders of Notes that do not tender all such
securities pursuant to the Exchange Offer may no longer have any
registration rights hereunder with respect to Notes not tendered.
Promptly after the Exchange Date, the Company shall:
(i) accept for exchange all Notes or portions thereof validly
tendered and not validly withdrawn pursuant to the Exchange Offer or the
Private Exchange; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by
the Company, and issue, cause the Trustee under the Indenture (or the
indenture pursuant to which the Exchange Notes are issued) to
authenticate, and mail to each holder of Notes, Exchange Notes equal in
principal amount to the principal amount of the Notes surrendered by
such holder.
e. The Issuers and the Initial Purchaser acknowledge that the staff
of the SEC has taken the position that any broker-dealer that owns Exchange
Notes that were received by such broker-dealer for its
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own account in the Exchange Offer (a "Participating Broker-Dealer") may be
deemed to be an "underwriter" within the meaning of the Securities Act and must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes (other than a resale of an
unsold allotment resulting from the original offering of the Notes). The
Issuers and the Initial Purchaser also acknowledge that the staff of the SEC
has taken the position that if the Prospectus contained in the Exchange Offer
Registration Statement includes a plan of distribution containing a statement
to the above effect and the means by which Participating Broker-Dealers may
resell the Exchange Notes, without naming the Participating Broker Dealers or
specifying the amount of Exchange Notes owned by them, such Prospectus may be
delivered by Participating Broker-Dealers to satisfy their prospectus delivery
obligations under the Securities Act in connection with resales of Exchange
Notes for their own accounts, so long as the Prospectus otherwise meets the
requirements of the Securities Act. In light of the foregoing, if requested by
a Participating Broker-Dealer, the Issuers agree (x) to use their best efforts
to keep the Exchange Offer Registration Statement continuously effective for a
period of up to one year or such earlier date as each Participating Broker-
Dealer shall have notified the Company in writing that such Participating
Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer, (y)
to comply with the provisions of Section 5 of this Agreement, as they relate to
the Exchange Offer and the Exchange Offer Registration Statement and (z) to
deliver to such Participating Broker-Dealer a "cold comfort" letter of the
independent public accountants of the Issuers and a legal opinion as to matters
reasonably requested by such Participating Broker-Dealer relating to the
Exchange Offer Registration Statement and the related Prospectus and any
amendments or supplements thereto.
f. The Initial Purchaser shall have no liability to any
Participating Broker-Dealer with respect to any request made pursuant to
Section 2(e).
g. Accrued but unpaid interest on any Note that is exchanged for an
Exchange Note or a Private Exchange Note pursuant to this Agreement shall be
paid on or before the first interest payment date on the Exchange Notes and the
Private Exchange Notes, as the case may be.
h. The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture,
except in any case where an Exchange Note constitutes a Transfer Restricted
Security. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes shall vote and consent together
on all matters as one class and that neither the Exchange Notes, the Private
Exchange Notes nor the Notes will have the right to vote or consent as a
separate class on any matter.
3. SHELF REGISTRATION.
a. If (i) the Company is not permitted to file the Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy, (ii) any holder of a
Note notifies the Company on or prior to the Exchange Date that (A) due to a
change in law or policy it is not entitled to participate in the Exchange
Offer, (B) due to a change in law or policy it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holder or
(C) it is a broker-dealer and owns Notes (including the Initial Purchaser that
holds Notes as part of an unsold allotment from the original offering of the
Notes) acquired directly from an Issuer or an Affiliate of an Issuer or (iii)
any holder of Private Exchange Notes so requests within 120 days after the
consummation of the Private Exchange (each such event referred to in clauses
(i) through (iii), a "Shelf Filing Event"), the Issuers shall cause to be filed
with the SEC pursuant to
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Rule 415 a shelf registration statement (the "Shelf Registration Statement") on
or prior to the later of (x) 90 days after the Issue Date and (y) 30 days after
the occurrence of such Shelf Filing Event, relating to all Transfer Restricted
Securities (the "Shelf Registration") the holders of which have provided the
information required pursuant to Section 3(b) hereof, and shall use their best
efforts to have the Shelf Registration Statement declared effective by the SEC
on or prior to 90 days after the occurrence of such Shelf Filing Event,
provided that if the Company has not consummated the Exchange Offer within 210
days of the Issue Date, then the Issuers shall cause the Shelf Registration
Statement to be filed with the SEC on or prior to the 211th day after the Issue
Date and shall use their best efforts to have the Shelf Registration Statement
declared effective by the SEC within 60 days of the date of filing thereof. In
such circumstances, the Issuers shall use their best efforts to keep the Shelf
Registration Statement continuously effective under the Securities Act, until
(A) the first anniversary of the Issue Date (subject to extension pursuant to
Section 5 hereof) or (B) if sooner, the date immediately following the date
that all Transfer Restricted Securities covered by the Shelf Registration
Statement have been sold pursuant thereto (the "Effectiveness Period");
provided, however, that the Effectiveness Period shall be extended to the
extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 and as otherwise provided herein.
b. No holder of Transfer Restricted Securities may include any of
its Transfer Restricted Securities in any Shelf Registration Statement pursuant
to this Agreement unless and until such holder furnishes to the Company in
writing, within 30 days after receipt of a request therefor, such information
as the Company may reasonably request for use in connection with any Shelf
Registration Statement or Prospectus or preliminary prospectus included
therein. No holder of Transfer Restricted Securities shall be entitled to
Additional Interest pursuant to Section 4 hereof unless and until such holder
shall have provided all such reasonably requested information. Each holder of
Transfer Restricted Securities as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such holder not materially misleading.
4. ADDITIONAL INTEREST.
a. The parties hereto agree that the holders of Transfer Restricted
Securities will suffer damages if the Issuers fail to fulfill their obligations
pursuant to Section 2 or Section 3, as applicable, and that it would not be
feasible to ascertain the extent of such damages. Accordingly, in the event
that (i) the applicable Registration Statement is not filed with the SEC on or
prior to the date specified herein for such filing, (ii) the applicable
Registration Statement has not been declared effective by the SEC on or prior
to the date specified herein for such effectiveness after such obligation
arises, (iii) if the Exchange Offer is required to be Consummated hereunder,
the Company has not exchanged Exchange Notes for all Notes validly tendered and
not validly withdrawn in accordance with the terms of the Exchange Offer by the
Consummation Date or (iv) the applicable Registration Statement is filed and
declared effective but shall thereafter cease to be effective without being
succeeded immediately by any additional Registration Statement covering the
Notes, the Exchange Notes or the Private Exchange Notes, as the case may be,
which has been filed and declared effective (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the interest rate on
Transfer Restricted Securities will increase ("Additional Interest"), with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, by 0.50% per annum and will increase by an additional
0.50% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of 2% per annum
with respect to all Registration Defaults. Following the cure of a
Registration Default, the accrual of Additional Interest with respect to such
Registration Default will cease and upon the cure of all Registration Defaults
the interest rate will revert to the original rate.
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b. The Company shall notify the Trustee and paying agent under the
Indenture (or the trustee and paying agent under such other indenture under
which the Transfer Restricted Securities are issued) immediately upon the
happening of each and every Registration Default. The Company shall pay the
Additional Interest due on the Transfer Restricted Securities by depositing
with the paying agent (which shall not be the Company for these purposes) for
the Transfer Restricted Securities, in trust, for the benefit of the holders
thereof, prior to 11:00 A.M. on the next interest payment date specified by the
Indenture (or such other indenture), sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall be payable on each
interest payment date specified by the Indenture (or such other indenture) to
the record holder entitled to receive the interest payment to be made on such
date. Each obligation to pay Additional Interest shall be deemed to accrue
from and including the date of the applicable Registration Default.
c. The parties hereto agree that the Additional Interest provided
for in this Section 4 constitutes a reasonable estimate of the damages that
will be suffered by holders of Transfer Restricted Securities by reason of the
happening of any Registration Default.
5. REGISTRATION PROCEDURES.
In connection with the Issuers' registration obligations
hereunder, the Issuers shall effect such registrations on the appropriate form
available for the sale of the Notes, the Exchange Notes or Private Exchange
Notes, as applicable, to (i) in the case of the Exchange Offer, permit the
exchange of Exchange Notes for Notes in the Exchange Offer and, if applicable,
resales of Exchange Notes by Participating Broker-Dealers and (ii) in the case
of a Shelf Registration, permit the sale of the applicable Transfer Restricted
Securities in accordance with the method or methods of disposition thereof
specified by the holders of such Transfer Restricted Securities, and pursuant
thereto the Issuers shall as expeditiously as possible:
a. in the case of a Shelf Registration, a reasonable period of time
prior to the initial filing of a Shelf Registration Statement or Prospectus and
a reasonable period of time prior to the filing of any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), furnish to the holders of the Transfer
Restricted Securities included in such Shelf Registration Statement, their
Special Counsel and the managing underwriters, if any, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of
such holders, their Special Counsel and such underwriters, if any, and cause
the officers and directors of the Issuers, counsel to the Issuers and
independent certified public accountants to the Issuers to respond to such
reasonable inquiries as shall be necessary, in the opinion of respective
counsel to such holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act; provided, however, that
the foregoing inspection and information gathering shall be coordinated by the
Initial Purchaser, and on behalf of any other persons by one counsel designated
by and on behalf of such other persons; and provided, further, that the Issuers
shall not be deemed to have kept a Shelf Registration Statement effective
during the applicable period if any of them voluntarily takes or fails to take
any reasonable action that results in holders of the Transfer Restricted
Securities covered thereby not being able to sell such Transfer Restricted
Securities pursuant to Federal securities laws during that period (and the time
period during which such Shelf Registration Statement is required to remain
effective hereunder shall be extended by the number of days during which such
holders of Transfer Restricted Securities are not able to sell such Transfer
Restricted Securities). The Issuers shall not file any such Shelf Registration
Statement or related Prospectus or any amendments or supplements thereto to
which the holders of a majority in aggregate principal amount of the Transfer
Restricted Securities included in such Shelf Registration Statement shall
reasonably object on a timely basis;
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<PAGE> 102
b. prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable time
period required hereunder; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424; and comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented;
c. notify the holders of Transfer Restricted Securities to be sold
or, in the case of Transfer Restricted Securities tendered for in an Exchange
Offer, their Special Counsel and the managing underwriters, if any, promptly,
and (if requested by any such person), confirm such notice in writing, (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment is
proposed to be filed and (B) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to a Registration Statement or related Prospectus or
for additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any stop
order, order or injunction suspending or enjoining the use of a Prospectus or
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Notes, Exchange Notes or Private Exchange
Notes for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, and (v) of the happening of any event or
information becoming known that makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such Registration Statement, Prospectus
or documents so that it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of a Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading;
d. use their best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Notes, Exchange Notes or Private Exchange Notes for sale in any
jurisdiction, at the earliest practicable moment;
e. if a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the holders of
a majority in aggregate principal amount of the Transfer Restricted Securities
being sold pursuant to such Shelf Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such holders reasonably
believe should be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment under the Securities Act
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Issuers shall not be required to take
any action pursuant to this Section 5(e) that would, in the opinion of counsel
for the Issuers, violate applicable law;
f. upon written request to the Company, furnish to each holder of
Notes, Exchange Notes or Private Exchange Notes to be exchanged or sold
pursuant to a Registration Statement, their Special Counsel and each managing
underwriter, if any, without charge, at least one conformed copy of such
Registration
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Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested (including those previously
furnished or incorporated by reference) as soon as practicable after the filing
of such documents with the SEC;
g. deliver to each holder of Notes, Exchange Notes or Private
Exchange Notes to be exchanged or sold pursuant to a Registration Statement,
their Special Counsel and the underwriters, if any, without charge, as many
copies of the Prospectus (including each form of prospectus) and each amendment
or supplement thereto as such persons reasonably request; and the Issuers
hereby consent to the use of such Prospectus and each amendment or supplement
thereto by each of the selling holders of Transfer Restricted Securities and
the underwriters, if any, in connection with the offering and sale of the
Transfer Restricted Securities covered by such Prospectus and any amendment or
supplement thereto;
h. prior to any public offering of Notes, Exchange Notes or Private
Exchange Notes, use their best efforts to register or qualify or cooperate with
the holders of Notes, Exchange Notes or Private Exchange Notes to be sold or
tendered for the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Notes, Exchange Notes or Private
Exchange Notes for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any such holder or underwriter
reasonably requests in writing; keep each such registration or qualification
(or exemption therefrom) effective during the period such Registration
Statement is required to be kept effective hereunder and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Notes, Exchange Notes or Private Exchange Notes covered by
the applicable Registration Statement; provided, however, that the Issuers
shall not be required to (i) qualify generally to do business in any
jurisdiction where they are not then so qualified or (ii) take any action which
would subject them to general service of process or to taxation in any
jurisdiction where they are not so subject;
i. in connection with any sale or transfer of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the holders thereof and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company and to enable such
Transfer Restricted Securities to be in such authorized denominations and
registered in such names as the managing underwriters, if any, or such holders
may request at least two Business Days prior to any sale of Transfer Restricted
Securities;
j. upon the occurrence of any event contemplated by Section 5(c)(v),
as promptly as practicable, prepare a supplement or amendment, including, if
appropriate, a post-effective amendment, to each Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
k. prior to the effective date of the Exchange Offer Registration
Statement, to provide a CUSIP number for the Exchange Notes (and Private
Exchange Notes if applicable);
l. if a Shelf Registration Statement is filed pursuant to Section 3
hereof, enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in
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underwritten offerings) and take all such other reasonable actions in
connection therewith (including those reasonably requested by the managing
underwriters, if any, or the holders of a majority in aggregate principal
amount of the Transfer Restricted Securities being sold) in order to expedite
or facilitate the disposition of such Transfer Restricted Securities, and,
whether or not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration, (i) make such representations and
warranties to the holders of such Transfer Restricted Securities and the
underwriters, if any, with respect to the business of the Company and its
subsidiaries (including with respect to businesses or assets acquired or to be
acquired by any of them), and the Shelf Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings, and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Issuers and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and Special
Counsel to the holders of the Transfer Restricted Securities being sold),
addressed to each selling holder of Transfer Restricted Securities and each of
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) use their best
efforts to obtain customary "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Shelf Registration
Statement), addressed (where reasonably possible) to each selling holder of
Transfer Restricted Securities and each of the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings;
(iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 7 hereof
(or such other provisions and procedures acceptable to holders of a majority in
aggregate principal amount of Transfer Restricted Securities covered by such
Shelf Registration Statement and the managing underwriters, if any); and (v)
deliver such documents and certificates as may be reasonably requested by the
holders of a majority in aggregate principal amount of the Transfer Restricted
Securities being sold, their Special Counsel and the managing underwriters, if
any, to evidence the continued validity of the representations and warranties
made pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Issuers;
m. in the case of a Shelf Registration, make available for
inspection by a representative of the holders of Transfer Restricted Securities
being sold, any underwriter participating in any such disposition of Transfer
Restricted Securities, and any attorney, consultant or accountant retained by
such selling holders or underwriter, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries (including with
respect to businesses and assets acquired or to be acquired to the extent that
such information is available to the Company), and cause the officers,
directors, agents and employees of the Company and its subsidiaries (including
with respect to businesses and assets acquired or to be acquired to the extent
that such information is available to the Company) to supply all information in
each case reasonably requested by any such representative, underwriter,
attorney, consultant or accountant in connection with such Shelf Registration;
provided, however, that such persons shall first agree in writing with the
Company that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such persons, unless (i) disclosure
of such information is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure requirements
pursuant to Federal securities laws in connection with the filing of the Shelf
Registration Statement or the use of any Prospectus),
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(iii) such information becomes generally available to the public other than as
a result of a disclosure or failure to safeguard such information by such
person or (iv) such information becomes available to such person from a source
other than the Company and its subsidiaries and such source is not bound by a
confidentiality agreement; and provided, further, that the foregoing inspection
and information gathering shall be coordinated by the Initial Purchaser and on
behalf of any other persons, by one counsel designated by and on behalf of such
other persons;
n. provide an indenture trustee for the Notes and/or the Exchange
Notes and Private Exchange Notes, as the case may be, and cause an indenture to
be qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Notes and/or the Exchange Notes and
Private Exchange Notes, as the case may be; and if such indenture shall be the
Indenture, in connection therewith, cooperate with the Trustee and the holders
of the Notes and/or the Exchange Notes and Private Exchange Notes, to effect
such changes to the Indenture as may be required for the Indenture to be (or to
remain) so qualified in accordance with the terms of the TIA; and execute, and
use its best efforts to cause the Trustee to execute, all customary documents
as may be required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be (or to remain)
so qualified in a timely manner;
o. comply with all applicable rules and regulations of the SEC and
make generally available to their security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158,
no later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Transfer Restricted Securities are
sold to underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to underwriters in such an offering, commencing
on the first day of the first fiscal quarter after the effective date of a
Registration Statement, which statement shall cover said period, consistent
with the requirements of Rule 158; and
p. cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc.
The Issuers may require a holder of Transfer Restricted
Securities to be included in a Registration Statement to furnish to the Issuers
such information regarding the distribution of such Transfer Restricted
Securities as is required by law to be disclosed in such Registration Statement
and the Issuers may exclude from such Registration Statement the Transfer
Restricted Securities of any holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
If any such Registration Statement refers to any holder by name
or otherwise as the holder of any securities of an Issuer, then such holder
shall have the right to require (i) the insertion therein of language, in form
and substance reasonably satisfactory to such holder, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Issuers'
securities covered thereby and that such holding does not imply that such
holder will assist in meeting any future financial requirements of the Issuers
or (ii) in the event that such reference to such holder by name or otherwise is
not required by the Securities Act, the deletion of the reference to such
holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
In the case of a Shelf Registration pursuant to Section 3 hereof,
each holder of Transfer Restricted Securities agrees by acquisition of such
Transfer Restricted Securities that, upon receipt of any
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notice from the Company of the happening of any event of the kind described in
Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, such holder will
forthwith discontinue disposition of such Transfer Restricted Securities
covered by such Registration Statement or Prospectus until such holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 5(j) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus.
If the Company shall give any such notice, the Effectiveness Period shall be
extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each holder of
Transfer Restricted Securities covered by such Registration Statement shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(j) hereof or (y) the Advice, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus.
6. REGISTRATION EXPENSES.
All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not any Registration Statement is filed or becomes effective and
whether or not any Notes, Exchange Notes or Private Exchange Notes are issued
or sold pursuant to any Registration Statement. The fees and expenses referred
to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the National Association
of Securities Dealers, Inc. and (B) in compliance with securities or Blue Sky
laws), (ii) printing expenses (including, without limitation, expenses of
printing Prospectuses), (iii) reasonable fees and disbursements of counsel for
the Issuers and the Special Counsel, (iv) fees and disbursements of all
independent certified public accountants referred to in Section 2(e) and
Section 5(l)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (v) if required by applicable law, including the rules of the
National Association of Securities Dealers, Inc., the reasonable fees and
expenses of any "qualified independent underwriter" and its counsel and (vi)
fees and expenses of all other persons retained by the Issuers. In addition,
the Issuers shall pay their internal expenses (including, without limitation,
all salaries and expenses of their respective officers and employees performing
legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Notes, Exchange Notes
or Private Exchange Notes to be registered on any securities exchange.
Notwithstanding the foregoing or anything in this Agreement to the contrary,
each holder of Transfer Restricted Securities shall pay all underwriting
discounts and commissions of any underwriters with respect to any Notes,
Exchange Notes or Private Exchange Notes sold by it.
7. INDEMNIFICATION.
a. The Issuers agree, jointly and severally, to indemnify and hold
harmless (i) the Initial Purchaser, each holder of Notes, Exchange Notes and
Private Exchange Notes and each Participating Broker-Dealer, (ii) each person,
if any, who controls (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) any of the foregoing (any of the persons referred to in
this clause (ii) being hereinafter referred to as a ("controlling person")) and
(iii) the respective officers, directors, partners, employees, representatives
and agents of the Initial Purchaser, each holder of Notes, Exchange Notes and
Private Exchange Notes, each Participating Broker-Dealer and any controlling
person (any person referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an "Indemnified Person"), from and against any and all losses,
claims, damages, liabilities and judgments arising out of or relating to any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or
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<PAGE> 107
preliminary prospectus or in any amendment or supplement thereto, or arising
out of or relating to any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or preliminary prospectus or supplement
thereto, in light of the circumstances under which they were made) not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Indemnified Person
furnished in writing to the Issuers by or on behalf of such Indemnified Person
expressly for use therein; provided, that the indemnity agreement contained in
this Section 7(a) with respect to any preliminary prospectus or amended
preliminary prospectus shall not inure to the benefit of any Indemnified Person
from whom the person asserting any such loss, expense, liability or claim
purchased the securities which is the subject thereof, if the Prospectus
corrected any such alleged untrue statement or omission and if such Indemnified
Person failed to send or give a copy of the written Prospectus, excluding any
documents incorporated by reference, to such person at or prior to the written
confirmation of the sale of securities to such person, provided that the Issuer
has delivered the Prospectus to the Initial Purchaser in requisite quantity on
a timely basis to permit such delivery or sending.
b. In case any action shall be brought against any Indemnified
Person, based upon any Registration Statement or any such Prospectus or
preliminary prospectus or any amendment or supplement thereto and with respect
to which indemnity may be sought against the Issuers hereunder, such
Indemnified Person shall promptly notify the Issuers in writing and the Company
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Person and payment of all fees and
expenses. Any Indemnified Person shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Person, unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Issuers, (ii) the Company shall have failed to
assume the defense and employ counsel or pay all such fees and expenses or
(iii) the named parties to any such action (including any impleaded parties)
include both such Indemnified Person and an Issuer and such Indemnified Person
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
any such Issuer (in which case the Company shall not have the right to assume
the defense of such action on behalf of such Indemnified Person, it being
understood, however, that the Issuers shall not, in connection with any one
such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) for all such Indemnified
Persons, which firm shall be designated in writing by such Indemnified Persons,
and that all such reasonable fees and expenses shall be reimbursed as they are
incurred). The Issuers shall not be liable for any settlement of any such
action effected without their written consent but if settled with the written
consent of the Issuers, the Issuers agree, jointly and severally, to indemnify
and hold harmless each Indemnified Person from and against any loss or
liability by reason of such settlement. No Issuer shall, without the prior
written consent of each Indemnified Person, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
a party and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement includes an unconditional release of such
Indemnified Person from all liability on claims that are the subject matter of
such proceeding.
c. In connection with any Registration Statement pursuant to which a
holder of Transfer Restricted Securities offers or sells Transfer Restricted
Securities, such holder agrees, severally and not jointly, to indemnify and
hold harmless the Issuers, their respective directors and officers and any
person controlling an Issuer within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from the Issuers to each Indemnified Person but only with respect to
information relating to such holder furnished in writing by or on behalf of
such holder expressly
-14-
<PAGE> 108
for use in such Registration Statement. In any such case in which any action
shall be brought against an Issuer, any director or officer of an Issuer or any
person controlling an Issuer based on such Registration Statement and in
respect of which indemnity may be sought against a holder of Transfer
Restricted Securities, such holder shall have the rights and duties given to
the Issuers (except that if an Issuer shall have assumed the defense thereof,
such holder shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of such holder), and the Issuers, their
respective directors and officers and any person controlling an Issuer shall
have the rights and duties given to the Indemnified Persons by Section 7(b)
hereof.
d. If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by each indemnifying party on the one
hand and the indemnified party on the other hand from the offering of the
Notes, the Exchange Notes or the Private Exchange Notes, as the case may be (it
being expressly understood and agreed that the relative benefits received by
the Issuers from the offering of the Notes, Exchange Notes or Private Exchange
Notes, as the case may be, shall be the amount of the net proceeds received by
the Company from the sale of the Notes to the Initial Purchaser), or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each
indemnifying party on the one hand and the indemnified party on the other hand
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of each indemnifying party on the
one hand and the indemnified party on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by an indemnifying party or such indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Issuers and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Indemnified Person were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the net profits received by it in connection with the sale of
the Notes, Exchange Notes or Private Exchange Notes contemplated by this
Agreement exceeds the amount of any damages which such Indemnified Person has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Indemnified Person's obligations to
contribute pursuant to this Section 7(d) are several in proportion to the
respective amount of Notes, Exchange Notes or Private Exchange Notes included
in any such Registration Statement by each Indemnified Person and not joint.
-15-
<PAGE> 109
8. RULES 144 AND 144A.
Each of the Issuers shall use its best efforts to file the
reports required to be filed by it under the Securities Act and the Exchange
Act in a timely manner and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any holder of Transfer Restricted Securities, make
available other information as required by, and so long as necessary to permit,
sales of its Transfer Restricted Securities pursuant to Rule 144A.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require an Issuer to register any of its securities pursuant to the Exchange
Act.
9. UNDERWRITTEN REGISTRATIONS.
If any of the Transfer Restricted Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the holders of a majority in aggregate principal amount of
such Transfer Restricted Securities included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such Transfer Restricted Securities on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements.
10. MISCELLANEOUS.
a. Remedies. In the event of a breach by an Issuer or by a holder
of Notes, Exchange Notes or Private Exchange Notes of any of its obligations
under this Agreement, each holder of Notes, Exchange Notes or Private Exchange
Notes and each Issuer, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Subject to Section 4 hereof,
the Issuers and each holder of Notes, Exchange Notes and Private Exchange Notes
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach of any of the provisions of this Agreement and
each hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
b. No Inconsistent Agreements. The Issuers will not enter into any
agreement with respect to their securities that is inconsistent with the rights
granted to the holders of Notes, Exchange Notes and Private Exchange Notes and
Indemnified Persons in this Agreement or otherwise conflicts with the
provisions hereof. Without the written consent of the holders of a majority in
aggregate principal amount of the outstanding Transfer Restricted Securities,
the Issuers shall not grant to any person any rights which conflict with or are
inconsistent with the provisions of this Agreement.
c. No Piggyback on Registrations. The Issuers shall not grant to
any of their security holders (other than the holders of Transfer Restricted
Securities in such capacity) the right to include any of their securities in
any Registration Statement other than Transfer Restricted Securities.
d. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the holders
of not less than a majority of the then outstanding aggregate principal amount
of Transfer Restricted Securities;
-16-
<PAGE> 110
provided, however, that, for the purposes of this Agreement, Transfer
Restricted Securities that are owned, directly or indirectly, by the Issuers or
any of their Affiliates are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of holders of
Transfer Restricted Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other holders of Transfer Restricted Securities may be given by
holders of a majority in aggregate principal amount of the Transfer Restricted
Securities being sold by such holders pursuant to such Registration Statement;
and provided, further, that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence. Notwithstanding the foregoing, no amendment,
modification, supplement, waiver or consent with respect to Section 7 shall be
made or given otherwise than with the prior written consent of each Indemnified
Person affected thereby.
e. Notices. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopier:
i. if to the Issuers, as provided in the Purchase Agreement,
ii. if to the Initial Purchaser, as provided in the Purchase
Agreement, or
iii. if to any other person who is then the registered holder
of Notes, Exchange Notes or Private Exchange Notes, to the address of
such holder as it appears in the register therefor of the Company.
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given: when delivered by hand, if personally
delivered; one Business Day after being timely delivered to a next-day air
courier; five Business Days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.
f. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each holder of Notes, Exchange
Notes and Private Exchange Notes. The Issuers may not assign any of their
rights or obligations hereunder without the prior written consent of each
holder of Transfer Restricted Securities and each Indemnified Person.
Notwithstanding the foregoing, no successor or assignee of an Issuer shall have
any of the rights granted under this Agreement until such person shall
acknowledge its rights and obligations hereunder by a signed written statement
of such person's acceptance of such rights and obligations.
g. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
h. Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
THE ISSUERS HEREBY IRREVOCABLY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF ANY
COMPETENT NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY
OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE
CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND EACH
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<PAGE> 111
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
i. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
j. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
-18-
<PAGE> 112
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
DAILEY INTERNATIONAL INC.
By:
------------------------------------
James F. Farr
President and Chief Executive
Officer
DAILEY ENERGY SERVICES, INC.
By:
------------------------------------
David T. Tighe
Vice President
DAILEY INTERNATIONAL SALES CORPORATION
By:
------------------------------------
David T. Tighe
Vice President
COLUMBIA PETROLEUM SERVICES CORP.
By:
------------------------------------
David T. Tighe
Vice President
INTERNATIONAL PETROLEUM SERVICES, INC.
By:
------------------------------------
David T. Tighe
Vice President
<PAGE> 113
DAILEY ENVIRONMENTAL REMEDIATION
TECHNOLOGIES, INC.
By:
------------------------------------
David T. Tighe
Treasurer
DAILEY WORLDWIDE SERVICES, CORP.
By:
------------------------------------
David T. Tighe
Treasurer
AIR DRILLING INTERNATIONAL, INC.
By:
------------------------------------
David T. Tighe
Vice President
AIR DRILLING SERVICES, INC.
By:
------------------------------------
David T. Tighe
Vice President
JEFFERIES & COMPANY, INC.
By:
----------------------------
Jay Levy
Vice President
<PAGE> 1
EXHIBIT 4.4
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTES EVIDENCED HEREBY
RESELL OR OTHERWISE TRANSFER THE NOTES EVIDENCED HEREBY, EXCEPT (A) TO DAILEY
INTERNATIONAL INC. (THE "COMPANY"), (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO U.S. TRUST COMPANY OF TEXAS, N.A., AS TRUSTEE, A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES TO
FOREIGN PURCHASERS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (3) AGREES THAT IT WILL GIVE EACH PERSON TO WHOM THE NOTES EVIDENCED HEREBY
ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE NOTES EVIDENCED HEREBY WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF SUCH NOTES, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO U.S. TRUST COMPANY OF TEXAS, N.A., AS TRUSTEE, A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE). IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE COMPANY AND U.S. TRUST COMPANY OF TEXAS, N.A., AS TRANSFER
AGENT, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTES EVIDENCED
HEREBY IF THE PROVISIONS OF SECTION 2.14(A)(I) OF THE INDENTURE ARE SATISFIED.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S.
PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE
SECURITIES ACT.
PAGE 1 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 2
GLOBAL SECURITY
9 1/2% SENIOR NOTE DUE 2008, SERIES A
REGISTERED
No. R- U.S. $
CUSIP 23380G-AC-0
DAILEY INTERNATIONAL INC.
(a Delaware corporation)
promises to pay Cede & Co. or registered assigns the principal sum of
_______________ ($____) on February 15, 2008.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed.
DAILEY INTERNATIONAL INC.
By:
-----------------------------------------------
JAMES F. FARR
President
Dated: February 13, 1998
Attest:
- --------------------------------------------
WILLIAM D. SUTTON
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred
to in the within-mentioned Indenture.
Dated: February 13, 1998
U.S. TRUST COMPANY OF TEXAS, N.A.
By:
----------------------------------------
Authorized Signatory
PAGE 2 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 3
1. Interest.
Dailey International Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security
at 9 1/2% per annum from February 13, 1998 until maturity. The Company will
pay interest semiannually on February 15 and August 15 of each year, commencing
August 15, 1998, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Securities will accrue from the most recent date to which interest has been
paid or duly provided for or, if no interest has been paid, from the date of
original issuance; provided that if there is no existing Default or Event of
Default in the payment of interest, and if this Security is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date, except in the case of the original issuance of Securities, in
which case interest shall accrue from the date of authentication. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Accrued but unpaid interest on any Series A Security that is exchanged for a
Series B Security pursuant to the Registration Rights Agreement shall be paid
on or before the first interest payment date on the Series B Securities.
The interest rate on the Securities is subject to increase under
certain circumstances described in the Registration Rights Agreement.
The Company shall pay interest on overdue principal of and interest on
overdue installments of interest, to the extent lawful, at a rate equal to the
rate of interest otherwise payable on the Securities.
2. Method of Payment.
The Company will pay interest on the Securities to the persons who are
registered holders of Securities at the close of business on the February 1 or
August 1 immediately preceding the interest payment date even though Securities
are cancelled after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal of and interest on the Securities in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company may pay principal or interest
by check payable in such money or by wire transfer of immediately available
funds. If paying by check, the Company may mail such check to a Holder's
registered address.
3. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-registrar without notice.
The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture dated as of
February 13, 1998 (the "Indenture") among the Company, the Subsidiary
Guarantors and the Trustee. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the Indenture or on the date of any
amendment thereto, to the extent required by Section 9.03 of the Indenture.
Notwithstanding anything to the contrary herein, the Securities are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Securities are general unsecured obligations
PAGE 3 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 4
of the Company limited to $____________ aggregate principal amount in the case
of Securities issued on the Issue Date. Payment on each Security is guaranteed
on a senior unsecured basis, jointly and severally, by the Subsidiary
Guarantors pursuant to Article Ten of the Indenture.
5. Optional Redemption.
At any time or in part from time to time on and after February 15,
2003, the Company may, at its option, redeem all or any portion of the
Securities at the redemption prices (expressed as percentages of the principal
amount of the Securities) set forth below, plus, in each case, accrued interest
thereon to the applicable redemption date, if redeemed during the 12-month
period beginning on February 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2003 . . . . . . . . 104.750
2004 . . . . . . . . 103.167%
2005 . . . . . . . . 101.583%
2006 and thereafter 100.000%
</TABLE>
In addition, at any time or from time to time on or before February
15, 2001, up to 35% of the aggregate principal amount of Securities originally
issued may be redeemed, at the option of the Company, upon not less than 30 or
more than 60 days' notice, from the Net Proceeds of one or more Public Equity
Offerings, at a price equal to 109.50% of the principal amount thereof,
together with accrued and unpaid interest to the date of redemption, provided
that (i) at least 65% of the aggregate principal amount of Securities
originally issued remains outstanding immediately after each such redemption
and (ii) each such redemption occurs within 60 days following the closing of
each such Public Equity Offering.
In the case of any redemption of Securities, interest installments due
and payable on or prior to the date of redemption will be payable to Holders of
such Securities of record at the close of business on the relevant Record Date
referred to on the face hereof. Securities (or portions thereof) for whose
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the date of redemption. In the event of
redemption or purchase of this Series A Security in part only, a new Series A
Security or Securities for the unredeemed or unpurchased portion hereof shall
be issued in the name of the Holder hereof upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund
obligations.
6. Notice of Redemption.
Notice of redemption will be mailed to the registered address of each
Holder of Securities to be redeemed at least 30 days but not more than 60 days
before the redemption date. If less than all Securities are to be redeemed,
the Trustee shall select pro rata, by lot or by any other method considered
fair and appropriate by the Trustee and, if the Securities are listed on any
securities exchange, by a method that complies with the requirements of such
exchange, the Securities to be redeemed in multiples of $1,000. Securities in
denominations larger than $1,000 may be redeemed in part.
PAGE 4 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 5
7. Change of Control.
Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase all of the then outstanding Securities
(a "Change of Control Offer"), and shall purchase, on a Business Day (the
"Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of a Change of Control, all of the then outstanding
Securities validly tendered pursuant to such Change of Control Offer, at a
purchase price (the "Change of Control Purchase Price) equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
Change of Control Purchase Date. The Change of Control Offer is required to
remain open for at least 20 Business Days and until the close of business on
the fifth Business Day prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall,
not later than the 30th day after the occurrence of such Change of Control,
mail to the Trustee and to each Holder of the Securities notice of the Change
of Control Offer, which notice shall govern the terms of the Change of Control
Offer and shall state, among other things, the procedures that Holders of the
Securities must follow to accept the Change of Control Offer.
8. Asset Sale Offer.
In the event of certain Asset Sales, the Company may be required to
make an Asset Sale Offer to purchase all or any portion of each Holder's
Securities, at 100% of the principal amount thereof plus accrued interest, if
any, to the Asset Sale Offer Purchase Date.
9. Restrictive Covenants.
The Indenture imposes certain limitations on, among other things, the
ability of the Company to merge or consolidate with any other Person or sell,
lease or otherwise transfer all or substantially all of its properties or
assets, the ability of the Company or the Subsidiaries to dispose of certain
assets, to pay dividends and make certain other distributions and payments, to
make certain investments or redeem, retire, repurchase or acquire for value
shares of capital stock, to incur additional Indebtedness or incur encumbrances
against certain property, to engage in other business activities, and to enter
into certain transactions with Related Persons, all subject to certain
limitations described in the Indenture.
10. Denominations, Transfer, Exchange.
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or exchange any Securities selected
for redemption. Also, it need not transfer or exchange any Securities for a
period of 30 days before a selection of Securities to be redeemed.
11. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it
for all purposes and neither the Company, the Trustee nor any Agent shall be
affected by notice to the contrary.
PAGE 5 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 6
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee or Paying Agent will pay the money back to the
Company at its request. After that, all liability of the Trustee and such
Paying Agents with respect to such money shall cease.
13. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Supplement, Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Securities, and any past default or noncompliance
with any provision may be waived with the consent of the Holders of a majority
in principal amount of the Securities. Without the consent of any Holder, the
Company may amend or supplement the Indenture or the Securities to, among other
things, cure any ambiguity, defect or inconsistency or to provide for
uncertificated Securities in addition to, or in place of, certificated
Securities or to make any change that does not adversely affect the rights of
any Holder.
15. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor corporation
will be released from those obligations.
16. Defaults and Remedies.
An event of default generally is: default in payment of principal on
the Securities; default for 30 days in payment of interest on the Securities;
failure by the Company or any Subsidiary Guarantor for 45 days after notice to
comply with any of its other agreements in the Indenture; certain defaults
under or acceleration prior to maturity of other indebtedness; certain final
judgments against the Company or Subsidiaries; a failure of any Subsidiary
Guarantee of a Material Subsidiary to be in full force and effect or denial by
any Subsidiary Guarantor of its obligations with respect thereto; and certain
events of bankruptcy or insolvency. Subject to certain limitations in the
Indenture, if an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Securities
may declare all the Securities to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization relating to the Company, all outstanding
Securities shall become due and payable immediately without further action or
notice. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust or power. The Company must
furnish an annual compliance certificate to the Trustee.
PAGE 6 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 7
17. Trustee Dealings with Company.
U.S. Trust Company of Texas, N.A., the Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Subsidiaries or
Affiliates with the same rights it would have if it were not Trustee, subject,
however, to required actions on the part of the Trustee in the event it
acquires any conflicting interest.
18. No Recourse Against Others.
A DIRECTOR, OFFICER, EMPLOYEE OR STOCKHOLDER, AS SUCH, OF THE COMPANY,
ANY SUBSIDIARY GUARANTOR OR THE TRUSTEE, SHALL NOT HAVE ANY LIABILITY FOR ANY
OBLIGATIONS OF THE COMPANY, ANY SUBSIDIARY GUARANTOR OR THE TRUSTEE, UNDER THE
SECURITIES OR THE INDENTURE OR FOR ANY CLAIM BASED ON, IN RESPECT OF OR BY
REASON OF, SUCH OBLIGATIONS OR THEIR CREATION. EACH HOLDER BY ACCEPTING A
SECURITY WAIVES AND RELEASES ALL SUCH LIABILITY. THE WAIVER AND RELEASE ARE
PART OF THE CONSIDERATION FOR THE ISSUE OF THE SECURITIES.
19. Authentication.
This Security shall not be valid until the Trustee or an
authenticating agent signs the certificate of authentication on the other side
of this Security.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to Holders. No representation is
made as to the accuracy of such numbers as printed on the Securities and
reliance may be placed only on the other identification numbers printed hereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to: Secretary,
Dailey International Inc., One Lawrence Center, 2507 North Frazier, Conroe,
Texas 77305.
22. Governing Law.
THIS INDENTURE AND THE SECURITIES AND THE SUBSIDIARY GUARANTEES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE
EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
PAGE 7 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 8
23. Exchange Option.
At the option of the Holders hereof, the Series A Securities may be
exchanged, pursuant to the Registration Rights Agreement, for a like aggregate
principal amount of Series B Securities.
PAGE 8 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 9
FORM OF ASSIGNMENT
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
------------------------------------------------------------
------------------------------------------------------------
(Insert assignee's soc. sec. or tax ID no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Your Signature:
------------------------------
(Sign exactly as your name
appears on the Security)
Date:
---------------------
Signature Guarantee:
----------------------------------------
OPTION TO HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.12 or Section 4.17 of the Indenture, check the
appropriate box:
Section 4.12 [ ]
Section 4.17 [ ]
If you want to have only part of this Security purchased by the
Company pursuant to Section 4.12 or 4.17 of the Indenture, state the amount (in
integral multiples of $1,000):
$
-------------------------
Date: Signature:
--------------------- -------------------------------
(Sign exactly as your name
appears on the Security)
Signature Guarantee:
----------------------------------------
PAGE 9 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 10
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the Subsidiary
Guarantors (as defined in the Indenture referred to in the Security upon which
this notation is endorsed, and each hereinafter referred to as a "Subsidiary
Guarantor," which term includes any successor or additional Subsidiary
Guarantor under the Indenture) have unconditionally guaranteed (a) the due and
punctual payment of the principal of, premium (if any) and interest on the
Securities, whether at maturity, acceleration, redemption or otherwise, (b) the
due and punctual payment of interest on the overdue principal of and interest
on the Securities, if any, to the extent lawful, (c) the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee, all in accordance with the terms set forth in the Indenture, and (d)
in case of any extension of time of payment or renewal of any Securities or any
of such other obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. Capitalized terms used herein
have the meanings assigned to them in the Indenture unless otherwise indicated.
NO STOCKHOLDER, OFFICER, DIRECTOR OR INCORPORATOR, AS SUCH, PAST,
PRESENT OR FUTURE, OF THE SUBSIDIARY GUARANTORS SHALL HAVE ANY PERSONAL
LIABILITY UNDER THIS SUBSIDIARY GUARANTEE BY REASON OF HIS OR ITS STATUS AS
SUCH STOCKHOLDER, OFFICER, DIRECTOR OR INCORPORATOR.
This Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions hereof and in the Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Security upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized signatories.
<TABLE>
<S> <C>
Dailey Energy Services, Inc. Dailey Environmental Remediation Technologies, Inc.
By: By:
--------------------------------------------- ------------------------------------------------------------------
James F. Farr, President James F. Farr, President
Dailey International Sales Corporation Dailey Worldwide Services, Corp.
By: By:
--------------------------------------------- ------------------------------------------------------------------
James F. Farr, President James F. Farr, President
Columbia Petroleum Services Corp. Air Drilling International, Inc.
By: By:
--------------------------------------------- ------------------------------------------------------------------
James F. Farr, President David T. Tighe, Vice President
International Petroleum Services, Inc. Air Drilling Services, Inc.
By: By:
--------------------------------------------- ------------------------------------------------------------------
James F. Farr, President David T. Tighe, Vice President
</TABLE>
PAGE 10 OF 10 PAGES
GLOBAL SECURITY: R-2
ISSUER: Dailey International Inc. ISSUE DATE: February 13, 1998
<PAGE> 1
EXHIBIT 4.5
================================================================================
DAILEY INTERNATIONAL INC.
and the
SUBSIDIARY GUARANTORS
identified herein
$275,000,000
9 1/2% Senior Notes due 2008
REGISTRATION RIGHTS AGREEMENT
February 13, 1998
Jefferies & Company, Inc.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . 8
6. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . 13
7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. Rules 144 and 144A . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Underwritten Registrations . . . . . . . . . . . . . . . . . . . . . 16
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
a. Remedies . . . . . . . . . . . . . . . . . . . . . . . 16
b. No Inconsistent Agreements . . . . . . . . . . . . . . 16
c. No Piggyback on Registrations . . . . . . . . . . . . . 16
d. Amendments and Waivers . . . . . . . . . . . . . . . . 16
e. Notices . . . . . . . . . . . . . . . . . . . . . . . . 17
f. Successors and Assigns . . . . . . . . . . . . . . . . 17
g. Counterparts . . . . . . . . . . . . . . . . . . . . . 17
h. Governing Law; Submission to Jurisdiction . . . . . . . 17
i. Severability . . . . . . . . . . . . . . . . . . . . . 18
j. Headings . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of February 13, 1998 by and among Dailey International, Inc., a
Delaware corporation (the "Company"), Dailey Energy Services, Inc., Dailey
International Sales Corporation, Columbia Petroleum Services Corp.,
International Petroleum Services, Inc., Dailey Environmental Remediation
Technologies, Inc., Dailey Worldwide Services, Corp., Air Drilling
International, Inc. and Air Drilling Services, Inc. (the "Subsidiary
Guarantors" and, together with the Company, the "Issuers") and Jefferies &
Company, Inc. (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated
February 6, 1998, among the Company, the Subsidiary Guarantors and the Initial
Purchaser (the "Purchase Agreement"). In order to induce the Initial Purchaser
to enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights provided for in this Agreement to the Initial Purchaser and
its direct and indirect transferees. The execution and delivery of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: As defined in Section 4(a) hereof.
Advice: As defined in the last paragraph of Section 5 hereof.
Affiliate: With respect to any specified person, "Affiliate"
shall mean any other person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
Business Day: Any day except a Saturday, a Sunday or a day on
which banking institutions in New York, New York generally are required or
authorized by law or other government action to be closed.
Company: As defined in the preamble hereof.
Consummate or consummate: When used to qualify the term
"Exchange Offer" shall mean validly and lawfully to issue and deliver the
Exchange Notes pursuant to the Exchange Offer for all Notes validly tendered
and not validly withdrawn pursuant thereto in accordance with the terms of this
Agreement.
Consummation Date: The date that is 30 Business Days immediately
following the date that the Exchange Offer Registration Statement shall have
been declared effective by the SEC.
Effectiveness Period: As defined in Section 3(a) hereof.
<PAGE> 4
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC pursuant thereto.
Exchange Date: As defined in Section 2(d) hereof.
Exchange Notes: The 9 1/2% Senior Notes due 2008, Series B, of
the Company, unconditionally guaranteed on a joint and severed basis by each of
the Subsidiary Guarantors, issued pursuant to the Indenture, and that are
identical to the Notes in all material respects, except that the provisions
regarding restrictions on transfer shall be modified, as appropriate, and the
issuance thereof pursuant to the Exchange Offer shall have been registered
pursuant to an effective Registration Statement in compliance with the
Securities Act.
Exchange Offer: An offer to issue, in exchange for any and all
of the Notes, a like aggregate principal amount of Exchange Notes, which offer
shall be made by the Company pursuant to Section 2 hereof.
Exchange Offer Registration Statement: As defined in Section
2(a) hereof.
Indemnified Person: As defined in Section 7(a) hereof.
Indenture: The Indenture, dated as of February __, 1998, among
the Issuers and U.S. Trust Company of Texas, N.A., as trustee thereunder,
pursuant to which the Notes are issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Issue Date: As defined in Section 2(a).
Issuers: As defined in the preamble hereof.
Notes: The 9 1/2% Senior Notes due 2008, Series A, of the
Company, unconditionally guaranteed on a joint and several basis by each of the
Subsidiary Guarantors and, issued pursuant to the Indenture.
Participating Broker-Dealer: As defined in Section 2(e) hereof.
Private Exchange: As defined in Section 2(c) hereof.
Private Exchange Notes: As defined in Section 2(c) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated pursuant to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Notes, Exchange
Notes or Private Exchange Notes covered by such Registration Statement, and all
other amendments and supplements to any such prospectus, including post-
effective amendments, and all material incorporated by reference or deemed to
be incorporated by reference, if any, in such prospectus.
Registration Default: As defined in Section 4(a) hereof.
-2-
<PAGE> 5
Registration Statement: Any registration statement of the
Company and the Subsidiary Guarantors that covers any of the Notes, Exchange
Notes or Private Exchange Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 158: Rule 158 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 174: Rule 174 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 424: Rule 424 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Shelf Registration: As defined in Section 3 hereof.
Shelf Registration Statement: As defined in Section 3 hereof.
Special Counsel: Baker & Botts, L.L.P., special counsel to the
holders of Transfer Restricted Securities, or such other counsel as shall be
agreed upon by the Issuers and holders of a majority in aggregate principal
amount of Transfer Restricted Securities, the expenses of which holders of
Transfer Restricted Securities will be reimbursed by the Issuers pursuant to
Section 6.
TIA: The Trust Indenture Act of 1939, as amended.
Transfer Restricted Securities: The Notes, upon original
issuance thereof, and at all times subsequent thereto, each Exchange Note as to
which Section 3(a)(ii) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Note upon original issuance
thereof
-3-
<PAGE> 6
and at all times subsequent thereto, until in the case of any such Note,
Exchange Note or Private Exchange Note, as the case may be, the earliest to
occur of (i) the date on which any such Note has been exchanged by a person
other than a Participating Broker-Dealer for an Exchange Note (other than with
respect to an Exchange Note as to which Section 3(a)(ii) hereof applies)
pursuant to the Exchange Offer, (ii) with respect to Exchange Notes received by
Participating Broker-Dealers in the Exchange Offer, the earlier of (x) the date
on which such Exchange Note has been sold by such Participating Broker-Dealer
by means of the Prospectus contained in the Exchange Offer Registration
Statement and (y) the date on which the Exchange Offer Registration Statement
has been effective under the Securities Act for a period of one year after the
Consummation Date, (iii) a Shelf Registration Statement covering such Note,
Exchange Note or Private Exchange Note has been declared effective by the SEC
and such Note, Exchange Note or Private Exchange Note, as the case may be, has
been disposed of in accordance with such effective Shelf Registration
Statement, (iv) the date on which such Note, Exchange Note or Private Exchange
Note, as the case may be, is distributed to the public pursuant to Rule 144 (or
any similar provisions then in effect) or is saleable pursuant to Rule 144(k)
promulgated by the SEC pursuant to the Securities Act or (v) the date on which
such Note, Exchange Note or Private Exchange Note, as the case may be, ceases
to be outstanding for purposes of the Indenture or any other indenture under
which such Exchange Note or Private Exchange Note was issued.
Trustee: The trustee under the Indenture.
Underwritten Registration or Underwritten Offering: A
registration in connection with which securities are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
2. EXCHANGE OFFER.
a. To the extent not prohibited by any applicable law or applicable
interpretation of the SEC or the staff of the SEC, the Issuers shall (A)
prepare and, on or prior to 60 days after the date of original issuance of the
Notes (the "Issue Date"), file with the SEC a Registration Statement under the
Securities Act with respect to an offer by the Company to the holders of the
Notes to issue and deliver to such holders, in exchange for Notes, a like
principal amount of Exchange Notes, (B) use their best efforts to cause the
Registration Statement relating to the Exchange Offer to be declared effective
by the SEC under the Securities Act on or prior to 180 days after the Issue
Date, and (C) commence the Exchange Offer and use best efforts to issue, on or
prior to the Consummation Date, the Exchange Notes. The offer and sale of the
Exchange Notes pursuant to the Exchange Offer shall be registered pursuant to
the Securities Act on the appropriate form (the "Exchange Offer Registration
Statement") and duly registered or qualified under all applicable state
securities or Blue Sky laws and will comply with all applicable tender offer
rules and regulations under the Exchange Act and state securities or Blue Sky
laws. The Exchange Offer shall not be subject to any condition, other than
that the Exchange Offer does not violate any applicable law or interpretation
of the SEC or the staff of the SEC. Upon consummation of the Exchange Offer in
accordance with this Section 2, the Issuers shall have no further registration
obligations other than with respect to (i) Private Exchange Notes, (ii)
Exchange Notes held by Participating Broker-Dealers and (iii) Notes or Exchange
Notes as to which Section 3(a)(ii) hereof applies. No securities shall be
included in the Exchange Offer Registration Statement other than the Exchange
Notes.
b. The Issuers may require each holder of Notes as a condition to
its participation in the Exchange Offer to represent to the Issuers and their
counsel in writing (which may be contained in the applicable letter of
transmittal) that at the time of the consummation of the Exchange Offer (i) any
Exchange Notes received by such holder will be acquired in the ordinary course
of its business, (ii) such holder will
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<PAGE> 7
have no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) such holder is not an Affiliate of an Issuer, or if it is an
Affiliate of an Issuer, it will comply with the registration and prospectus
delivery requirements of the Securities Act, to the extent applicable.
c. To the extent not prohibited by applicable law or applicable
interpretation of the SEC or the staff of the SEC, if, prior to consummation of
the Exchange Offer, the Initial Purchaser holds any Notes acquired by it and
having, or which are reasonably likely to be determined to have, the status of
an unsold allotment in the initial distribution, or any other holder of Notes
is not entitled to participate in the Exchange Offer, the Company upon the
request of the Initial Purchaser or any such holder shall, simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
the Initial Purchaser and any such holder, in exchange (the "Private Exchange")
for such Notes held by the Initial Purchaser and any such holder, a like
principal amount of debt securities of the Company, guaranteed by each of the
Subsidiary Guarantors on an unsecured senior basis, that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are issued pursuant to the same indenture as the Exchange Notes). The
Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
d. Unless the Exchange Offer would not be permitted by any
applicable law or interpretation of the SEC or the staff of the SEC, the
Company shall mail the Exchange Offer Prospectus and appropriate accompanying
documents, including appropriate letters of transmittal, to each holder of
Notes providing, in addition to such other disclosures as are required by
applicable law:
i. that the Exchange Offer is being made pursuant to this
Agreement and that all Notes validly tendered will be accepted for
exchange;
ii. the date of acceptance for exchange (the "Exchange Date"),
which date shall in no event be later than the Consummation Date (unless
otherwise required by applicable law);
iii. that holders of Notes electing to have a Note exchanged
pursuant to the Exchange Offer will be required to surrender such Note,
together with the enclosed letters of transmittal, to the institution
and at the address (located in the city of New York) specified in the
notice prior to the close of business on the Exchange Date; and
iv. that holders of Notes that do not tender all such
securities pursuant to the Exchange Offer may no longer have any
registration rights hereunder with respect to Notes not tendered.
Promptly after the Exchange Date, the Company shall:
(i) accept for exchange all Notes or portions thereof validly
tendered and not validly withdrawn pursuant to the Exchange Offer or the
Private Exchange; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by
the Company, and issue, cause the Trustee under the Indenture (or the
indenture pursuant to which the Exchange Notes are issued) to
authenticate, and mail to each holder of Notes, Exchange Notes equal in
principal amount to the principal amount of the Notes surrendered by
such holder.
e. The Issuers and the Initial Purchaser acknowledge that the staff
of the SEC has taken the position that any broker-dealer that owns Exchange
Notes that were received by such broker-dealer for its
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<PAGE> 8
own account in the Exchange Offer (a "Participating Broker-Dealer") may be
deemed to be an "underwriter" within the meaning of the Securities Act and must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes (other than a resale of an
unsold allotment resulting from the original offering of the Notes). The
Issuers and the Initial Purchaser also acknowledge that the staff of the SEC
has taken the position that if the Prospectus contained in the Exchange Offer
Registration Statement includes a plan of distribution containing a statement
to the above effect and the means by which Participating Broker-Dealers may
resell the Exchange Notes, without naming the Participating Broker Dealers or
specifying the amount of Exchange Notes owned by them, such Prospectus may be
delivered by Participating Broker-Dealers to satisfy their prospectus delivery
obligations under the Securities Act in connection with resales of Exchange
Notes for their own accounts, so long as the Prospectus otherwise meets the
requirements of the Securities Act. In light of the foregoing, if requested by
a Participating Broker-Dealer, the Issuers agree (x) to use their best efforts
to keep the Exchange Offer Registration Statement continuously effective for a
period of up to one year or such earlier date as each Participating Broker-
Dealer shall have notified the Company in writing that such Participating
Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer, (y)
to comply with the provisions of Section 5 of this Agreement, as they relate to
the Exchange Offer and the Exchange Offer Registration Statement and (z) to
deliver to such Participating Broker-Dealer a "cold comfort" letter of the
independent public accountants of the Issuers and a legal opinion as to matters
reasonably requested by such Participating Broker-Dealer relating to the
Exchange Offer Registration Statement and the related Prospectus and any
amendments or supplements thereto.
f. The Initial Purchaser shall have no liability to any
Participating Broker-Dealer with respect to any request made pursuant to
Section 2(e).
g. Accrued but unpaid interest on any Note that is exchanged for an
Exchange Note or a Private Exchange Note pursuant to this Agreement shall be
paid on or before the first interest payment date on the Exchange Notes and the
Private Exchange Notes, as the case may be.
h. The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture,
except in any case where an Exchange Note constitutes a Transfer Restricted
Security. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes shall vote and consent together
on all matters as one class and that neither the Exchange Notes, the Private
Exchange Notes nor the Notes will have the right to vote or consent as a
separate class on any matter.
3. SHELF REGISTRATION.
a. If (i) the Company is not permitted to file the Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy, (ii) any holder of a
Note notifies the Company on or prior to the Exchange Date that (A) due to a
change in law or policy it is not entitled to participate in the Exchange
Offer, (B) due to a change in law or policy it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holder or
(C) it is a broker-dealer and owns Notes (including the Initial Purchaser that
holds Notes as part of an unsold allotment from the original offering of the
Notes) acquired directly from an Issuer or an Affiliate of an Issuer or (iii)
any holder of Private Exchange Notes so requests within 120 days after the
consummation of the Private Exchange (each such event referred to in clauses
(i) through (iii), a "Shelf Filing Event"), the Issuers shall cause to be filed
with the SEC pursuant to
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<PAGE> 9
Rule 415 a shelf registration statement (the "Shelf Registration Statement") on
or prior to the later of (x) 90 days after the Issue Date and (y) 30 days after
the occurrence of such Shelf Filing Event, relating to all Transfer Restricted
Securities (the "Shelf Registration") the holders of which have provided the
information required pursuant to Section 3(b) hereof, and shall use their best
efforts to have the Shelf Registration Statement declared effective by the SEC
on or prior to 90 days after the occurrence of such Shelf Filing Event,
provided that if the Company has not consummated the Exchange Offer within 210
days of the Issue Date, then the Issuers shall cause the Shelf Registration
Statement to be filed with the SEC on or prior to the 211th day after the Issue
Date and shall use their best efforts to have the Shelf Registration Statement
declared effective by the SEC within 60 days of the date of filing thereof. In
such circumstances, the Issuers shall use their best efforts to keep the Shelf
Registration Statement continuously effective under the Securities Act, until
(A) the first anniversary of the Issue Date (subject to extension pursuant to
Section 5 hereof) or (B) if sooner, the date immediately following the date
that all Transfer Restricted Securities covered by the Shelf Registration
Statement have been sold pursuant thereto (the "Effectiveness Period");
provided, however, that the Effectiveness Period shall be extended to the
extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 and as otherwise provided herein.
b. No holder of Transfer Restricted Securities may include any of
its Transfer Restricted Securities in any Shelf Registration Statement pursuant
to this Agreement unless and until such holder furnishes to the Company in
writing, within 30 days after receipt of a request therefor, such information
as the Company may reasonably request for use in connection with any Shelf
Registration Statement or Prospectus or preliminary prospectus included
therein. No holder of Transfer Restricted Securities shall be entitled to
Additional Interest pursuant to Section 4 hereof unless and until such holder
shall have provided all such reasonably requested information. Each holder of
Transfer Restricted Securities as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such holder not materially misleading.
4. ADDITIONAL INTEREST.
a. The parties hereto agree that the holders of Transfer Restricted
Securities will suffer damages if the Issuers fail to fulfill their obligations
pursuant to Section 2 or Section 3, as applicable, and that it would not be
feasible to ascertain the extent of such damages. Accordingly, in the event
that (i) the applicable Registration Statement is not filed with the SEC on or
prior to the date specified herein for such filing, (ii) the applicable
Registration Statement has not been declared effective by the SEC on or prior
to the date specified herein for such effectiveness after such obligation
arises, (iii) if the Exchange Offer is required to be Consummated hereunder,
the Company has not exchanged Exchange Notes for all Notes validly tendered and
not validly withdrawn in accordance with the terms of the Exchange Offer by the
Consummation Date or (iv) the applicable Registration Statement is filed and
declared effective but shall thereafter cease to be effective without being
succeeded immediately by any additional Registration Statement covering the
Notes, the Exchange Notes or the Private Exchange Notes, as the case may be,
which has been filed and declared effective (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the interest rate on
Transfer Restricted Securities will increase ("Additional Interest"), with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, by 0.50% per annum and will increase by an additional
0.50% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of 2% per annum
with respect to all Registration Defaults. Following the cure of a
Registration Default, the accrual of Additional Interest with respect to such
Registration Default will cease and upon the cure of all Registration Defaults
the interest rate will revert to the original rate.
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<PAGE> 10
b. The Company shall notify the Trustee and paying agent under the
Indenture (or the trustee and paying agent under such other indenture under
which the Transfer Restricted Securities are issued) immediately upon the
happening of each and every Registration Default. The Company shall pay the
Additional Interest due on the Transfer Restricted Securities by depositing
with the paying agent (which shall not be the Company for these purposes) for
the Transfer Restricted Securities, in trust, for the benefit of the holders
thereof, prior to 11:00 A.M. on the next interest payment date specified by the
Indenture (or such other indenture), sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall be payable on each
interest payment date specified by the Indenture (or such other indenture) to
the record holder entitled to receive the interest payment to be made on such
date. Each obligation to pay Additional Interest shall be deemed to accrue
from and including the date of the applicable Registration Default.
c. The parties hereto agree that the Additional Interest provided
for in this Section 4 constitutes a reasonable estimate of the damages that
will be suffered by holders of Transfer Restricted Securities by reason of the
happening of any Registration Default.
5. REGISTRATION PROCEDURES.
In connection with the Issuers' registration obligations
hereunder, the Issuers shall effect such registrations on the appropriate form
available for the sale of the Notes, the Exchange Notes or Private Exchange
Notes, as applicable, to (i) in the case of the Exchange Offer, permit the
exchange of Exchange Notes for Notes in the Exchange Offer and, if applicable,
resales of Exchange Notes by Participating Broker-Dealers and (ii) in the case
of a Shelf Registration, permit the sale of the applicable Transfer Restricted
Securities in accordance with the method or methods of disposition thereof
specified by the holders of such Transfer Restricted Securities, and pursuant
thereto the Issuers shall as expeditiously as possible:
a. in the case of a Shelf Registration, a reasonable period of time
prior to the initial filing of a Shelf Registration Statement or Prospectus and
a reasonable period of time prior to the filing of any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), furnish to the holders of the Transfer
Restricted Securities included in such Shelf Registration Statement, their
Special Counsel and the managing underwriters, if any, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of
such holders, their Special Counsel and such underwriters, if any, and cause
the officers and directors of the Issuers, counsel to the Issuers and
independent certified public accountants to the Issuers to respond to such
reasonable inquiries as shall be necessary, in the opinion of respective
counsel to such holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act; provided, however, that
the foregoing inspection and information gathering shall be coordinated by the
Initial Purchaser, and on behalf of any other persons by one counsel designated
by and on behalf of such other persons; and provided, further, that the Issuers
shall not be deemed to have kept a Shelf Registration Statement effective
during the applicable period if any of them voluntarily takes or fails to take
any reasonable action that results in holders of the Transfer Restricted
Securities covered thereby not being able to sell such Transfer Restricted
Securities pursuant to Federal securities laws during that period (and the time
period during which such Shelf Registration Statement is required to remain
effective hereunder shall be extended by the number of days during which such
holders of Transfer Restricted Securities are not able to sell such Transfer
Restricted Securities). The Issuers shall not file any such Shelf Registration
Statement or related Prospectus or any amendments or supplements thereto to
which the holders of a majority in aggregate principal amount of the Transfer
Restricted Securities included in such Shelf Registration Statement shall
reasonably object on a timely basis;
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<PAGE> 11
b. prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable time
period required hereunder; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424; and comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented;
c. notify the holders of Transfer Restricted Securities to be sold
or, in the case of Transfer Restricted Securities tendered for in an Exchange
Offer, their Special Counsel and the managing underwriters, if any, promptly,
and (if requested by any such person), confirm such notice in writing, (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment is
proposed to be filed and (B) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to a Registration Statement or related Prospectus or
for additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any stop
order, order or injunction suspending or enjoining the use of a Prospectus or
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Notes, Exchange Notes or Private Exchange
Notes for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, and (v) of the happening of any event or
information becoming known that makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such Registration Statement, Prospectus
or documents so that it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of a Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading;
d. use their best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Notes, Exchange Notes or Private Exchange Notes for sale in any
jurisdiction, at the earliest practicable moment;
e. if a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the holders of
a majority in aggregate principal amount of the Transfer Restricted Securities
being sold pursuant to such Shelf Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such holders reasonably
believe should be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment under the Securities Act
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Issuers shall not be required to take
any action pursuant to this Section 5(e) that would, in the opinion of counsel
for the Issuers, violate applicable law;
f. upon written request to the Company, furnish to each holder of
Notes, Exchange Notes or Private Exchange Notes to be exchanged or sold
pursuant to a Registration Statement, their Special Counsel and each managing
underwriter, if any, without charge, at least one conformed copy of such
Registration
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<PAGE> 12
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested (including those previously
furnished or incorporated by reference) as soon as practicable after the filing
of such documents with the SEC;
g. deliver to each holder of Notes, Exchange Notes or Private
Exchange Notes to be exchanged or sold pursuant to a Registration Statement,
their Special Counsel and the underwriters, if any, without charge, as many
copies of the Prospectus (including each form of prospectus) and each amendment
or supplement thereto as such persons reasonably request; and the Issuers
hereby consent to the use of such Prospectus and each amendment or supplement
thereto by each of the selling holders of Transfer Restricted Securities and
the underwriters, if any, in connection with the offering and sale of the
Transfer Restricted Securities covered by such Prospectus and any amendment or
supplement thereto;
h. prior to any public offering of Notes, Exchange Notes or Private
Exchange Notes, use their best efforts to register or qualify or cooperate with
the holders of Notes, Exchange Notes or Private Exchange Notes to be sold or
tendered for the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Notes, Exchange Notes or Private
Exchange Notes for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any such holder or underwriter
reasonably requests in writing; keep each such registration or qualification
(or exemption therefrom) effective during the period such Registration
Statement is required to be kept effective hereunder and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Notes, Exchange Notes or Private Exchange Notes covered by
the applicable Registration Statement; provided, however, that the Issuers
shall not be required to (i) qualify generally to do business in any
jurisdiction where they are not then so qualified or (ii) take any action which
would subject them to general service of process or to taxation in any
jurisdiction where they are not so subject;
i. in connection with any sale or transfer of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the holders thereof and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company and to enable such
Transfer Restricted Securities to be in such authorized denominations and
registered in such names as the managing underwriters, if any, or such holders
may request at least two Business Days prior to any sale of Transfer Restricted
Securities;
j. upon the occurrence of any event contemplated by Section 5(c)(v),
as promptly as practicable, prepare a supplement or amendment, including, if
appropriate, a post-effective amendment, to each Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
k. prior to the effective date of the Exchange Offer Registration
Statement, to provide a CUSIP number for the Exchange Notes (and Private
Exchange Notes if applicable);
l. if a Shelf Registration Statement is filed pursuant to Section 3
hereof, enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in
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<PAGE> 13
underwritten offerings) and take all such other reasonable actions in
connection therewith (including those reasonably requested by the managing
underwriters, if any, or the holders of a majority in aggregate principal
amount of the Transfer Restricted Securities being sold) in order to expedite
or facilitate the disposition of such Transfer Restricted Securities, and,
whether or not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration, (i) make such representations and
warranties to the holders of such Transfer Restricted Securities and the
underwriters, if any, with respect to the business of the Company and its
subsidiaries (including with respect to businesses or assets acquired or to be
acquired by any of them), and the Shelf Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings, and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Issuers and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and Special
Counsel to the holders of the Transfer Restricted Securities being sold),
addressed to each selling holder of Transfer Restricted Securities and each of
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) use their best
efforts to obtain customary "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Shelf Registration
Statement), addressed (where reasonably possible) to each selling holder of
Transfer Restricted Securities and each of the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings;
(iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 7 hereof
(or such other provisions and procedures acceptable to holders of a majority in
aggregate principal amount of Transfer Restricted Securities covered by such
Shelf Registration Statement and the managing underwriters, if any); and (v)
deliver such documents and certificates as may be reasonably requested by the
holders of a majority in aggregate principal amount of the Transfer Restricted
Securities being sold, their Special Counsel and the managing underwriters, if
any, to evidence the continued validity of the representations and warranties
made pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Issuers;
m. in the case of a Shelf Registration, make available for
inspection by a representative of the holders of Transfer Restricted Securities
being sold, any underwriter participating in any such disposition of Transfer
Restricted Securities, and any attorney, consultant or accountant retained by
such selling holders or underwriter, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries (including with
respect to businesses and assets acquired or to be acquired to the extent that
such information is available to the Company), and cause the officers,
directors, agents and employees of the Company and its subsidiaries (including
with respect to businesses and assets acquired or to be acquired to the extent
that such information is available to the Company) to supply all information in
each case reasonably requested by any such representative, underwriter,
attorney, consultant or accountant in connection with such Shelf Registration;
provided, however, that such persons shall first agree in writing with the
Company that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such persons, unless (i) disclosure
of such information is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure requirements
pursuant to Federal securities laws in connection with the filing of the Shelf
Registration Statement or the use of any Prospectus),
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<PAGE> 14
(iii) such information becomes generally available to the public other than as
a result of a disclosure or failure to safeguard such information by such
person or (iv) such information becomes available to such person from a source
other than the Company and its subsidiaries and such source is not bound by a
confidentiality agreement; and provided, further, that the foregoing inspection
and information gathering shall be coordinated by the Initial Purchaser and on
behalf of any other persons, by one counsel designated by and on behalf of such
other persons;
n. provide an indenture trustee for the Notes and/or the Exchange
Notes and Private Exchange Notes, as the case may be, and cause an indenture to
be qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Notes and/or the Exchange Notes and
Private Exchange Notes, as the case may be; and if such indenture shall be the
Indenture, in connection therewith, cooperate with the Trustee and the holders
of the Notes and/or the Exchange Notes and Private Exchange Notes, to effect
such changes to the Indenture as may be required for the Indenture to be (or to
remain) so qualified in accordance with the terms of the TIA; and execute, and
use its best efforts to cause the Trustee to execute, all customary documents
as may be required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be (or to remain)
so qualified in a timely manner;
o. comply with all applicable rules and regulations of the SEC and
make generally available to their security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158,
no later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Transfer Restricted Securities are
sold to underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to underwriters in such an offering, commencing
on the first day of the first fiscal quarter after the effective date of a
Registration Statement, which statement shall cover said period, consistent
with the requirements of Rule 158; and
p. cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc.
The Issuers may require a holder of Transfer Restricted
Securities to be included in a Registration Statement to furnish to the Issuers
such information regarding the distribution of such Transfer Restricted
Securities as is required by law to be disclosed in such Registration Statement
and the Issuers may exclude from such Registration Statement the Transfer
Restricted Securities of any holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
If any such Registration Statement refers to any holder by name
or otherwise as the holder of any securities of an Issuer, then such holder
shall have the right to require (i) the insertion therein of language, in form
and substance reasonably satisfactory to such holder, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Issuers'
securities covered thereby and that such holding does not imply that such
holder will assist in meeting any future financial requirements of the Issuers
or (ii) in the event that such reference to such holder by name or otherwise is
not required by the Securities Act, the deletion of the reference to such
holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
In the case of a Shelf Registration pursuant to Section 3 hereof,
each holder of Transfer Restricted Securities agrees by acquisition of such
Transfer Restricted Securities that, upon receipt of any
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<PAGE> 15
notice from the Company of the happening of any event of the kind described in
Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, such holder will
forthwith discontinue disposition of such Transfer Restricted Securities
covered by such Registration Statement or Prospectus until such holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 5(j) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus.
If the Company shall give any such notice, the Effectiveness Period shall be
extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each holder of
Transfer Restricted Securities covered by such Registration Statement shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(j) hereof or (y) the Advice, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus.
6. REGISTRATION EXPENSES.
All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not any Registration Statement is filed or becomes effective and
whether or not any Notes, Exchange Notes or Private Exchange Notes are issued
or sold pursuant to any Registration Statement. The fees and expenses referred
to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the National Association
of Securities Dealers, Inc. and (B) in compliance with securities or Blue Sky
laws), (ii) printing expenses (including, without limitation, expenses of
printing Prospectuses), (iii) reasonable fees and disbursements of counsel for
the Issuers and the Special Counsel, (iv) fees and disbursements of all
independent certified public accountants referred to in Section 2(e) and
Section 5(l)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (v) if required by applicable law, including the rules of the
National Association of Securities Dealers, Inc., the reasonable fees and
expenses of any "qualified independent underwriter" and its counsel and (vi)
fees and expenses of all other persons retained by the Issuers. In addition,
the Issuers shall pay their internal expenses (including, without limitation,
all salaries and expenses of their respective officers and employees performing
legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Notes, Exchange Notes
or Private Exchange Notes to be registered on any securities exchange.
Notwithstanding the foregoing or anything in this Agreement to the contrary,
each holder of Transfer Restricted Securities shall pay all underwriting
discounts and commissions of any underwriters with respect to any Notes,
Exchange Notes or Private Exchange Notes sold by it.
7. INDEMNIFICATION.
a. The Issuers agree, jointly and severally, to indemnify and hold
harmless (i) the Initial Purchaser, each holder of Notes, Exchange Notes and
Private Exchange Notes and each Participating Broker-Dealer, (ii) each person,
if any, who controls (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) any of the foregoing (any of the persons referred to in
this clause (ii) being hereinafter referred to as a ("controlling person")) and
(iii) the respective officers, directors, partners, employees, representatives
and agents of the Initial Purchaser, each holder of Notes, Exchange Notes and
Private Exchange Notes, each Participating Broker-Dealer and any controlling
person (any person referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an "Indemnified Person"), from and against any and all losses,
claims, damages, liabilities and judgments arising out of or relating to any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or
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<PAGE> 16
preliminary prospectus or in any amendment or supplement thereto, or arising
out of or relating to any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or preliminary prospectus or supplement
thereto, in light of the circumstances under which they were made) not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Indemnified Person
furnished in writing to the Issuers by or on behalf of such Indemnified Person
expressly for use therein; provided, that the indemnity agreement contained in
this Section 7(a) with respect to any preliminary prospectus or amended
preliminary prospectus shall not inure to the benefit of any Indemnified Person
from whom the person asserting any such loss, expense, liability or claim
purchased the securities which is the subject thereof, if the Prospectus
corrected any such alleged untrue statement or omission and if such Indemnified
Person failed to send or give a copy of the written Prospectus, excluding any
documents incorporated by reference, to such person at or prior to the written
confirmation of the sale of securities to such person, provided that the Issuer
has delivered the Prospectus to the Initial Purchaser in requisite quantity on
a timely basis to permit such delivery or sending.
b. In case any action shall be brought against any Indemnified
Person, based upon any Registration Statement or any such Prospectus or
preliminary prospectus or any amendment or supplement thereto and with respect
to which indemnity may be sought against the Issuers hereunder, such
Indemnified Person shall promptly notify the Issuers in writing and the Company
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Person and payment of all fees and
expenses. Any Indemnified Person shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Person, unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Issuers, (ii) the Company shall have failed to
assume the defense and employ counsel or pay all such fees and expenses or
(iii) the named parties to any such action (including any impleaded parties)
include both such Indemnified Person and an Issuer and such Indemnified Person
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
any such Issuer (in which case the Company shall not have the right to assume
the defense of such action on behalf of such Indemnified Person, it being
understood, however, that the Issuers shall not, in connection with any one
such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) for all such Indemnified
Persons, which firm shall be designated in writing by such Indemnified Persons,
and that all such reasonable fees and expenses shall be reimbursed as they are
incurred). The Issuers shall not be liable for any settlement of any such
action effected without their written consent but if settled with the written
consent of the Issuers, the Issuers agree, jointly and severally, to indemnify
and hold harmless each Indemnified Person from and against any loss or
liability by reason of such settlement. No Issuer shall, without the prior
written consent of each Indemnified Person, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
a party and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement includes an unconditional release of such
Indemnified Person from all liability on claims that are the subject matter of
such proceeding.
c. In connection with any Registration Statement pursuant to which a
holder of Transfer Restricted Securities offers or sells Transfer Restricted
Securities, such holder agrees, severally and not jointly, to indemnify and
hold harmless the Issuers, their respective directors and officers and any
person controlling an Issuer within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from the Issuers to each Indemnified Person but only with respect to
information relating to such holder furnished in writing by or on behalf of
such holder expressly
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<PAGE> 17
for use in such Registration Statement. In any such case in which any action
shall be brought against an Issuer, any director or officer of an Issuer or any
person controlling an Issuer based on such Registration Statement and in
respect of which indemnity may be sought against a holder of Transfer
Restricted Securities, such holder shall have the rights and duties given to
the Issuers (except that if an Issuer shall have assumed the defense thereof,
such holder shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of such holder), and the Issuers, their
respective directors and officers and any person controlling an Issuer shall
have the rights and duties given to the Indemnified Persons by Section 7(b)
hereof.
d. If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by each indemnifying party on the one
hand and the indemnified party on the other hand from the offering of the
Notes, the Exchange Notes or the Private Exchange Notes, as the case may be (it
being expressly understood and agreed that the relative benefits received by
the Issuers from the offering of the Notes, Exchange Notes or Private Exchange
Notes, as the case may be, shall be the amount of the net proceeds received by
the Company from the sale of the Notes to the Initial Purchaser), or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each
indemnifying party on the one hand and the indemnified party on the other hand
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of each indemnifying party on the
one hand and the indemnified party on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by an indemnifying party or such indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Issuers and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Indemnified Person were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the net profits received by it in connection with the sale of
the Notes, Exchange Notes or Private Exchange Notes contemplated by this
Agreement exceeds the amount of any damages which such Indemnified Person has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Indemnified Person's obligations to
contribute pursuant to this Section 7(d) are several in proportion to the
respective amount of Notes, Exchange Notes or Private Exchange Notes included
in any such Registration Statement by each Indemnified Person and not joint.
-15-
<PAGE> 18
8. RULES 144 AND 144A.
Each of the Issuers shall use its best efforts to file the
reports required to be filed by it under the Securities Act and the Exchange
Act in a timely manner and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any holder of Transfer Restricted Securities, make
available other information as required by, and so long as necessary to permit,
sales of its Transfer Restricted Securities pursuant to Rule 144A.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require an Issuer to register any of its securities pursuant to the Exchange
Act.
9. UNDERWRITTEN REGISTRATIONS.
If any of the Transfer Restricted Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the holders of a majority in aggregate principal amount of
such Transfer Restricted Securities included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such Transfer Restricted Securities on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements.
10. MISCELLANEOUS.
a. Remedies. In the event of a breach by an Issuer or by a holder
of Notes, Exchange Notes or Private Exchange Notes of any of its obligations
under this Agreement, each holder of Notes, Exchange Notes or Private Exchange
Notes and each Issuer, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Subject to Section 4 hereof,
the Issuers and each holder of Notes, Exchange Notes and Private Exchange Notes
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach of any of the provisions of this Agreement and
each hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
b. No Inconsistent Agreements. The Issuers will not enter into any
agreement with respect to their securities that is inconsistent with the rights
granted to the holders of Notes, Exchange Notes and Private Exchange Notes and
Indemnified Persons in this Agreement or otherwise conflicts with the
provisions hereof. Without the written consent of the holders of a majority in
aggregate principal amount of the outstanding Transfer Restricted Securities,
the Issuers shall not grant to any person any rights which conflict with or are
inconsistent with the provisions of this Agreement.
c. No Piggyback on Registrations. The Issuers shall not grant to
any of their security holders (other than the holders of Transfer Restricted
Securities in such capacity) the right to include any of their securities in
any Registration Statement other than Transfer Restricted Securities.
d. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the holders
of not less than a majority of the then outstanding aggregate principal amount
of Transfer Restricted Securities;
-16-
<PAGE> 19
provided, however, that, for the purposes of this Agreement, Transfer
Restricted Securities that are owned, directly or indirectly, by the Issuers or
any of their Affiliates are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of holders of
Transfer Restricted Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other holders of Transfer Restricted Securities may be given by
holders of a majority in aggregate principal amount of the Transfer Restricted
Securities being sold by such holders pursuant to such Registration Statement;
and provided, further, that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence. Notwithstanding the foregoing, no amendment,
modification, supplement, waiver or consent with respect to Section 7 shall be
made or given otherwise than with the prior written consent of each Indemnified
Person affected thereby.
e. Notices. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopier:
i. if to the Issuers, as provided in the Purchase Agreement,
ii. if to the Initial Purchaser, as provided in the Purchase
Agreement, or
iii. if to any other person who is then the registered holder
of Notes, Exchange Notes or Private Exchange Notes, to the address of
such holder as it appears in the register therefor of the Company.
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given: when delivered by hand, if personally
delivered; one Business Day after being timely delivered to a next-day air
courier; five Business Days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.
f. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each holder of Notes, Exchange
Notes and Private Exchange Notes. The Issuers may not assign any of their
rights or obligations hereunder without the prior written consent of each
holder of Transfer Restricted Securities and each Indemnified Person.
Notwithstanding the foregoing, no successor or assignee of an Issuer shall have
any of the rights granted under this Agreement until such person shall
acknowledge its rights and obligations hereunder by a signed written statement
of such person's acceptance of such rights and obligations.
g. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
h. Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
THE ISSUERS HEREBY IRREVOCABLY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF ANY
COMPETENT NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY
OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE
CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND EACH
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<PAGE> 20
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
i. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
j. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
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<PAGE> 21
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
DAILEY INTERNATIONAL INC.
By:/s/ JAMES F. FARR
------------------------------------
James F. Farr
President and Chief Executive
Officer
DAILEY ENERGY SERVICES, INC.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
DAILEY INTERNATIONAL SALES CORPORATION
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
COLUMBIA PETROLEUM SERVICES CORP.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
INTERNATIONAL PETROLEUM SERVICES, INC.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
<PAGE> 22
DAILEY ENVIRONMENTAL REMEDIATION
TECHNOLOGIES, INC.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Treasurer
DAILEY WORLDWIDE SERVICES, CORP.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Treasurer
AIR DRILLING INTERNATIONAL, INC.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
AIR DRILLING SERVICES, INC.
By:/s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
JEFFERIES & COMPANY, INC.
By:/s/ JAY LEVY
----------------------------
Jay Levy
Vice President
<PAGE> 1
EXHIBIT 5.1
[FULBRIGHT & JAWORSKI LETTERHEAD]
February 13, 1998
Dailey International Inc.
2507 North Frazier
Conroe, Texas 77305
Ladies and Gentlemen:
We have acted as counsel for Dailey International Inc., a Delaware
corporation (the "Company"), and the Subsidiary Guarantors (defined below), in
connection with the proposed issuance by the Company of up to $275 million
principal amount of its 9 1/2% Senior Notes Due 2008, Series B (the "Series B
Notes"), in exchange for an equivalent amount of its outstanding 9 1/2% Senior
Notes Due 2008, Series A (the "Series A Notes"). The terms of the offer to
exchange the Series B Notes for the Series A Notes (the "Exchange Offer") are
described in the Registration Statement on Form S-4 filed by the Company with
the Securities and Exchange Commission (the "Registration Statement"), for the
registration of the Series B Notes under the Securities Act of 1933 (the "1933
Act"). The Series A Notes have been, and the Series B Notes will be, issued
pursuant to an Indenture dated as of February 13, 1998 (the "Indenture"), among
the Company, the Subsidiary Guarantors and U.S. Trust Company of Texas, N.A.,
as Trustee (in such capacity, the "Trustee"). Dailey Energy Services, Inc., a
Delaware corporation; Dailey International Sales Corporation, a Delaware
corporation; Columbia Petroleum Services Corp., a Delaware corporation;
International Petroleum Services Inc., a Delaware corporation; Dailey
Environmental Remediation Technologies, Inc., a Texas corporation; Dailey
Worldwide Services, Corp., a Texas corporation; and Air Drilling International,
Inc., a Delaware corporation, are collectively referred to as the "Subject
Subsidiary Guarantors", and together with Air Drilling Services, Inc., a
Wyoming corporation ("ADS"), are collectively referred to as the "Subsidiary
Guarantors" and the guarantees thereof with respect to the Notes are
collectively referred to as the "Guarantees" and each a "Guaranty".
In connection with the foregoing, we have examined (i) the Certificate
of Incorporation and Bylaws of the Company and each of the subject Subsidiary
Guarantors, each as amended to date, (ii) the Indenture, (iii) the Registration
Statement and (iv) such certificates, statutes and other instruments and
documents as we considered appropriate for purposes of the opinions hereafter
expressed. As to
<PAGE> 2
Dailey International Inc.
February 13, 1998
Page 2
questions of fact material to this opinion, we have, to the extent we deemed
appropriate, relied on certificates of officers of the Company and the subject
Subsidiary Guarantors and on certificates and telegrams of governmental
officials. We have assumed the genuineness of all signatures, the authenticity
of all documents, records and instruments examined by us and the correctness of
all statements of fact contained therein.
As to matters of Wyoming law affecting our opinions herein expressed
with respect to ADS, we have, however, assumed the following: (A) it has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Wyoming; (B) each of the Indenture and
Guarantees have been duly authorized by it, the Indenture has been duly
executed by it and it has full corporate power and authority to enter into each
of such agreements; and (C) no consent, approval, authorization or order of any
court or governmental agency or body of the State of Wyoming is required of it
for the consummation of the transactions contemplated by the Indenture or
Guarantees.
Based upon the foregoing, subject to the qualifications hereinafter
set forth, and having regard for such legal considerations as we have deemed
relevant, we are of the opinion that the Series B Notes and the Guarantees have
been duly authorized for issuance and, when the Registration Statement has
become effective under the 1933 Act and the Series B Notes and the Guarantees
have been duly executed and authorized in accordance with the Indenture and
issued and sold in exchange for the Series A Notes as contemplated by the
Registration Statement and in accordance with the Exchange Offer, the Series B
Notes will constitute valid and legally binding obligations of the Company and
each Guaranty will constitute a valid and legally binding obligation of its
respective Subsidiary Guarantor, subject to (i) bankruptcy, insolvency,
reorganization, moratorium, liquidation, rearrangement, fraudulent transfer,
fraudulent conveyance and other similar laws (including court decisions) now or
hereafter in effect and affecting the rights and remedies of creditors
generally or providing for the relief of debtors, (ii) the refusal of a
particular court to grant equitable remedies, including, without limitation,
specific performance and injunctive relief, and (iii) general principles of
equity (regardless of whether such remedies are sought in a proceeding in
equity or at law).
The opinions expressed herein are limited exclusively to the federal
laws of the United States of America, the laws of the States of New York and
Texas and the General Corporation Law of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
<PAGE> 3
Dailey International Inc.
February 13, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the statements made with respect to us under the
caption "Legal Matters" in the Prospectus included as part of the Registration
Statement.
Very truly yours,
Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 5.2
[Brown, Drew, Massey & Sullivan Letterhead]
February 13, 1998
Dailey International Inc.
2507 North Frazier
Conroe, Texas 77305
Gentlemen:
We have acted as special Wyoming counsel for Air Drilling
Services, Inc., a Wyoming corporation (the "Company"), in connection with the
proposed issuance by Dailey International Inc., a Delaware corporation
("Dailey"), of up to $275,000,000 principal amount of Dailey's 9 1/2% Senior
Notes due 2008, Series B (the "Series B Notes") and the Company's guarantee
(the "Guaranty") of Dailey's obligations thereunder, in exchange for an
equivalent amount of Dailey's outstanding 9 1/2% Senior Notes due 2008, Series
A (the "Series A Notes"), originally issued and sold by Dailey to Jefferies &
Company (the "Initial Purchaser") pursuant to the provisions of a Purchase
Agreement dated as of February 6, 1998 (the "Purchase Agreement"), among
Dailey, the Company, the other Subsidiary Guarantors (defined below) and the
Initial Purchaser. The terms of the offer to exchange the Series B Notes for
the Series A Notes are described in the Registration Statement on Form S-4
(Registration Number 333-____) filed by the Company with the Securities and
Exchange Commission (the "Registration Statement"), for the registration of the
Series B Notes under the Securities Act of 1933. The Series A Notes have been,
and the Series B Notes and the Guaranty will be, issued pursuant to an
Indenture dated as of February 13, 1998 (the "Indenture"), among Dailey, the
Company, the other Subsidiary Guarantors and U.S. Trust Company of Texas, N.A.,
as trustee.
Dailey Energy Services, Inc., a Delaware corporation; Dailey
International Sales Corporation, a Delaware corporation; Columbia Petroleum
Services Corp., a Delaware corporation; International Petroleum Services, Inc.,
a Delaware corporation; Dailey Environmental Remediation Technologies, Inc., a
Texas corporation; Dailey Worldwide Services Corp., a Texas corporation; Air
Drilling International, Inc., a Delaware corporation; and the Company are
collectively referred to as the "Subsidiary Guarantors"; and the Guaranty,
together with the guarantees of the other Subsidiary Guarantors with respect to
the Notes, shall be collectively referred to as the "Guarantees"). Each
capitalized term not otherwise defined in this opinion shall have the meaning
assigned to it in the Indenture.
<PAGE> 2
In connection with the foregoing, we have examined the
Certificate of Incorporation and Bylaws of the company, each amended to date,
and originals, or copies certified or otherwise identified to our satisfaction,
of such corporate records, certificates of officers of the company,
certificates, statements and telefacsimiles of public officials, corporate
officers and other representatives of the persons referred to therein, and such
other instruments and documents as we have deemed appropriate or necessary as
the basis for the opinions hereinafter expressed. As to questions of fact
material to this opinion, we have, to the extent we deemed appropriate, relied
on certificates of officers of the Company and on certificates and
telefacsimiles of governmental officials.
We have also examined conformed, execution copies supplied to
us by Dailey's counsel, Fulbright & Jaworski L.L.P., of each of the following
documents (including all exhibits and attachments to such documents):
1. The Purchase Agreement;
2. The Indenture; and
3. The Registration Statement.
For purposes of this opinion, we have, with your permission,
assumed the following:
1. The genuineness of all signatures, the capacity of
each signing party, and the authenticity of all documents, records and
instruments submitted to us as certified, conformed or photostatic copies.
2. With the exception of the Company, the execution and
delivery of the Indenture has been duly authorized by each party thereto.
3. With the exception of the Company, each of Dailey and
the Subsidiary Guarantors has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction in which it
is incorporated and has full corporate power and authority to enter into, as
applicable, each of the Indenture and the Guarantees to which it is a party.
In rendering our opinion, we have relied, without
investigation, upon the factual matters contained in the representations
contained in the Indenture and the Registration Statement to the extent that
such presentations relate only to factual matters and not to matters involving
issues of law or mixed issues of law and fact.
<PAGE> 3
Based upon the foregoing, subject to the qualifications
hereinafter set forth, and having regard for such legal considerations as we
deem relevant, we are of the opinion that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Wyoming; and
(ii) The Guaranty has been duly and validly authorized for
issuance by the Company, and the Company has full corporate power and
authority to issue and deliver the Guaranty.
The opinions expressed herein relate solely to, are based
solely upon, and are limited exclusively to the laws of the State of Wyoming,
and we are expressing no opinion as to the effect of the laws of any other
jurisdiction.
The opinions expressed herein are as of the date hereof, and
we make no undertaking to supplement such opinions as facts come to our
attention or changes in the law occur that could affect such opinions.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/ Donn J. McCall
Brown, Drew, Massey &
Sullivan
<PAGE> 1
EXHIBIT 10.15
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AGREEMENT
(hereinafter called this "Amendment") is entered into as of January 28, 1998,
among DAILEY INTERNATIONAL INC., a Delaware corporation ("Borrower"), and at
the time of its entry into the Agreement hereinafter referenced, formerly known
as Dailey Petroleum Services Corp., a Delaware corporation, and prior to such
name, formerly known as Dailey Corporation, a Delaware corporation, successor
by merger to Dailey Petroleum Services Corp., a Delaware corporation, the
SEVERAL FINANCIAL INSTITUTIONS THAT ARE PARTIES TO THE THIRD AMENDED AND
RESTATED LOAN AGREEMENT (collectively, the "Banks," individually, a "Bank") and
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as agent for the Banks (the
"Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Agent entered into a Third
Amended and Restated Loan Agreement dated as of June 20, 1997 (hereinafter
called the "Agreement"), whereby the Banks agreed to make available to the
Borrower a credit facility upon the terms and conditions set forth in the
Agreement; and
WHEREAS, the Borrower has requested that the Banks and the Agent agree
to certain amendments to the Agreement and acknowledge and agree to certain
matters with respect to the Agreement, as each is more particularly specified
herein;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the parties to this Amendment hereby agree as
follows:
SECTION 1. Terms Defined in Agreement. As used in this Amendment,
except as may otherwise be provided herein, all capitalized terms which are
defined in the Agreement shall have the same meaning herein as therein, all of
such terms and their definitions being incorporated herein by reference.
SECTION 2. Amendments to Agreement. Subject to the conditions
precedent set forth in Section 5 hereof, the Agreement is hereby amended as
follows:
(a) Definitions. (i) The following terms are added in
alphabetical order to Section 1.2 of the Agreement:
"DWS/DAMCO" means Directional Wireline Services, Inc., a
Louisiana corporation, DAMCO Services, Inc., a Louisiana corporation,
and DAMCO Tong Services, Inc., a Louisiana corporation.
"DWS/DAMCO Acquisition Agreement" means that certain Asset
Purchase Agreement among the Borrower, DWS/DAMCO and the Shareholders
of DWS/DAMCO dated effective as of November 30, 1997.
"DWS/DAMCO Acquisition" means the acquisition by Borrower of
substantially all of the assets of DWS/DAMCO, along with consummation
<PAGE> 2
of the other transactions contemplated by the DWS/DAMCO Acquisition
Agreement, in each case, in accordance with the terms and conditions
of the DWS/DAMCO Acquisition Agreement.
"DWS/DAMCO Acquisition Documents" means the DWS/DAMCO
Acquisition Agreement and all other agreements or instruments
delivered in connection therewith in order to consummate the DWS/DAMCO
Acquisition.
"Senior Indenture" means that certain Indenture dated as of
August 19, 1997, among the Borrower, the Subsidiary Guarantors (as
therein defined) and U.S. Trust Company of Texas, N.A., as Trustee, as
amended or modified from time to time with the consent of the Agent
and the Majority Banks.
"Senior Securities" means the unsecured 9.75% senior notes due
August 15, 2007 in the aggregate principal amount of $115,000,000
issued by the Borrower pursuant to, and as provided for by, the Senior
Indenture, which notes include the Series A Securities (as therein
defined) and the Series B Securities (as therein defined) issued in
exchange for such Series A Securities."
(ii) The definitions of "Consolidated Interest Expense,"
"Guarantors," "Funded Debt Ratio" and "Material Foreign Subsidiaries" in
Section 1.2 of the Agreement are hereby amended and restated in their entirety
to read as follows:
"Consolidated Interest Expense means, for any period, the
interest expense of a Person and its Subsidiaries (including
amortization of debt discounts, net cost under interest rate contracts
and all of the interest but not the principal component of rentals in
respect of Capital Lease obligations) determined on a consolidated
basis for such period in accordance with GAAP."
"Guarantors mean collectively each of the U.S. Subsidiaries of
the Borrower as of the date of this Agreement, as identified on
Schedule 2.13 attached hereto, and each other Subsidiary that executes
and delivers a Guaranty."
"Funded Debt Ratio means at any date the ratio of (a)
Consolidated Funded Debt of the Borrower on such date to (b) the
Consolidated EBITDA of the Borrower for the twelve consecutive
calendar months ending on such date; provided, however, that for the
periods set forth below, Consolidated EBITDA shall be calculated as
follows:
(i) for the twelve calendar months ending January
31, 1998, the sum of (A) Consolidated EBITDA of the Borrower for such
period plus (B) the Consolidated EBITDA of DWS/DAMCO for such period
plus (C) the Consolidated EBITDA of ADI for the period of February 1,
1997 through June 19, 1997;
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<PAGE> 3
(ii) for the twelve calendar months ending April
30, 1998, the sum of (A) the Consolidated EBITDA for the Borrower for
such period, plus (B) the sum of Consolidated EBITDA of DWS/DAMCO for
the nine calendar months ending January 31, 1998 plus (C) the
Consolidated EBITDA of ADI for the period of May 1, 1997 through June
19, 1997;
(iii) for the twelve calendar months ending July
31, 1998, the sum of (A) the Consolidated EBITDA of the Borrower for
such period, plus (B) the Consolidated EBITDA of DWS/DAMCO for the six
calendar months ending January 31, 1998;
(iv) for the twelve calendar months ending October
31, 1998, the sum of (A) the Consolidated EBITDA of the Borrower for
such period, plus (B) the Consolidated EBITDA of DWS/DAMCO for the
three calendar months ending January 31, 1998; and
(v) for the twelve calendar months ending January
31, 1999, and thereafter, the Consolidated EBITDA of the Borrower for
the twelve calendar months ending on such date."
"Material Foreign Subsidiaries means, at any time, (a)
Canadian Air Drilling Services Ltd., an Alberta, Canada corporation,
Specialty Testing & Consulting Ltd., an Alberta, Canada corporation,
Dailey Regional Headquarters, S.A., a Venezuela corporation, Dailey de
Venezuela, S.A., a Venezuela corporation, GL/95 Servicios, C.A., a
Venezuela corporation, and Air Drilling Services de Venezuela, C.A., a
Venezuela corporation, and (b) any other Foreign Subsidiary that,
together with its Subsidiaries, (i) accounted for more than 5% of the
revenue of the Borrower and its Subsidiaries determined on a
consolidated basis for the then most recently completed fiscal year of
the Borrower, or (ii) was the owner of more than 5% of the assets of
the Borrower and its Subsidiaries determined on a consolidated basis
at the end of such fiscal year of the Borrower, all as shown in the
case of (i) and (ii) on the consolidated financial statements of the
Borrower and its Subsidiaries for such fiscal year of the Borrower."
(iii) The reference to "$2,000,000" in clause (vii) of the
definition of Permitted Liens in Section 1.2 of the Agreement is hereby amended
to read "$2,500,000".
(b) Representations and Warranties. The following
Section 2.21 is hereby added to the Agreement immediately following the end of
Section 2.20:
"Section 2.21 DWS/DAMCO Acquisition. The Borrower has
delivered to the Agent and the Banks a true, complete and correct copy
of the DWS/DAMCO Acquisition Documents. No Default or Event of
Default will occur as a result of giving effect to the DWS/DAMCO
Acquisition and all representations and warranties contained in the
Loan Documents shall be true and correct after giving effect to the
DWS/DAMCO Acquisition.
(c) Security. Section 3.11 of the Agreement is amended
and restated in its entirety as follows:
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<PAGE> 4
"Section 3.11 Security.
(a) Payment of the Notes and the Obligations and
the performance of the covenants set forth in this Agreement and the
other Loan Documents will be secured, directly or indirectly, by a
first priority perfected security interest, mortgage, assignment or
lien, as the case may be, in and upon the following described property
and assets:
(i) all of the Borrower's and its U.S.
Subsidiaries' present and future accounts, inventory,
equipment, fixtures, documents, instruments, general
intangibles, chattel paper (as such terms are defined in the
UCC), notes receivable, drafts, acceptances, patents,
copyrights, trademarks, trade secrets and other intellectual
property, rental agreements and lease agreements relating to
any of the foregoing, and contract rights now owned or
existing and hereafter acquired or arising, wherever located,
and all the proceeds thereof, which property and assets are
more particularly described in, and which security interests
will be evidenced by, one or more Security Agreements or
Subsidiary Security Agreement-Pledges, as applicable;
provided, however, that so long as the Borrower is in
compliance with Section 5.15 hereof, neither the Borrower nor
any of its U.S. Subsidiaries shall be required to perfect any
such security interests under the laws, regulations or rules
of any Governmental Authority situated outside of the United
States; and
(ii) 100% of the outstanding capital
stock or other ownership interest of all U.S. Subsidiaries and
66-1/2% of the outstanding capital stock or other ownership
interest of all Material Foreign Subsidiaries now owned or
hereafter acquired by the Borrower or any of its Subsidiaries,
which security interest will be evidenced by one or more
Security Agreement- Pledges and Subsidiary Security
Agreement-Pledges;
(b) Payment of the Notes and the Obligations will
be guaranteed by the Guarantors, each of such guarantees to be
evidenced by a Guaranty. If at any time after the date of this
Agreement any Person becomes a U.S. Subsidiary or a Material Foreign
Subsidiary of the Borrower, the Borrower shall, and shall cause each
such Person to, do the following, as applicable, within thirty (30)
days after such Person becomes a U.S. Subsidiary or a Material Foreign
Subsidiary of the Borrower: (i) each such U.S. Subsidiary shall
execute and deliver to the Agent a Guaranty, (ii) the Borrower and/or
each such Subsidiary, as applicable, shall grant to the Agent, for the
benefit of the Banks, a first priority perfected security interest in
100% of the stock or other ownership interest in any such U.S.
Subsidiary and 66-1/2% of the stock or other ownership interest in any
such Material Foreign Subsidiary, in form and substance acceptable to
the Agent and the Majority Banks, in each instance, (iii) each such
U.S. Subsidiary shall enter into a valid, binding and enforceable
Subsidiary Security Agreement (granting the Agent, for the benefit of
the Banks, a first priority perfected security interest (in scope and
substance acceptable to the Agent and the Majority Banks) in the
property of the type described in Section 3(a)(i)
- 4 -
<PAGE> 5
above owned by such Subsidiary, (iv) execute such other documents and
instruments as may be necessary to comply with Subsection 3.11(c)
below, and (v) furnish the Agent, for the benefit of the Agent and the
Banks, a written opinion of counsel to such Person reasonably
acceptable to the Agent and the Majority Banks covering such matters
as the Agent and the Majority Banks may reasonably require.
(c) The Borrower will, and will cause each of its
U.S. Subsidiaries and, to the extent required by clause (a) or (b)
above, Material Foreign Subsidiaries to, execute, acknowledge and
deliver to the Agent and the Banks such instruments, mortgages,
chattel mortgages, deeds of trust, security agreements, security
agreement-pledges, statements, assignments, registrations and
financing statements, in form and substance acceptable to the Agent
and the Majority Banks, as in the good faith and discretion of counsel
for the Agent may be necessary to enforce, grant to the Agent and the
Banks and perfect, in the United States and such other jurisdictions
in which the Collateral owned by the Borrower and such Subsidiaries is
located in accordance with the terms and conditions of clauses (a) and
(b) above, the security interests, liens, assignments and mortgages on
the Collateral. Each of the Borrower, the Agent and the Banks agrees
that all Collateral now or hereafter securing any of the Obligations
hereunder also shall secure any and all other indebtedness and
liabilities now or hereafter owing by the Borrower to the Agent and
the Banks under the Loan Documents.
(d) Notwithstanding any provision of this
Agreement or any other Loan Document to the contrary, if, subsequent
to the Issue Date (as defined in the Senior Indenture), any Subsidiary
that has not guaranteed, or is not otherwise required to guaranty, the
Obligations, whether or not required, guarantees the payment of any
Senior Indebtedness (as defined in the Indenture), or any part
thereof, including without limitation, the obligations evidenced by
the Senior Securities or otherwise arising under the Senior Indenture,
then such Subsidiary shall (i) execute and deliver to the Agent a
Guaranty no later than contemporaneously with the execution and
delivery (or notation on any document or instrument evidencing such
Senior Indebtedness) to the holders of such Senior Indebtedness (or a
trustee or agent on behalf of such holders) of such Subsidiary's
guarantee with respect to such Senior Indebtedness, and (ii) execute
and deliver to the Agent, within such period following the delivery of
the Guaranty as the Agent shall reasonably request, such other related
documents as the Agent deems necessary or desirable and if requested
by the Agent, furnish to Agent, for the benefit of the Agent and the
Banks, a written opinion of counsel of such Person reasonably
acceptable to the Agent and the Majority Banks covering such related
matters as the Agent and the Majority Banks may reasonably require."
(d) Maximum Funded Debt Ratio. Section 5.12 of the
Agreement is amended and restated in its entirety as follows:
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<PAGE> 6
"Section 5.12 Maximum Funded Debt Ratio. The Borrower and
its Subsidiaries will maintain a Funded Debt Ratio of not greater than
4.0 to 1.0 at all times throughout the term.
(e) Revenue Producing Assets. Section 5.15 of the
Agreement is amended and restated in its entirety as follows:
"Section 5.15 Revenue Producing Assets. The Borrower and its
Subsidiaries will maintain, at all times, Revenue Producing Assets
(exclusive of Consignment Assets) in the United States, determined on
an original cost basis, in an amount not less than one hundred-fifty
percent (150%) of the aggregate Commitment Amount set forth on
Schedule I with respect to the Line of Credit. Simultaneously with
the delivery of each set of financial statements referred to in
Section 5.1(c) of this Agreement, the Borrower shall furnish to the
Agent with copies for each Bank a schedule of the Revenue Producing
Assets of the Borrower and its Subsidiaries, which schedule shall set
forth the original cost of Borrowers and its Subsidiaries' Revenue
Producing Assets by location and entity of ownership along with any
other information as the Agent may reasonably request in order to
determine compliance with this Section."
(f) Financial Projections. The following Section 5.22 is
hereby added to the Agreement immediately following the end of Section 5.21:
"Section 5.22 DWS/DAMCO Proforma Projections. As soon as
available, but in any event no later than January 31, 1998, the
Borrower shall deliver to the Agent projections of the Borrower's and
its Subsidiaries' financial statements for the fiscal years ending
1998, 1999 and 2000 taking into account the DWS/DAMCO Acquisition on a
proforma basis and certified by a Responsible Officer of the
Borrower."
(g) Indebtedness. Section 6.1 of the Agreement is
amended by redesignating clause "(vii)" as clause "(viii)," and immediately
following clause "(vi)" of Section 6.1 and immediately prior to redesignated
clause "(viii)," adding a new clause "(vii)" to read as follows:
", (vii) Indebtedness incurred by the Borrower and each Subsidiary, as
applicable, pursuant to the Senior Indenture and Senior Securities not
to exceed the principal amount of $115,000,000 in the aggregate
(together with premium (if any) and accrued interest thereon),
including the Subsidiary Guarantees (as defined in the Senior
Indenture), the form and substance of each of which is acceptable to
the Agent and the Banks,"
(h) Contingent Liabilities. Section 6.3 of the Agreement
is amended by redesignating clause "(v)" as clause "(vi)," and immediately
following clause "(iv)" of Section 6.3 and immediately prior to redesignated
clause "(vi)," adding a new clause "(v)" to read as follows:
", (v) contribution obligations of Subsidiaries pursuant to Section
10.05 of the Senior Indenture,"
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<PAGE> 7
(i) Schedules. The Agreement is hereby amended further
by deleting Schedule 2.13 therefrom and substituting Schedule 2.13 attached
hereto in lieu thereof.
SECTION 3. Release. By its signature hereto, the Agent acknowledges
and agrees that effective August 19, 1997 (a) the Term Notes have been repaid
in cash and (b) the release of the obligations and security interests expressly
provided for in Section 3.11(d) of the Agreement as in effect prior to this
Amendment, and evidenced by the Loan Documents described on Annex I hereto has
occurred and (c) the Loan Documents described on Annex I hereto are deemed
terminated. At Borrower's request and expense, the Agent will execute and
deliver to Borrower such evidence as Borrower shall reasonably request to
memorialize the foregoing.
SECTION 4. Consent. Subject to the conditions precedent set forth in
Section 5 hereof, the Agent and the Banks hereby consent to the DWS/DAMCO
Acquisition.
SECTION 5. Conditions of Effectiveness.
(a) The Agent and the Banks have relied upon the
representations and warranties contained in this Amendment in agreeing to the
amendments to the Agreement set forth herein and the amendments to the
Agreement set forth herein are conditioned upon and subject to the accuracy of
each and every representation and warranty of the Borrower made or referred to
herein, and performance by the Borrower of its obligations to be performed
under the Agreement on or before the date of this Amendment (except to the
extent amended herein).
(b) The amendments to the Agreement set forth herein are
further conditioned upon the Borrower having paid all accrued and unpaid legal
fees and expenses referred to in Section 5.2 of the Agreement and Section 9
hereof to the extent invoices for such fees and expenses have been delivered to
the Borrower.
(c) The amendments to the Agreement set forth herein are
further conditioned upon the Borrower having satisfied all of the conditions
described in that certain Amended and Restated Post Closing Condition Letter
dated as of July 31, 1997 from the Borrower to the Agent.
(d) The amendments to the Agreement set forth herein are
further conditioned upon the Borrower having furnished any and all other
information requested by the Agent or any Bank.
SECTION 6. Representations and Warranties of the Borrower. The
Borrower represents and warrants to the Agent and each Bank, with full
knowledge that the Agent and each Bank is relying on the following
representations and warranties in executing this Amendment, as follows:
(a) The Borrower has corporate power and authority to
execute, deliver and perform this Amendment, and all corporate action on the
part of the Borrower requisite for the due execution, delivery and performance
of this Amendment has been duly and effectively taken.
(b) The Agreement as amended by this Amendment and the
Loan Documents and each and every other document executed and delivered in
connection with
- 7 -
<PAGE> 8
this Amendment to which the Borrower or any of its Subsidiaries is a party
constitute the legal, valid and binding obligations of the Borrower and any of
its Subsidiaries to the extent it is a party thereto, enforceable against such
Person in accordance with their respective terms.
(c) This Amendment does not and will not violate any
provisions of the articles or certificate of incorporation or bylaws of the
Borrower, or any contract, agreement, instrument or requirement of any
Governmental Authority to which the Borrower is subject. The Borrower's
execution of this Amendment will not result in the creation or imposition of
any lien upon any properties of the Borrower, other than those permitted by the
Agreement and this Amendment.
(d) The Borrower's execution, delivery and performance of
this Amendment do not require the consent or approval of any other Person,
including, without limitation, any regulatory authority or governmental body of
the United States of America or any state thereof or any political subdivision
of the United States of America or any state thereof.
(e) The audited annual financial statements of the
Borrower and its Subsidiaries at April 30, 1997 and the interim financial
statements of the Borrower and its Subsidiaries for the six (6) months ended
October 31, 1997 and the related consolidated statements of income and retained
earnings and cash flows of the Borrower for the periods then ended which have
been furnished to the Agent and the Banks, fairly present the financial
condition of the Borrower and its Subsidiaries as of April 30, 1997 and October
31, 1997 and the results of the operations of the Borrower and its Subsidiaries
for the periods ended on such dates, all in accordance with GAAP applied on a
consistent basis.
(f) The Borrower has performed and complied with all
agreements and conditions contained in the Agreement required to be performed
or complied with by the Borrower prior to or at the time of delivery of this
Amendment.
(g) No Default or Event of Default exists and after
giving effect to this Amendment no Default or Event of Default will exist and
all of the representations and warranties contained in the Agreement, as
amended by this Amendment, and the other Loan Documents are true and correct in
all material respects on and as of this date.
(h) Nothing in this Section 6 of this Amendment is
intended to amend any of the representations or warranties contained in the
Agreement or of the Loan Documents to which the Borrower or any of the
Subsidiaries is a party.
SECTION 7. Reference to and Effect on the Agreement. Upon the
effectiveness of this Amendment, on and after the date hereof, each reference
in the Agreement to "this Agreement", "hereunder", "hereof", "herein", or words
of like import, shall mean and be a reference to the Agreement as amended
hereby.
SECTION 8. No Waiver. Except as specifically amended hereby, the
Borrower agrees that no Event of Default and no Default has been waived or
remedied by the execution of this Amendment by the Agent and the Banks and any
such Default or Event or Default heretofore arising and currently continuing
shall continue after the execution and delivery hereof.
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<PAGE> 9
SECTION 9. Cost, Expenses and Taxes. The Borrower agrees to pay on
demand all reasonable costs and expenses of the Agent and the Banks in
connection with the preparation, reproduction, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including reasonable attorneys' fees and out-of- pocket expenses of the Agent
and the Banks. In addition, the Borrower shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution and delivery, filing or recording of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the
Agent and the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
or fees.
SECTION 10. Extent of Amendments. Except as otherwise expressly
provided herein, the Agreement and the other Loan Documents are not amended,
modified or affected by this Amendment. The Borrower ratifies and confirms
that (i) except as expressly amended hereby, all of the terms, conditions,
covenants, representations, warranties and all other provisions of the
Agreement remain in full force and effect, (ii) each of the other Loan
Documents are and remain in full force and effect in accordance with their
respective terms, and (iii) except for the releases described in Section 3
hereof, the Collateral is unimpaired by this Amendment.
SECTION 11. Grant and Affirmation of Security Interest. Except as
expressly provided in Section 3 hereof, each of the Borrower and its
Subsidiaries that are a party to a Security Instrument, hereby grants a
security interest in the Collateral to secure payment and performance of the
Revolving Credit Note and the Obligations and each of the Borrower and its
Subsidiaries that are a party to a Security Instrument hereby confirms and
agrees that any and all liens, security interests and other security or
Collateral now or hereafter held by the Agent for the benefit of, and as
representative of, the Banks as security for payment and performance of the
obligations hereby are renewed and carried forth to secure payment and
performance of all of the Obligations. Except as expressly provided in Section
3 hereof, the Security Instruments are and remain legal, valid and binding
obligations of the parties thereto, enforceable in accordance with their
respective terms.
SECTION 12. Guaranties. Each of the Guarantors hereby consents to
and accepts the terms and conditions of this Amendment, agrees to be bound by
the terms and conditions hereof and ratifies and confirms that its Guaranty,
executed and delivered to the Agent for the benefit of and as representative of
the Banks as of June 20, 1997, guaranteeing payment of the Obligations, is and
remains in full force and effect, except to the extent such Guarantee has been
released pursuant to Section 3 of this Amendment.
SECTION 13. Further Assurances. In particular recognition of Section
5.8 of the Agreement, but in no regard prejudicial to any other provision of
any Loan Document, the Borrower recognizes and affirms its obligations under
Section 5.8 as being applicable to this Amendment, as well as to each other
Loan Document.
SECTION 14. Execution and Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of the
signature page of this Amendment by facsimile shall be equally as effective as
delivery of a manually executed counterpart of this Amendment.
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<PAGE> 10
SECTION 15. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 16. Headings. Section headings in this Amendment are
included herein for convenience and reference only and shall not constitute a
part of this Amendment for any other purpose.
SECTION 17. Arbitration.
(a) Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location in
Texas selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver, from a
court of competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar with expertise in the
substantive laws applicable to
- 10 -
<PAGE> 11
the subject matter of the Dispute. Arbitrators are empowered to resolve
Disputes by summary rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance
with the substantive law of the state of Texas, (ii) may grant any remedy or
relief that a court of the state of Texas could order or grant within the scope
hereof and such ancillary relief as is necessary to make effective any award,
and (iii) shall have the power to award recovery of all costs and fees, to
impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Texas Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to
the contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Texas, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Texas. Judgment confirming an award
in such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas.
(f) Miscellaneous. To the maximum extent practicable,
the AAA, the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one
agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.
SECTION 18. NO ORAL AGREEMENTS. THE AGREEMENT (AS AMENDED BY THIS
AMENDMENT) AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- 11 -
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized.
BORROWER:
--------
DAILEY INTERNATIONAL INC. (formerly
known as Dailey Petroleum
Services Corp.)
By /s/ DAVID T. TIGHE
-----------------------------------
David T. Tighe
Senior Vice President
AGENT:
-----
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, AS AGENT FOR THE
BANKS
By /s/ THEODORE M. NOWAK
------------------------------------
Theodore M. Nowak
Vice President
BANKS:
-----
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By /s/ THEODORE M. NOWAK
------------------------------------
Theodore M. Nowak
Vice President
- 12 -
<PAGE> 13
CONSENTED AND AGREED TO AS OF THE 28th day of January, 1998:
DAILEY ENERGY SERVICES, INC. (formerly
known as Dailey International, Inc.)
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
DAILEY INTERNATIONAL SALES CORPORATION
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
COLUMBIA PETROLEUM SERVICES CORP.
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
INTERNATIONAL PETROLEUM SERVICES, INC.
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
DAILEY ENVIRONMENTAL REMEDIATION
TECHNOLOGIES, INC.
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
AIR DRILLING INTERNATIONAL, INC.
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
- 13 -
<PAGE> 14
AIR DRILLING SERVICES, INC.
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
DAILEY WORLDWIDE SERVICES, INC.
(formerly known as Energy Caribbean
Services, Inc.)
By /s/ DAVID T. TIGHE
------------------------------------
Name:
Title:
- 14 -
<PAGE> 15
ANNEX I
RELEASED LOAN DOCUMENTS
1. Subsidiary Commercial Security Agreement dated effective as of June
20, 1997 by and between Wells Fargo Bank (Texas), National
Association, as Agent for the Banks from time to time a party to the
Agreement, and Canadian Air Drilling Services Ltd.;
2. Subsidiary Commercial Security Agreement dated effective as of June
20, 1997 by and between Wells Fargo Bank (Texas), National
Association, as Agent for the Banks from time to time a party to the
Agreement, and Specialty Testing & Consulting Ltd.;
3. Subsidiary Commercial Security Agreement dated effective as of June
20, 1997 by and between Wells Fargo Bank (Texas), National
Association, as Agent from time to time a party to the Agreement, and
3-D Drilling Tools & Services International Ltd.;
4. Continuing Guaranty Agreement dated as of June 20, 1997 by Canadian
Air Drilling Services Ltd. in favor of the Banks from time to time a
party to the Agreement, the Issuing Bank and Wells Fargo Bank (Texas),
National Association, as agent for the Banks;
5. Continuing Guaranty Agreement dated as of June 20, 1997 by Specialty
Testing & Consulting Ltd. in favor of the Banks from time to time a
party to the Agreement, the Issuing Bank and Wells Fargo Bank (Texas),
National Association, as agent for the Banks;
6. Continuing Guaranty Agreement dated as of June 20, 1997 by and 3-D
Drilling Tools & Services International Ltd. in favor of the Banks
from time to time a party to the Agreement, the Issuing Bank and Wells
Fargo Bank (Texas), National Association, as agent for the Banks; and
7. Security Agreement-Pledge (Stock of Domestic and Foreign Subsidiaries
of Canada Air Drilling Services Ltd.) dated as of June 20, 1997, by
Canada Air Drilling Services Ltd. in favor of the Banks from time to
time a party to the Agreement and Wells Fargo Bank (Texas), National
Association, as agent for the Banks.
- 15 -
<PAGE> 16
Amended
SCHEDULE 2.13
<TABLE>
<CAPTION>
OWNER SUBSIDIARY NUMBER CERTI- PERCEN- JURISDIC-
- ----- ---------- OF FICATE TAGE OF TION
SHARES NUMBER(S) SHARES OF
OWNED --------- OWNED FORMATION
----- ----- ---------
<S> <C> <C> <C> <C> <C>
Dailey Air Drilling 100,000 19 100% Delaware
Petroleum International
Services Inc.
Corp.
DPSC Dailey 5,000 1 100% Delaware
International
Inc.
DPSC Dailey 500 2 100% Delaware
International
Sales Corp.
DPSC Columbia 1,000 1 100% Delaware
Petroleum
Services Corp.
DPSC International 1,000 2 100% Delaware
Petroleum
Services Corp.
DPSC Dailey 100 1 100% Texas
Environmental
Remediations
DPSC Energy 10 1 100% Texas
Caribbean
Empress
Technica Dissolved Brazil
Comerciale Limited Liability Company
Equipmentos,
Ltdo.
Dailey Regional Dissolved * Venezuela
Headquarters, S.A. 3/27/96
Genesis Worldwide Oil 1,000 2 100% Cayman
as nominee of Tool Rentals Islands
DPSC
DPSC International 1,000 100% Cayman
Oil Tool Rentals Islands
Ltd.
DPSC Dailey de 1,498 100% Venezuela
Venezuela, S.A.
DPSC GL/98 Services, 99 99% Venezuela
Carlos Delgado C.A. 1 1%
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
DPSC J.D. 10,000 100% Netherland
Investments Antilles
Bonaire N.V.
J.D. J.D.I. Tool 40 1-40 100% Netherland
Investments Works B.V. Antilles
Bonaire N.V. (f/k/a/
[ILLEGIBLE]
atis B.V.
Air Drilling Air Drilling 100 17 100% Wyoming
International, Services, Inc.
Inc.
Air Drilling Canadian Air 100 2 100% Alberta
Services, Inc. Drilling
Services Ltd.
Specialty 100 2 100% Alberta
Testing &
Consulting Ltd.
Air Drilling 500 1-500 100% France
Services -
France (SARL)
Air Drilling 1000 [1] 100% Venezuela
Services De
Venezuela, C.A.
Canadian 3-D Drilling 1000 [1] 100% Alberta
Air Drilling Tools &
Services Ltd. Services
International
Ltd.
Dailey Directional 1,040,000 4 52% Nigeria
International Wireline
Inc. Engineering
(f/n/a DPSC) Services
(Nigeria)
Ltd.
Iyke Ejisu 800,000 2 40%
Joe Obi 160,000 3 8%
</TABLE>
<PAGE> 1
EXHIBIT 10.20
REVISED 12/19/97
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey International Inc., a Delaware corporation ("COMPANY"),
and James F. Farr ("EXECUTIVE") on this 31st day of December, 1997, to be
effective on the 31st day of December, 1997 ("EFFECTIVE DATE").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to
be employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated November 27, 1996, which they desire to amend and fully restate
upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including December 31, 2000 (the "INITIAL
TERM"), unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date
(a "RENEWAL DATE") the term of this Agreement shall automatically renew and
extend for a period of three years from the Renewal Date (a "RENEWAL TERM")
unless written notice of nonrenewal is delivered from one party to the other at
least sixty days prior to the Renewal Date. The Agreement shall remain in
force during the Initial Term and any Renewal Term until terminated in
accordance with Article 5. The Initial Term together with each Renewal Term
shall hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be
in the capacity of President and Chief Executive Officer. In such capacity,
Executive shall perform the duties for which he currently is responsible as an
executive officer of Company. Executive shall perform his duties hereunder
in accordance with any lawful instructions, rules, regulations or policies made
or adopted by Company's Board of Directors, including those applicable to
Company's Executives generally, provided
<PAGE> 2
that Executive shall not have his duties, authority, areas of responsibility,
offices, immediate or support staff reduced or eliminated during the Employment
Period. During the Employment Period, Executive shall devote his full time,
and best efforts and skills to the business and interests of Company, do his
utmost to further enhance and develop Company's best interests and welfare, and
endeavor to improve his ability and knowledge of Company's business,
particularly as it relates to his duties hereunder, in an effort to increase
the value of his services for the mutual benefit of the parties hereto. During
the Employment Period, it shall not be a violation of this Agreement for
Executive to (a) serve on corporate, civic, or charitable boards or committees
(except for Boards or committees of a Competing Business (as defined in Section
4.1)), (b) deliver lectures, fulfill teaching or speaking engagements, (c)
manage personal investments, so long as such activities do not materially
interfere with performance of Executive's responsibilities under this
Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the principal executive offices of Company at One Lawrence Centre,
2507 North Frazier, Conroe, Texas 77305, or at such other place where
Company's principal executive offices subsequently may be located. Executive
acknowledges subject to Section 5.3(c) hereof, and agrees that Company may
require Executive to travel and render services in different locations from
time to time incident to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or
entity controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Twenty-Eight Thousand and No/100's Dollars ($28,000.00)
per month (the "BASE SALARY"), which shall be prorated for any partial
employment period and payable in the manner and on the timetable in which
Company's payroll is customarily handled, or at such more frequent intervals as
Company and Executive may hereafter agree to from time to time. No overtime
compensation shall be payable to Executive. Company's Board of Directors shall
review Executive's performance at least annually and shall make any adjustments
to Executive's compensation that it deems, in its sole discretion, appropriate,
provided that at no time during the Employment Period shall Executive's
compensation be adjusted to an amount below the Base Salary. Company shall be
entitled to withhold from all amounts of compensation payable under this
Article 2 such amounts on account of payroll taxes and similar matters as are
required
-2-
<PAGE> 3
by any applicable law, rule, or regulation of any appropriate governmental
authority. Such compensation shall continue to be paid during any period of
physical or mental incapacity unless and until Executive's employment is
terminated as herein provided.
2.2 STOCK GRANT AND OPTION. As additional consideration for
Executive's performance of his obligations under Article 3 and Article 4 of
this Agreement, Company has previously, granted to Executive 220,000 restricted
shares of Company's Common Stock, and an option to purchase 97,712 shares of
Company's Common Stock, subject to the terms and conditions of Company's 1996
Key Employee Stock Plan and 1997 Long-Term Incentive Plan, and the terms of the
specific agreements relating to the grants of restricted stock and stock
options. Executive hereby acknowledges and agrees that Company's grant to
Executive of such Common Stock and options, together with other compensation
payable to Executive hereunder, is reasonable and adequate independent
consideration for Executive's performance of his obligations under Articles 3
and 4 of this Agreement.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and
stock grant and option described above, Company shall provide Executive with
the following during the Employment Period:
(a) Bonuses, when payable, based upon and subject to
such terms and conditions as determined annually under the Dailey
Incentive Compensation Plan.
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement
in effect from time to time;
(d) Access to and use of Company's health club facility
in accordance with the policies and procedures governing such
facility;
(e) At the option of Executive each year either (1) use
of a current model Company vehicle comparable to a fully equipped
Cadillac, plus reimbursement of the full cost of repairs, maintenance,
gasoline, oil and cleaning, or (2) an automobile allowance of
$1,700.00 per month;
(f) Use of a Company paid full membership in a local area
country club of the Executive's choice, and
-3-
<PAGE> 4
(g) Reimbursement of the reasonable costs of tuition,
books and travel incurred for Executive's continuing education in
general business or continuing professional education. For each
fiscal year during the Employment Period the reimbursement shall not
exceed ten percent of Executive's annual base compensation as set
forth in Section 2.1.
2.4 VACATION. During the Employment Period, Executive shall
accrue paid vacation time in such amounts and at such times as determined by
Company's Board of Directors, in its sole discretion; provided, however, that
the minimum amount of paid vacation to which Executive shall be entitled shall
be no less than that to which he is entitled as an Executive of Company
immediately prior to the effective date of this Agreement. If such vacation
time is not taken by Executive during the term of this Agreement, Executive
may, at his option, receive a lump sum payment of cash value of the vacation
pay in lieu thereof, or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
1. Work product resulting from or related to work or
projects performed or to be performed for Company or for clients of
Company, including but not limited to data bases, draft and other
non-public written documents, the interim and final lines of inquiry,
hypotheses, research and conclusions related
-4-
<PAGE> 5
thereto and the methods, processes, procedures, analyses, techniques
and audits used in connection therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flow charts, coding sheets, and the
like), source codes, object codes and load modules, programming,
program patches and system designs;
3. Information relating to Company's proprietary rights
prior to any public disclosure thereof, including but not limited to
the nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details
of research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal
cost information, internal service and operational manuals, and the
manner and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques and methods of obtaining business,
forecasts and forecast assumptions and volumes, and future plans and
potential strategies of Company which have been or are being
discussed;
6. Names of customers and their representatives,
contracts and their contents and parties, customer services, and the
type, quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or
potential customer, government agency, or other third party (including
businesses, consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
-5-
<PAGE> 6
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company which
Executive could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication and, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential
Information to any person or entity, either inside or outside of
Company, other than as necessary in carrying out duties on behalf of
Company, without obtaining Company's prior written consent (unless
such disclosure is compelled pursuant to court order or subpoena, and
at which time Executive gives notice of such proceedings to Company),
and Executive will take all reasonable precautions to prevent
inadvertent disclosure of such Confidential Information. This
prohibition against Executive's disclosure of Confidential Information
includes, but is not limited to, disclosing the fact that any
similarity exists between the Confidential Information and information
independently developed by another person or entity, and Executive
understands that such similarity does not excuse Executive from
abiding by his covenants or other obligations under this Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer
Confidential Information other than as necessary in carrying out his
duties on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to prevent
inadvertent use, copying or transfer of such Confidential Information.
This prohibition against Executive's use, copying, or transfer of
Confidential Information includes, but is not limited to, selling,
licensing or otherwise exploiting, directly or indirectly, any
products or services (including data bases, written documents and
software in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses based upon
knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination
-6-
<PAGE> 7
interview with the General Counsel to confirm turnover of such materials and to
discuss any questions the undersigned may have about his continuing obligations
under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will
hold for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except
in the ordinary course of his employment hereunder during the Employment
Period, Executive shall not during the Employment Period and for a period of
one (1) year thereafter within any geographic area in which Company conducts
business during the Employment Period (all references to Company shall include
its Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own,
manage, operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any manner
connected with, or render services or advice to, any Competing
Business (as defined below) provided, however, that the Executive may
invest in the securities of any enterprise with the power to vote up
to 5% of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such securities
are listed on
-7-
<PAGE> 8
any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
either (1) hire, attempt to hire, contact or solicit with respect to
hiring any Executive of Company, (2) induce or otherwise counsel,
advise or encourage any Executive of Company to leave the employment
of Company, or (3) induce any distributor, representative or agent of
Company to terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
The provisions of this Section 4.1 shall not apply to Executive if
this Agreement is terminated pursuant to the provisions of Section 5.3(c)
hereof.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood
and agreed by and between the parties hereto that the covenants made by
Executive in Section 4.1 are essential elements of this Agreement and that, but
for the agreement of the Executive to comply with such covenants, Company would
not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are valuable
trade secrets, and (2) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
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(c) Company, during the term of this Agreement and after
its termination, will be engaged in its highly competitive business in
which many firms, including Company, compete;
(d) A substantial portion of Company's business is
conducted outside the United States;
(e) Company, pursuant to acquiring certain patents,
technology and associated trade secrets and know-how, will further
develop its worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm
if Executive terminates his employment and enters directly or
indirectly, into competition with Company;
(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Company;
(i) The enforcement of this Agreement in general, and of
this Article 4 in particular, will not work an undue or unfair
hardship on Executive or otherwise be oppressive to him, it being
specifically acknowledged and agreed by Executive that he has
activities and other business interests and opportunities which will
provide him adequate means of support if the provisions of this
Article 4 are enforced after termination of his employment with
Company; and
(j) the enforcement of this Agreement in general, and of
this Article 4 in particular, will neither deprive the public of
needed goods or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect.
Executive further agrees that if a court of competent jurisdiction determines
that any provision of this Article 4 is invalid or against public policy, the
remaining provisions of this Article 4 and the remainder of this Agreement
shall not be affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of
Executive set forth in this Article 4 are of a continuing nature and shall
survive the expiration,
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termination or cancellation of the remainder of this Agreement regardless of
the reason for such therefor and shall survive the termination, if any, of the
Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base Salary, and (b) twelve
(12) monthly installments equal to his monthly Base Salary, as defined in
Section 2.1, ("NONCOMPETITION PAYMENTS"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall
be applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any
period in which Executive is in breach of the obligations set forth in
Articles 3 and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this
Agreement, at any time during the Employment Period, including,
without limitation, the Initial Term, this Agreement and Executive's
employment hereunder shall terminate upon his death, and Company shall
have the right, in its sole and absolute discretion, to terminate this
Agreement and Executive's employment hereunder at any time by giving
him written notice of such termination (1) for "Cause" (as defined
below), or (2) if Executive shall suffer a Disability (as defined
below). In the event of Executive's death during the Employment
Period, the Company shall (i) pay to Executive's estate an amount
equal to one year's Base Salary, (ii) pay to Executive's estate a pro
rata portion of any bonus which would have been payable but for
Executive's death; (iii) vest Executive fully in any Company stock
grant and stock options held by Executive at his death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken
by the Executive and intended to result in substantial
personal enrichment of the Executive at the expense of the
Company;
2. Repeated violations by the Executive of
Executive's obligations under this Agreement or under written
policies of the Company which are demonstrably willful on the
Executive's part, and for
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which Executive has received more than one written warning that
specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo
contendere or equivalent pleas of a felony in a court of
competent jurisdiction;
4. Executive's use of illegal drugs as
evidenced by a drug test authorized by Company; or
5. Executive's conviction or the entry of a plea
of nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral
turpitude.
(c) "DISABILITY" shall mean any mental or physical
illness, impairment or condition which renders the Executive incapable
of performing any material portion of his duties for a continuous
period of six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 5.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Executive may
terminate this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall:
(1) pay to Executive an amount equal to the greater of (i) his total
Base Salary for the remainder of the Employment Period, or (ii) one
month of Base Salary for each full year of service completed with
Company as of the date of termination, (2) continue Executive's
participation in company's medical, health, and dental plans, as
provided in Section 2.3(b) of this Agreement, for the remainder of the
Employment Period, subject to COBRA required benefits thereafter, (3)
cause Executive to be fully vested in any stock options and stock
grants held by Executive, and (4) pay to Executive such amounts as are
due under the Dailey Incentive Compensation Plan referred to in
Section 2.3(a) of this Agreement. Company shall at its option, make
such payments either in one lump sum on the effective date of
termination or over the remainder of the Employment Period as if the
Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 5.1 and such termination occurs
within one year of the
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occurrence of a Change in Control, then Company shall: (1) pay to
Executive an amount equal to 2.99 times (a) his annualized Base Salary
in effect upon the occurrence of the Change of Control and 2.99 times
(b) the greater of (x) the bonus paid to Executive for the year
preceding the year in which the Change of Control occurs or (y) a
target bonus of $243,000, (2) continue Executive's participation in
Company's medical, health, and dental plans, as provided in Section
2.3(b) of this Agreement, for the remainder of the Employment Period,
subject to COBRA required benefits thereafter, and (3) cause Executive
to be fully vested in any stock options or stock grants held by
Executive. Company shall make such payments in one lump sum on the
effective date of termination. A "CHANGE IN CONTROL" shall be deemed
to have occurred at any time after the date of this Agreement that (i)
any person (other than those persons who own more than 10% of the
combined voting power of the Company's outstanding voting securities
on the date hereof) becomes the beneficial owner, directly or
indirectly, of 30% or more of the combined voting power of the
Company's then outstanding voting securities, or (ii) individuals who
at the beginning of any period of two consecutive fiscal years
constitute the Company's Board of Directors cease for any reason to
constitute a majority of such Board of Directors at any time during
such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER
CHANGE IN CONTROL." If Executive terminates this Agreement for Good
Cause (defined below) and such termination occurs within one year of
the occurrence of a Change in Control, then Company shall: (1) pay
to Executive an amount equal to 2.99 times (a) his annualized Base
Salary in effect upon the occurrence of the Change of Control and 2.99
times (b) the greater of (x) the bonus paid to Executive for the year
preceding the year in which the Change of Control occurs or (y) a
target bonus of $243,000, (2) continue Executive's participation in
Company's medical, health, and dental plans, as provided in Section
2.3(b) of this Agreement, for the remainder of the Employment Period,
subject to COBRA required benefits thereafter, and (3) cause Executive
to be fully vested in any stock options or stock grants held by
Executive. "GOOD CAUSE" shall mean the occurrence of any of the
following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office
with Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a
senior officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any
failure to reelect or to reappoint the Executive to, the
office stated in Section 1.2;
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(iv) Company's direction that the Executive
discontinue service (or not seek reelection or reappointment)
as a director, officer or member of any corporation or
association of which the Executive is a director, officer, or
member at the date of this Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of
a Change in Control or the failure of Company to pay such
salary to the Executive at the time and in the manner
specified in this Agreement;
(vi) other than with respect to the annual
performance bonus specified in Article 2 or, as made with the
Executive's prior written consent, the discontinuance (without
comparable replacement) or material reduction by Company of
the Executive's participation in any bonus or other employee
benefit arrangement (including, without limitation, any
profit-sharing, thrift, life insurance, medical, dental,
hospitalization, stock option or retirement plan or
arrangement) in which the Executive is a participant under the
terms of this Agreement, as in effect on the date hereof or as
may be improved from time to time hereafter;
(vii) the moving by Company of the Executive's
principal office space, related facilities, or support
personnel, from Company's principal operating offices, or
Company's requiring the Executive to perform a majority of his
duties outside Company's principal operating offices for a
period of more than 30 consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located
at the time of the signing of this Agreement;
(ix) in the event Company requires the Executive
to reside at a location more than 25 miles from Company's
principal executive offices, except for occasional travel in
connection with Company business to an extent and in a manner
which is substantially consistent with the Executive's current
business travel obligations;
(x) in the event the Executive consents to a
relocation of Company's principal executive offices, the
failure of Company to (A) pay or reimburse the Executive on
an after-tax basis for all reasonable moving expenses incurred
by the Executive in connection with such relocation or (B)
indemnify the Executive on an after-tax basis against any
loss realized by the Executive on the sale his principal
residence in connection with such relocation;
(xi) the failure of Company to continue to provide
the Executive with office space, related facilities and
support personnel (including, without limitation,
administrative and secretarial assistance) that are
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commensurate with the Executive's responsibilities to and
position with Company, and no less than those prior to this
Agreement;
(xii) the failure by Company to promptly reimburse
the Executive for the reasonable business expenses incurred by
the Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.6, 5.1 or 5.3,
upon termination of this Agreement and Executive's employment
hereunder by either Company or Executive, Executive shall have no
right to receive any compensation or benefits for any period
subsequent to the effective date of such termination, or for any
period prior to such date which have not been earned or vested as of
such date except as may be provided for in any employee benefit plan
relating to such benefits, including the Company's 1996 Key Employee
Stock Plan and the Company's 1997 Long-Term Incentive Plan.
(e) Company's right of termination shall be in addition
to and shall not affect Company's rights and remedies under Articles 3
and 4, and Section 6.1 of this Agreement, and Company's rights and
remedies shall survive termination of Executive's employment
hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to
the contrary notwithstanding, Executive shall immediately resign from any
offices held with Company or its Affiliates upon written request by the
Company. Any resignation made pursuant to a written request by Company under
this Section 5.4 shall not affect Executive's rights under this Agreement for
any compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of
Executives employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("EXTRATERRITORIAL RIGHTS") then the compensation and benefits of this
Agreement shall supersede and replace such Extraterritorial Rights to the
extent permitted by law. Furthermore, to the extent the Extraterritorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, shall reduce any payments or benefits under this
Agreement on a dollar for dollar basis for any amounts paid Executive for any
Extraterritorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment
relationship with Company and its Affiliates is to be governed solely
by reference to the laws of
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the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights
under the laws of any country other than the United States of America
for any Extraterritorial Rights as heretofore defined; and
(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extraterritorial Rights.
ARTICLE 6
GROSS-UP PAYMENTS
6.1 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or any of its affiliates (as that term
is defined in the regulations promulgated under the Securities
Exchange Act of 1934, as amended) under this Agreement to or for the
benefit of Executive (any such payments or distributions being
individually referred to herein as a "PAYMENT," and any two or more of
such payments or distributions being referred to herein as
"PAYMENTS"), would be subject to the excise tax imposed by Section
4999 of the Code (such excise tax, together with any interest thereon,
any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties,
additions to tax or additional amounts, being collectively referred
herein to as the "EXCISE TAX"), then Executive shall be entitled to
receive an additional payment or payments (individually referred to
herein as a "GROSS-UP PAYMENT" and any two or more of such additional
payments being referred to herein as "GROSS-UP PAYMENTS") in an amount
such that after payment by Executive of all taxes (as defined in
Section 6(k)) imposed upon the Gross-Up Payment, Executive retains an
amount of such Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 6(c) through
(i), any determination (individually, a "DETERMINATION") required to
be made under this Section 6(b), including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall initially
be made, at the Company's expense, by nationally recognized tax
counsel mutually acceptable to the Company and Executive ("TAX
COUNSEL"). Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and
Executive within 15 business days of the termination of Executive's
employment, if applicable, or such other time or times as is
reasonably requested by the Company or Executive. If Tax Counsel
makes the initial Determination that no Excise Tax is payable by
Executive with respect to a Payment or Payments, it
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shall furnish Executive with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to any such
Payment or Payments. Executive shall have the right to dispute any
Determination (a "DISPUTE") within 15 business days after delivery of
Tax Counsel's opinion with respect to such Determination. The
Gross-Up Payment, if any, as determined pursuant to such Determination
shall, at the Company's expense, be paid by the Company to Executive
within five business days of Executive's receipt of such
Determination. The existence of a Dispute shall not in any way affect
Executive's right to receive the Gross-Up Payment in accordance with
such Determination. If there is no Dispute, such Determination shall
be binding, final and conclusive upon the Company and Executive,
subject in all respects, however, to the provisions of Section 6(c)
through (i) below. As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been made by the
Company should have been made ("UNDERPAYMENT"), and if upon any
reasonable written request from Executive or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the
Company's expense, thereafter determines that Executive is required to
make a payment of any Excise Tax or any additional Excise Tax, as the
case may be, Tax Counsel shall, at the Company's expense, determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to Executive.
(c) The Company shall defend, hold harmless, and
indemnify Executive on a fully grossed-up after tax basis from and
against any and all claims, losses, liabilities, obligations, damages,
impositions, assessments, demands, judgements, settlements, costs and
expenses (including reasonable attorneys', accountants', and experts'
fees and expenses) with respect to any tax liability of Executive
resulting from any Final Determination (as defined in Section 6(j))
that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or
pending or threatened audit, examination, investigation or
administrative, court or other proceeding which, if pursued
successfully, could result in or give rise to a claim by Executive
against the Company under this Section 6 ("CLAIM"), including, but not
limited to, a claim for indemnification of Executive by the Company
under Section 6(c), then such party shall promptly notify the other
party hereto in writing of such Claim ("TAX CLAIM NOTICE").
(e) If a Claim is asserted against Executive ("EXECUTIVE
CLAIM"), Executive shall take or cause to be taken such action in
connection with contesting such Executive Claim as the Company shall
reasonably request in writing from time to time, including the
retention of counsel and experts as are reasonably designated by the
Company (it being understood and agreed by the parties hereto that the
terms of any such retention shall expressly provide that the Company
shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
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(i) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim Notice
relating to such Executive Claim (or such earlier date that
any payment of the taxes claimed is due from Executive, but in
no event sooner than five calendar days after the Company
receives or delivers such Tax Claim Notice), the Company shall
have notified Executive in writing ("ELECTION NOTICE") that
the Company does not dispute its obligations (including, but
not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to
control the defense or prosecution of, such Executive Claim at
the Company's sole risk and sole cost and expense; and
(ii) the Company shall have advanced to Executive
on an interest-free basis, the total amount of the tax claimed
in order for Executive, at the Company's request, to pay or
cause to be paid the tax claimed, file a claim for refund of
such tax and, subject to the provisions of the last sentence
of Section 6(g), sue for a refund of such tax if such claim
for refund is disallowed by the appropriate taxing authority
(it being understood and agreed by the parties hereto that the
Company shall only be entitled to sue for a refund and the
Company shall not be entitled to initiate any proceeding in,
for example, United States Tax Court) and shall indemnify and
hold Executive harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to such advance or
with respect to any imputed income with respect to such
advance; and
(iii) the Company shall reimburse Executive for any
and all costs and expenses resulting from any such request by
the Company and shall indemnify and hold Executive harmless,
on fully grossed- up after-tax basis, from any tax imposed as
a result of such reimbursement.
(f) Subject to the provisions of Section 6(e) hereof, the
Company shall have the right to defend or prosecute, at the sole cost,
expense and risk of the Company, such Executive Claim by all
appropriate proceedings, which proceedings shall be defended or
prosecuted diligently by the Company to a Final Determination;
provided, however, that (i) the Company shall not, without Executive's
prior written consent, enter into any compromise or settlement of such
Executive Claim that would adversely affect Executive, (ii) any
request from the Company to Executive regarding any extension of the
statute of limitations relating to assessment, payment, or collection
of taxes for the taxable year of Executive with respect to which the
contested issues involved in, and amount of, the Executive Claim
relate is limited solely to such contested issues and amount, and
(iii) the Company's control of any contest or proceeding shall be
limited to issues with respect to the Executive Claim and Executive
shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or
any other taxing authority. So long as the Company is diligently
defending or prosecuting such Executive Claim, Executive shall provide
or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Executive Claim, and
shall
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otherwise cooperate with the Company and its representatives in good
faith in order to contest effectively such Executive Claim. The
Company shall keep Executive informed of all developments and events
relating to any such Executive Claim (including, without limitation,
providing to Executive copies of all written materials pertaining to
any such Executive Claim), and Executive or his authorized
representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating to
any such Executive Claim.
(g) If, after actual receipt by Executive of an amount of
a tax claimed (pursuant to an Executive Claim) that has been advanced
by the Company pursuant to Section 6(e)(ii) hereof, the extent of the
liability of the Company hereunder with respect to such tax claimed
has been established by a Final Determination, Executive shall
promptly pay or cause to be paid to the Company any refund actually
received by, or actually credited to, Executive with respect to such
tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions
of this Agreement or otherwise. If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 6(e)(ii), a
determination is made by the Internal Revenue Service or other
appropriate taxing authority that Executive shall not be entitled to
any refund with respect to such tax claimed, and the Company does not
notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of any Gross-Up Payments and other payments
required to be paid hereunder.
(h) With respect to any Executive Claim, if the Company
fails to deliver an Election Notice to Executive within the period
provided in Section 6(e)(i) hereof or, after delivery of such Election
Notice, the Company fails to comply with the provisions of Section
6(e)(ii) and (iii) and (f) hereof, then Executive shall at any time
thereafter have the right (but not the obligation), at his election
and in his sole and absolute discretion, to defend or prosecute, at
the sole cost, expense and risk of the Company, such Executive Claim.
Executive shall have full control of such defense or prosecution and
such proceedings, including any settlement or compromise thereof. If
requested by Executive, the Company shall cooperate, and shall cause
its Affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such
Executive Claim. The Company may attend, but not participate in or
control, any defense, prosecution, settlement or compromise of any
Executive Claim controlled by Executive pursuant to this Section 6(h)
and shall bear its own costs and expenses with respect thereto. In
the case of any Executive Claim that is defended or prosecuted by
Executive, Executive shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from the Company with
respect to costs and expenses incurred by Executive in connection with
such defense or prosecution.
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(i) In the case of any Executive Claim that is defended
or prosecuted to a Final Determination pursuant to the terms of this
Section 6(i), the Company shall pay, on a fully grossed-up after tax
basis, to Executive in immediately available funds the full amount of
any taxes arising or resulting from or incurred in connection with
such Executive Claim that have not theretofore been paid by the
Company to Executive, together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection therewith that have
not theretofore been paid by the Company to Executive, within ten
calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company
shall pay, on a fully grossed-up after tax basis, to Executive in
immediately available funds the full amount of any taxes arising or
resulting from or incurred in connection with such Executive Claim at
least ten calendar days before the date payment of such taxes is due
from Executive, except where payment of such taxes is sooner required
under the provisions of this Section 6(i), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any
costs and expenses required to be paid under this Section 6(i)) shall
be made within the time and in the manner otherwise provided in this
Section 6(i).
(j) For purposes of this Agreement, the term "FINAL
DETERMINATION" shall mean (A) a decision, judgment, decree or other
order by a court or other tribunal with appropriate jurisdiction,
which has become final and non-appealable; (B) a final and binding
settlement or compromise with an administrative agency with
appropriate jurisdiction, including, but not limited to, a closing
agreement under Section 7121 of the Code; (C) any disallowance of a
claim for refund or credit in respect to an overpayment of tax unless
a suit is filed on a timely basis; or (D) any final disposition by
reason of the expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "TAX" and
"TAXES" mean any and all taxes of any kind whatsoever (including, but
not limited to, any and all Excise Taxes, income taxes, and employment
taxes), together with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or additional
amounts."
ARTICLE 7
MISCELLANEOUS
7.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of
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Articles 3 and 4 without the necessity of proving inadequacy of legal remedies
or irreparable harm.
7.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
7.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
7.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified
or superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
7.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions,
covenants, representations, warranties, and conditions of this Agreement shall
bind, be enforceable by, and inure to the benefit of, the parties hereto, but
this Agreement and the rights and obligations hereunder shall not be assignable
or delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
7.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other
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Sections of this Agreement shall have the meaning so ascribed to it. Whenever
the context requires, the gender of all words used herein shall include the
masculine, feminine and neuter, and the number of all words shall include the
singular and plural. References to Articles or Sections shall be to Articles
or Sections of this Agreement unless otherwise specified. The headings and
captions used in this Agreement are solely for convenient reference and shall
not affect the meaning or interpretation of any article, section or paragraph
herein, or this Agreement. The terms "HEREOF," "HEREIN" or "HEREUNDER" shall
refer to this Agreement as a whole and not to any particular Section.
7.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been
executed and is performable in Montgomery County, Texas. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the internal law, and not the law of conflicts, of the State of
Texas. Each party hereto hereby acknowledges and agrees that it has had the
opportunity to consult with its own legal counsel in connection with the
negotiation of this Agreement, and that it has bargaining power equal to that
of the other party hereto in connection with the negotiation, execution and
delivery of this Agreement. Accordingly, the parties hereto agree that the
rule of contract construction that an agreement shall be construed against the
drafter shall have no application in the construction or interpretation of this
Agreement. The invalidity of any provision of this Agreement shall not affect
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity of a portion of any provision of this
Agreement affect the balance of such provision.
7.8 EXPENSES. Each party hereto shall pay all of its respective
fees and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
7.9 CONSULTING AGREEMENT. Company may, at its option, retain
Executive as a consultant following Executive's termination of employment on
such terms as may be agreed to by Executive and Company.
7.10 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof, except any agreement entered into
pursuant to Company's 1996 Key Employee Stock Plan as contemplated by Section
2.2 of this Agreement and the Company's 1997 Long-Term Incentive Plan.
7.11 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY INTERNATIONAL INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ JAMES F. FARR
-----------------------------------------
Name: James F. Farr
Address: 47 Palmer Woods
The Woodlands, Texas 77381
[INTENTIONALLY LEFT BLANK]
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<PAGE> 23
COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
, of Dailey International
Inc., a Delaware corporation, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
stated, and as the act and deed of said corporation.
Given under my hand and seal this day of , 199 .
-----------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires:
---------
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 31st day of December, 1997.
/s/ Virginia J. Cross
-----------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
---------
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<PAGE> 1
EXHIBIT 10.21
REVISED 12/19/97
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey International Inc., a Delaware corporation ("COMPANY"),
and William D. Sutton ("EXECUTIVE") on this 31st day of December, 1997, to be
effective on the 31st day of December, 1997 ("EFFECTIVE DATE").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to
be employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated November 27, 1996, which they desire to amend and fully restate
upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including December 31, 2000 (the "INITIAL
TERM"), unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date
(a "RENEWAL DATE") the term of this Agreement shall automatically renew and
extend for a period of three years from the Renewal Date (a "RENEWAL TERM")
unless written notice of nonrenewal is delivered from one party to the other at
least sixty days prior to the Renewal Date. The Agreement shall remain in
force during the Initial Term and any Renewal Term until terminated in
accordance with Article 5. The Initial Term together with each Renewal Term
shall hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be
in the capacity of Senior Vice President, General Counsel and Corporate
Secretary. In such capacity, Executive shall perform the duties for which he
currently is responsible as an executive officer of Company. Executive shall
perform his duties hereunder in accordance with any lawful instructions, rules,
regulations or policies made or adopted by Company's Board of Directors,
including those applicable to Company's Executives
<PAGE> 2
generally, provided that Executive shall not have his duties, authority, areas
of responsibility, offices, immediate or support staff reduced or eliminated
during the Employment Period. During the Employment Period, Executive shall
devote his full time, and best efforts and skills to the business and interests
of Company, do his utmost to further enhance and develop Company's best
interests and welfare, and endeavor to improve his ability and knowledge of
Company's business, particularly as it relates to his duties hereunder, in an
effort to increase the value of his services for the mutual benefit of the
parties hereto. During the Employment Period, it shall not be a violation of
this Agreement for Executive to (a) serve on corporate, civic, or charitable
boards or committees (except for Boards or committees of a Competing Business
(as defined in Section 4.1)), (b) deliver lectures, fulfill teaching or
speaking engagements, (c) manage personal investments, so long as such
activities do not materially interfere with performance of Executive's
responsibilities under this Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the principal executive offices of Company at One Lawrence Centre,
2507 North Frazier, Conroe, Texas 77305, or at such other place where
Company's principal executive offices subsequently may be located. Executive
acknowledges subject to Section 5.3(c) hereof, and agrees that Company may
require Executive to travel and render services in different locations from
time to time incident to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or
entity controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Twenty-Two Thousand Seven Hundred Sixty-Eight Dollars
and fifty cents ($22,768.50) per month (the "BASE SALARY"), which shall be
prorated for any partial employment period and payable in the manner and on the
timetable in which Company's payroll is customarily handled, or at such more
frequent intervals as Company and Executive may hereafter agree to from time to
time. No overtime compensation shall be payable to Executive. Company's Board
of Directors shall review Executive's performance at least annually and shall
make any adjustments to Executive's compensation that it deems, in its sole
discretion, appropriate, provided that at no time during the Employment Period
shall Executive's compensation be adjusted to an amount below the Base Salary.
Company shall be entitled to withhold from all amounts of compensation payable
under
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<PAGE> 3
this Article 2 such amounts on account of payroll taxes and similar matters as
are required by any applicable law, rule, or regulation of any appropriate
governmental authority. Such compensation shall continue to be paid during any
period of physical or mental incapacity unless and until Executive's employment
is terminated as herein provided.
2.2 STOCK GRANT AND OPTION. As additional consideration for
Executive's performance of his obligations under Article 3 and Article 4 of
this Agreement, Company has previously, granted to Executive 185,000 restricted
shares of Company's Common Stock, and an option to purchase 97,712 shares of
Company's Common Stock, subject to the terms and conditions of Company's 1996
Key Employee Stock Plan and 1997 Long-Term Incentive Plan, and the terms of the
specific agreements relating to the grants of restricted stock and stock
options. Executive hereby acknowledges and agrees that Company's grant to
Executive of such Common Stock and options, together with other compensation
payable to Executive hereunder, is reasonable and adequate independent
consideration for Executive's performance of his obligations under Articles 3
and 4 of this Agreement.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and
stock grant and option described above, Company shall provide Executive with
the following during the Employment Period:
(a) Bonuses, when payable, based upon and subject to
such terms and conditions as determined annually under the Dailey
Incentive Compensation Plan.
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement
in effect from time to time;
(d) Access to and use of Company's health club facility
in accordance with the policies and procedures governing such
facility;
(e) At the option of Executive each year either (1) use
of a current model Company vehicle comparable to a fully equipped
Cadillac, plus reimbursement of the full cost of repairs, maintenance,
gasoline, oil and cleaning, or (2) an automobile allowance of
$1,700.00 per month;
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<PAGE> 4
(f) Use of a Company paid full membership in a local area
country club of the Executive's choice, and
(g) Reimbursement of the reasonable costs of tuition,
books and travel incurred for Executive's continuing education in
general business or continuing professional education. For each
fiscal year during the Employment Period the reimbursement shall not
exceed ten percent of Executive's annual base compensation as set
forth in Section 2.1.
2.4 VACATION. During the Employment Period, Executive shall
accrue paid vacation time in such amounts and at such times as determined by
Company's Board of Directors, in its sole discretion; provided, however, that
the minimum amount of paid vacation to which Executive shall be entitled shall
be no less than that to which he is entitled as an Executive of Company
immediately prior to the effective date of this Agreement. If such vacation
time is not taken by Executive during the term of this Agreement, Executive
may, at his option, receive a lump sum payment of cash value of the vacation
pay in lieu thereof, or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
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<PAGE> 5
1. Work product resulting from or related to work or
projects performed or to be performed for Company or for clients of
Company, including but not limited to data bases, draft and other
non-public written documents, the interim and final lines of inquiry,
hypotheses, research and conclusions related thereto and the methods,
processes, procedures, analyses, techniques and audits used in
connection therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flow charts, coding sheets, and the
like), source codes, object codes and load modules, programming,
program patches and system designs;
3. Information relating to Company's proprietary rights
prior to any public disclosure thereof, including but not limited to
the nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details
of research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal
cost information, internal service and operational manuals, and the
manner and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques and methods of obtaining business,
forecasts and forecast assumptions and volumes, and future plans and
potential strategies of Company which have been or are being
discussed;
6. Names of customers and their representatives,
contracts and their contents and parties, customer services, and the
type, quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or
potential customer, government agency, or other third party (including
businesses, consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
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<PAGE> 6
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company which
Executive could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication and, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential
Information to any person or entity, either inside or outside of
Company, other than as necessary in carrying out duties on behalf of
Company, without obtaining Company's prior written consent (unless
such disclosure is compelled pursuant to court order or subpoena, and
at which time Executive gives notice of such proceedings to Company),
and Executive will take all reasonable precautions to prevent
inadvertent disclosure of such Confidential Information. This
prohibition against Executive's disclosure of Confidential Information
includes, but is not limited to, disclosing the fact that any
similarity exists between the Confidential Information and information
independently developed by another person or entity, and Executive
understands that such similarity does not excuse Executive from
abiding by his covenants or other obligations under this Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer
Confidential Information other than as necessary in carrying out his
duties on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to prevent
inadvertent use, copying or transfer of such Confidential Information.
This prohibition against Executive's use, copying, or transfer of
Confidential Information includes, but is not limited to, selling,
licensing or otherwise exploiting, directly or indirectly, any
products or services (including data bases, written documents and
software in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses based upon
knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination
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<PAGE> 7
interview with the General Counsel to confirm turnover of such materials and to
discuss any questions the undersigned may have about his continuing obligations
under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will
hold for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except
in the ordinary course of his employment hereunder during the Employment
Period, Executive shall not during the Employment Period and for a period of
one (1) year thereafter within any geographic area in which Company conducts
business during the Employment Period (all references to Company shall include
its Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own,
manage, operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any manner
connected with, or render services or advice to, any Competing
Business (as defined below) provided, however, that the Executive may
invest in the securities of any enterprise with the power to vote up
to 5% of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such securities
are listed on
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<PAGE> 8
any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
either (1) hire, attempt to hire, contact or solicit with respect to
hiring any Executive of Company, (2) induce or otherwise counsel,
advise or encourage any Executive of Company to leave the employment
of Company, or (3) induce any distributor, representative or agent of
Company to terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
The provisions of this Section 4.1 shall not apply to Executive if
this Agreement is terminated pursuant to the provisions of Section 5.3(c)
hereof.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood
and agreed by and between the parties hereto that the covenants made by
Executive in Section 4.1 are essential elements of this Agreement and that, but
for the agreement of the Executive to comply with such covenants, Company would
not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are valuable
trade secrets, and (2) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
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<PAGE> 9
(c) Company, during the term of this Agreement and after
its termination, will be engaged in its highly competitive business in
which many firms, including Company, compete;
(d) A substantial portion of Company's business is
conducted outside the United States;
(e) Company, pursuant to acquiring certain patents,
technology and associated trade secrets and know-how, will further
develop its worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm
if Executive terminates his employment and enters directly or
indirectly, into competition with Company;
(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Company;
(i) The enforcement of this Agreement in general, and of
this Article 4 in particular, will not work an undue or unfair
hardship on Executive or otherwise be oppressive to him, it being
specifically acknowledged and agreed by Executive that he has
activities and other business interests and opportunities which will
provide him adequate means of support if the provisions of this
Article 4 are enforced after termination of his employment with
Company; and
(j) the enforcement of this Agreement in general, and of
this Article 4 in particular, will neither deprive the public of
needed goods or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect.
Executive further agrees that if a court of competent jurisdiction determines
that any provision of this Article 4 is invalid or against public policy, the
remaining provisions of this Article 4 and the remainder of this Agreement
shall not be affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of
Executive set forth in this Article 4 are of a continuing nature and shall
survive the expiration,
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<PAGE> 10
termination or cancellation of the remainder of this Agreement regardless of
the reason for such therefor and shall survive the termination, if any, of the
Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base Salary, and (b) twelve
(12) monthly installments equal to his monthly Base Salary, as defined in
Section 2.1, ("NONCOMPETITION PAYMENTS"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall
be applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any
period in which Executive is in breach of the obligations set forth in
Articles 3 and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this
Agreement, at any time during the Employment Period, including,
without limitation, the Initial Term, this Agreement and Executive's
employment hereunder shall terminate upon his death, and Company shall
have the right, in its sole and absolute discretion, to terminate this
Agreement and Executive's employment hereunder at any time by giving
him written notice of such termination (1) for "Cause" (as defined
below), or (2) if Executive shall suffer a Disability (as defined
below). In the event of Executive's death during the Employment
Period, the Company shall (i) pay to Executive's estate an amount
equal to one year's Base Salary, (ii) pay to Executive's estate a pro
rata portion of any bonus which would have been payable but for
Executive's death; (iii) vest Executive fully in any Company stock
grant and stock options held by Executive at his death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken
by the Executive and intended to result in substantial
personal enrichment of the Executive at the expense of the
Company;
2. Repeated violations by the Executive of
Executive's obligations under this Agreement or under written
policies of the Company which are demonstrably willful on the
Executive's part, and for
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which Executive has received more than one written warning
that specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo
contendere or equivalent pleas of a felony in a court of
competent jurisdiction;
4. Executive's use of illegal drugs as
evidenced by a drug test authorized by Company; or
5. Executive's conviction or the entry of a plea
of nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral
turpitude.
(c) "DISABILITY" shall mean any mental or physical
illness, impairment or condition which renders the Executive incapable
of performing any material portion of his duties for a continuous
period of six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 5.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Executive may
terminate this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall:
(1) pay to Executive an amount equal to the greater of (i) his total
Base Salary for the remainder of the Employment Period, or (ii) one
month of Base Salary for each full year of service completed with
Company as of the date of termination, (2) continue Executive's
participation in company's medical, health, and dental plans, as
provided in Section 2.3(b) of this Agreement, for the remainder of the
Employment Period, subject to COBRA required benefits thereafter, (3)
cause Executive to be fully vested in any stock options and stock
grants held by Executive, and (4) pay to Executive such amounts as are
due under the Dailey Incentive Compensation Plan referred to in
Section 2.3(a) of this Agreement. Company shall at its option, make
such payments either in one lump sum on the effective date of
termination or over the remainder of the Employment Period as if the
Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 5.1 and such termination occurs
within one year of the
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occurrence of a Change in Control, then Company shall: (1) pay to
Executive an amount equal to 2.99 times (a) his annualized Base Salary
in effect upon the occurrence of the Change of Control and 2.99 times
(b) the greater of (x) the bonus paid to Executive for the year
preceding the year in which the Change of Control occurs or (y) a
target bonus of $50,000, (2) continue Executive's participation in
Company's medical, health, and dental plans, as provided in Section
2.3(b) of this Agreement, for the remainder of the Employment Period,
subject to COBRA required benefits thereafter, and (3) cause Executive
to be fully vested in any stock options or stock grants held by
Executive. Company shall make such payments in one lump sum on the
effective date of termination. A "CHANGE IN CONTROL" shall be deemed
to have occurred at any time after the date of this Agreement that (i)
any person (other than those persons who own more than 10% of the
combined voting power of the Company's outstanding voting securities
on the date hereof) becomes the beneficial owner, directly or
indirectly, of 30% or more of the combined voting power of the
Company's then outstanding voting securities, or (ii) individuals who
at the beginning of any period of two consecutive fiscal years
constitute the Company's Board of Directors cease for any reason to
constitute a majority of such Board of Directors at any time during
such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER
CHANGE IN CONTROL." If Executive terminates this Agreement for Good
Cause (defined below) and such termination occurs within one year of
the occurrence of a Change in Control, then Company shall: (1) pay
to Executive an amount equal to 2.99 times (a) his annualized Base
Salary in effect upon the occurrence of the Change of Control and 2.99
times (b) the greater of (x) the bonus paid to Executive for the year
preceding the year in which the Change of Control occurs or (y) a
target bonus of $50,000, (2) continue Executive's participation in
Company's medical, health, and dental plans, as provided in Section
2.3(b) of this Agreement, for the remainder of the Employment Period,
subject to COBRA required benefits thereafter, and (3) cause Executive
to be fully vested in any stock options or stock grants held by
Executive. "GOOD CAUSE" shall mean the occurrence of any of the
following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office
with Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a
senior officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any
failure to reelect or to reappoint the Executive to, the
office stated in Section 1.2;
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(iv) Company's direction that the Executive
discontinue service (or not seek reelection or reappointment)
as a director, officer or member of any corporation or
association of which the Executive is a director, officer, or
member at the date of this Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of
a Change in Control or the failure of Company to pay such
salary to the Executive at the time and in the manner
specified in this Agreement;
(vi) other than with respect to the annual
performance bonus specified in Article 2 or, as made with the
Executive's prior written consent, the discontinuance (without
comparable replacement) or material reduction by Company of
the Executive's participation in any bonus or other employee
benefit arrangement (including, without limitation, any
profit-sharing, thrift, life insurance, medical, dental,
hospitalization, stock option or retirement plan or
arrangement) in which the Executive is a participant under the
terms of this Agreement, as in effect on the date hereof or as
may be improved from time to time hereafter;
(vii) the moving by Company of the Executive's
principal office space, related facilities, or support
personnel, from Company's principal operating offices, or
Company's requiring the Executive to perform a majority of his
duties outside Company's principal operating offices for a
period of more than 30 consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located
at the time of the signing of this Agreement;
(ix) in the event Company requires the Executive
to reside at a location more than 25 miles from Company's
principal executive offices, except for occasional travel in
connection with Company business to an extent and in a manner
which is substantially consistent with the Executive's current
business travel obligations;
(x) in the event the Executive consents to a
relocation of Company's principal executive offices, the
failure of Company to (A) pay or reimburse the Executive on
an after-tax basis for all reasonable moving expenses incurred
by the Executive in connection with such relocation or (B)
indemnify the Executive on an after-tax basis against any
loss realized by the Executive on the sale his principal
residence in connection with such relocation;
(xi) the failure of Company to continue to provide
the Executive with office space, related facilities and
support personnel (including, without limitation,
administrative and secretarial assistance) that are
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commensurate with the Executive's responsibilities to and
position with Company, and no less than those prior to this
Agreement;
(xii) the failure by Company to promptly reimburse
the Executive for the reasonable business expenses incurred by
the Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.6, 5.1 or 5.3,
upon termination of this Agreement and Executive's employment
hereunder by either Company or Executive, Executive shall have no
right to receive any compensation or benefits for any period
subsequent to the effective date of such termination, or for any
period prior to such date which have not been earned or vested as of
such date except as may be provided for in any employee benefit plan
relating to such benefits, including the Company's 1996 Key Employee
Stock Plan and the Company's 1997 Long-Term Incentive Plan.
(e) Company's right of termination shall be in addition
to and shall not affect Company's rights and remedies under Articles 3
and 4, and Section 6.1 of this Agreement, and Company's rights and
remedies shall survive termination of Executive's employment
hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to
the contrary notwithstanding, Executive shall immediately resign from any
offices held with Company or its Affiliates upon written request by the
Company. Any resignation made pursuant to a written request by Company under
this Section 5.4 shall not affect Executive's rights under this Agreement for
any compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of
Executives employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("EXTRATERRITORIAL RIGHTS") then the compensation and benefits of this
Agreement shall supersede and replace such Extraterritorial Rights to the
extent permitted by law. Furthermore, to the extent the Extraterritorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, shall reduce any payments or benefits under this
Agreement on a dollar for dollar basis for any amounts paid Executive for any
Extraterritorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment
relationship with Company and its Affiliates is to be governed solely
by reference to the laws of
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the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights
under the laws of any country other than the United States of America
for any Extraterritorial Rights as heretofore defined; and
(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extraterritorial Rights.
ARTICLE 6
GROSS-UP PAYMENTS
6.1 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or any of its affiliates (as that term
is defined in the regulations promulgated under the Securities
Exchange Act of 1934, as amended) under this Agreement to or for the
benefit of Executive (any such payments or distributions being
individually referred to herein as a "PAYMENT," and any two or more of
such payments or distributions being referred to herein as
"PAYMENTS"), would be subject to the excise tax imposed by Section
4999 of the Code (such excise tax, together with any interest thereon,
any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties,
additions to tax or additional amounts, being collectively referred
herein to as the "EXCISE TAX"), then Executive shall be entitled to
receive an additional payment or payments (individually referred to
herein as a "GROSS-UP PAYMENT" and any two or more of such additional
payments being referred to herein as "GROSS-UP PAYMENTS") in an amount
such that after payment by Executive of all taxes (as defined in
Section 6(k)) imposed upon the Gross-Up Payment, Executive retains an
amount of such Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 6(c) through
(i), any determination (individually, a "DETERMINATION") required to
be made under this Section 6(b), including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall initially
be made, at the Company's expense, by nationally recognized tax
counsel mutually acceptable to the Company and Executive ("TAX
COUNSEL"). Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and
Executive within 15 business days of the termination of Executive's
employment, if applicable, or such other time or times as is
reasonably requested by the Company or Executive. If Tax Counsel
makes the initial Determination that no Excise Tax is payable by
Executive with respect to a Payment or Payments, it
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shall furnish Executive with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to any such
Payment or Payments. Executive shall have the right to dispute any
Determination (a "DISPUTE") within 15 business days after delivery of
Tax Counsel's opinion with respect to such Determination. The
Gross-Up Payment, if any, as determined pursuant to such Determination
shall, at the Company's expense, be paid by the Company to Executive
within five business days of Executive's receipt of such
Determination. The existence of a Dispute shall not in any way affect
Executive's right to receive the Gross-Up Payment in accordance with
such Determination. If there is no Dispute, such Determination shall
be binding, final and conclusive upon the Company and Executive,
subject in all respects, however, to the provisions of Section 6(c)
through (i) below. As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been made by the
Company should have been made ("UNDERPAYMENT"), and if upon any
reasonable written request from Executive or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the
Company's expense, thereafter determines that Executive is required to
make a payment of any Excise Tax or any additional Excise Tax, as the
case may be, Tax Counsel shall, at the Company's expense, determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to Executive.
(c) The Company shall defend, hold harmless, and
indemnify Executive on a fully grossed-up after tax basis from and
against any and all claims, losses, liabilities, obligations, damages,
impositions, assessments, demands, judgements, settlements, costs and
expenses (including reasonable attorneys', accountants', and experts'
fees and expenses) with respect to any tax liability of Executive
resulting from any Final Determination (as defined in Section 6(j))
that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or
pending or threatened audit, examination, investigation or
administrative, court or other proceeding which, if pursued
successfully, could result in or give rise to a claim by Executive
against the Company under this Section 6 ("CLAIM"), including, but not
limited to, a claim for indemnification of Executive by the Company
under Section 6(c), then such party shall promptly notify the other
party hereto in writing of such Claim ("TAX CLAIM NOTICE").
(e) If a Claim is asserted against Executive ("EXECUTIVE
CLAIM"), Executive shall take or cause to be taken such action in
connection with contesting such Executive Claim as the Company shall
reasonably request in writing from time to time, including the
retention of counsel and experts as are reasonably designated by the
Company (it being understood and agreed by the parties hereto that the
terms of any such retention shall expressly provide that the Company
shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
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(i) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim Notice
relating to such Executive Claim (or such earlier date that
any payment of the taxes claimed is due from Executive, but in
no event sooner than five calendar days after the Company
receives or delivers such Tax Claim Notice), the Company shall
have notified Executive in writing ("ELECTION NOTICE") that
the Company does not dispute its obligations (including, but
not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to
control the defense or prosecution of, such Executive Claim at
the Company's sole risk and sole cost and expense; and
(ii) the Company shall have advanced to Executive
on an interest-free basis, the total amount of the tax claimed
in order for Executive, at the Company's request, to pay or
cause to be paid the tax claimed, file a claim for refund of
such tax and, subject to the provisions of the last sentence
of Section 6(g), sue for a refund of such tax if such claim
for refund is disallowed by the appropriate taxing authority
(it being understood and agreed by the parties hereto that the
Company shall only be entitled to sue for a refund and the
Company shall not be entitled to initiate any proceeding in,
for example, United States Tax Court) and shall indemnify and
hold Executive harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to such advance or
with respect to any imputed income with respect to such
advance; and
(iii) the Company shall reimburse Executive for any
and all costs and expenses resulting from any such request by
the Company and shall indemnify and hold Executive harmless,
on fully grossed- up after-tax basis, from any tax imposed as
a result of such reimbursement.
(f) Subject to the provisions of Section 6(e) hereof, the
Company shall have the right to defend or prosecute, at the sole cost,
expense and risk of the Company, such Executive Claim by all
appropriate proceedings, which proceedings shall be defended or
prosecuted diligently by the Company to a Final Determination;
provided, however, that (i) the Company shall not, without Executive's
prior written consent, enter into any compromise or settlement of such
Executive Claim that would adversely affect Executive, (ii) any
request from the Company to Executive regarding any extension of the
statute of limitations relating to assessment, payment, or collection
of taxes for the taxable year of Executive with respect to which the
contested issues involved in, and amount of, the Executive Claim
relate is limited solely to such contested issues and amount, and
(iii) the Company's control of any contest or proceeding shall be
limited to issues with respect to the Executive Claim and Executive
shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or
any other taxing authority. So long as the Company is diligently
defending or prosecuting such Executive Claim, Executive shall provide
or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Executive Claim, and
shall
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otherwise cooperate with the Company and its representatives in good
faith in order to contest effectively such Executive Claim. The
Company shall keep Executive informed of all developments and events
relating to any such Executive Claim (including, without limitation,
providing to Executive copies of all written materials pertaining to
any such Executive Claim), and Executive or his authorized
representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating to
any such Executive Claim.
(g) If, after actual receipt by Executive of an amount of
a tax claimed (pursuant to an Executive Claim) that has been advanced
by the Company pursuant to Section 6(e)(ii) hereof, the extent of the
liability of the Company hereunder with respect to such tax claimed
has been established by a Final Determination, Executive shall
promptly pay or cause to be paid to the Company any refund actually
received by, or actually credited to, Executive with respect to such
tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions
of this Agreement or otherwise. If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 6(e)(ii), a
determination is made by the Internal Revenue Service or other
appropriate taxing authority that Executive shall not be entitled to
any refund with respect to such tax claimed, and the Company does not
notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of any Gross-Up Payments and other payments
required to be paid hereunder.
(h) With respect to any Executive Claim, if the Company
fails to deliver an Election Notice to Executive within the period
provided in Section 6(e)(i) hereof or, after delivery of such Election
Notice, the Company fails to comply with the provisions of Section
6(e)(ii) and (iii) and (f) hereof, then Executive shall at any time
thereafter have the right (but not the obligation), at his election
and in his sole and absolute discretion, to defend or prosecute, at
the sole cost, expense and risk of the Company, such Executive Claim.
Executive shall have full control of such defense or prosecution and
such proceedings, including any settlement or compromise thereof. If
requested by Executive, the Company shall cooperate, and shall cause
its Affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such
Executive Claim. The Company may attend, but not participate in or
control, any defense, prosecution, settlement or compromise of any
Executive Claim controlled by Executive pursuant to this Section 6(h)
and shall bear its own costs and expenses with respect thereto. In
the case of any Executive Claim that is defended or prosecuted by
Executive, Executive shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from the Company with
respect to costs and expenses incurred by Executive in connection with
such defense or prosecution.
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(i) In the case of any Executive Claim that is defended
or prosecuted to a Final Determination pursuant to the terms of this
Section 6(i), the Company shall pay, on a fully grossed-up after tax
basis, to Executive in immediately available funds the full amount of
any taxes arising or resulting from or incurred in connection with
such Executive Claim that have not theretofore been paid by the
Company to Executive, together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection therewith that have
not theretofore been paid by the Company to Executive, within ten
calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company
shall pay, on a fully grossed-up after tax basis, to Executive in
immediately available funds the full amount of any taxes arising or
resulting from or incurred in connection with such Executive Claim at
least ten calendar days before the date payment of such taxes is due
from Executive, except where payment of such taxes is sooner required
under the provisions of this Section 6(i), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any
costs and expenses required to be paid under this Section 6(i)) shall
be made within the time and in the manner otherwise provided in this
Section 6(i).
(j) For purposes of this Agreement, the term "FINAL
DETERMINATION" shall mean (A) a decision, judgment, decree or other
order by a court or other tribunal with appropriate jurisdiction,
which has become final and non-appealable; (B) a final and binding
settlement or compromise with an administrative agency with
appropriate jurisdiction, including, but not limited to, a closing
agreement under Section 7121 of the Code; (C) any disallowance of a
claim for refund or credit in respect to an overpayment of tax unless
a suit is filed on a timely basis; or (D) any final disposition by
reason of the expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "TAX" and
"TAXES" mean any and all taxes of any kind whatsoever (including, but
not limited to, any and all Excise Taxes, income taxes, and employment
taxes), together with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or additional
amounts."
ARTICLE 7
MISCELLANEOUS
7.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of
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Articles 3 and 4 without the necessity of proving inadequacy of legal remedies
or irreparable harm.
7.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
7.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
7.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified
or superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
7.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions,
covenants, representations, warranties, and conditions of this Agreement shall
bind, be enforceable by, and inure to the benefit of, the parties hereto, but
this Agreement and the rights and obligations hereunder shall not be assignable
or delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
7.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other
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Sections of this Agreement shall have the meaning so ascribed to it. Whenever
the context requires, the gender of all words used herein shall include the
masculine, feminine and neuter, and the number of all words shall include the
singular and plural. References to Articles or Sections shall be to Articles
or Sections of this Agreement unless otherwise specified. The headings and
captions used in this Agreement are solely for convenient reference and shall
not affect the meaning or interpretation of any article, section or paragraph
herein, or this Agreement. The terms "HEREOF," "HEREIN" or "HEREUNDER" shall
refer to this Agreement as a whole and not to any particular Section.
7.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been
executed and is performable in Montgomery County, Texas. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the internal law, and not the law of conflicts, of the State of
Texas. Each party hereto hereby acknowledges and agrees that it has had the
opportunity to consult with its own legal counsel in connection with the
negotiation of this Agreement, and that it has bargaining power equal to that
of the other party hereto in connection with the negotiation, execution and
delivery of this Agreement. Accordingly, the parties hereto agree that the
rule of contract construction that an agreement shall be construed against the
drafter shall have no application in the construction or interpretation of this
Agreement. The invalidity of any provision of this Agreement shall not affect
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity of a portion of any provision of this
Agreement affect the balance of such provision.
7.8 EXPENSES. Each party hereto shall pay all of its respective
fees and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
7.9 CONSULTING AGREEMENT. Company may, at its option, retain
Executive as a consultant following Executive's termination of employment on
such terms as may be agreed to by Executive and Company.
7.10 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof, except any agreement entered into
pursuant to Company's 1996 Key Employee Stock Plan as contemplated by Section
2.2 of this Agreement and the Company's 1997 Long-Term Incentive Plan.
7.11 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY INTERNATIONAL INC.
By: /s/ JAMES F. FARR
-----------------------------------
Name: James F. Farr
Title: President and Chief Executive Officer
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ WILLIAM D. SUTTON
--------------------------------------
Name: William D. Sutton
Address: 115 Wind Ridge Circle
The Woodlands, Texas 773831
[INTENTIONALLY LEFT BLANK]
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COMPANY ACKNOWLEDGMENT
----------------------
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President and Chief Executive Officer of Dailey International
Inc., a Delaware corporation, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
stated, and as the act and deed of said corporation.
Given under my hand and seal this 31st day of December, 1997.
/s/ Virginia J. Cross
-------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
---------
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
William D. Sutton, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 31st day of December, 1997.
/s/ Virginia J. Cross
-------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
---------
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EXHIBIT 10.22
REVISED 12/19/97
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey International Inc., a Delaware corporation ("COMPANY"),
and David T. Tighe ("EXECUTIVE") on this 31st day of December, 1997, to be
effective on the 31st day of December, 1997 ("EFFECTIVE DATE").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to
be employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated November 27, 1996, which they desire to amend and fully restate
upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including December 31, 2000 (the "INITIAL
TERM"), unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date
(a "RENEWAL DATE") the term of this Agreement shall automatically renew and
extend for a period of three years from the Renewal Date (a "RENEWAL TERM")
unless written notice of nonrenewal is delivered from one party to the other at
least sixty days prior to the Renewal Date. The Agreement shall remain in
force during the Initial Term and any Renewal Term until terminated in
accordance with Article 5. The Initial Term together with each Renewal Term
shall hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be
in the capacity of Senior Vice President Finance, Chief Financial Officer and
Treasurer. In such capacity, Executive shall perform the duties for which he
currently is responsible as an executive officer of Company. Executive shall
perform his duties hereunder in accordance with any lawful instructions, rules,
regulations or policies made or adopted by Company's Board of Directors,
including those applicable to Company's Executives
<PAGE> 2
generally, provided that Executive shall not have his duties, authority, areas
of responsibility, offices, immediate or support staff reduced or eliminated
during the Employment Period. During the Employment Period, Executive shall
devote his full time, and best efforts and skills to the business and interests
of Company, do his utmost to further enhance and develop Company's best
interests and welfare, and endeavor to improve his ability and knowledge of
Company's business, particularly as it relates to his duties hereunder, in an
effort to increase the value of his services for the mutual benefit of the
parties hereto. During the Employment Period, it shall not be a violation of
this Agreement for Executive to (a) serve on corporate, civic, or charitable
boards or committees (except for Boards or committees of a Competing Business
(as defined in Section 4.1)), (b) deliver lectures, fulfill teaching or
speaking engagements, (c) manage personal investments, so long as such
activities do not materially interfere with performance of Executive's
responsibilities under this Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the principal executive offices of Company at One Lawrence Centre,
2507 North Frazier, Conroe, Texas 77305, or at such other place where
Company's principal executive offices subsequently may be located. Executive
acknowledges subject to Section 5.3(c) hereof, and agrees that Company may
require Executive to travel and render services in different locations from
time to time incident to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or
entity controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Eighteen Thousand Dollars and two cents ($18,000.02)
per month (the "BASE SALARY"), which shall be prorated for any partial
employment period and payable in the manner and on the timetable in which
Company's payroll is customarily handled, or at such more frequent intervals as
Company and Executive may hereafter agree to from time to time. No overtime
compensation shall be payable to Executive. Company's Board of Directors shall
review Executive's performance at least annually and shall make any adjustments
to Executive's compensation that it deems, in its sole discretion, appropriate,
provided that at no time during the Employment Period shall Executive's
compensation be adjusted to an amount below the Base Salary. Company shall be
entitled to withhold from all amounts of compensation payable under this
Article 2 such
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amounts on account of payroll taxes and similar matters as are required by any
applicable law, rule, or regulation of any appropriate governmental authority.
Such compensation shall continue to be paid during any period of physical or
mental incapacity unless and until Executive's employment is terminated as
herein provided.
2.2 STOCK GRANT AND OPTION. As additional consideration for
Executive's performance of his obligations under Article 3 and Article 4 of
this Agreement, Company has previously, granted to Executive 185,000 restricted
shares of Company's Common Stock, and an option to purchase 97,712 shares of
Company's Common Stock, subject to the terms and conditions of Company's 1996
Key Employee Stock Plan and 1997 Long-Term Incentive Plan, and the terms of the
specific agreements relating to the grants of restricted stock and stock
options. Executive hereby acknowledges and agrees that Company's grant to
Executive of such Common Stock and options, together with other compensation
payable to Executive hereunder, is reasonable and adequate independent
consideration for Executive's performance of his obligations under Articles 3
and 4 of this Agreement.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and
stock grant and option described above, Company shall provide Executive with
the following during the Employment Period:
(a) Bonuses, when payable, based upon and subject to
such terms and conditions as determined annually under the Dailey
Incentive Compensation Plan.
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement
in effect from time to time;
(d) Access to and use of Company's health club facility
in accordance with the policies and procedures governing such
facility;
(e) At the option of Executive each year either (1) use
of a current model Company vehicle comparable to a fully equipped
Cadillac, plus reimbursement of the full cost of repairs, maintenance,
gasoline, oil and cleaning, or (2) an automobile allowance of
$1,700.00 per month;
(f) Use of a Company paid full membership in a local area
country club of the Executive's choice, and
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(g) Reimbursement of the reasonable costs of tuition,
books and travel incurred for Executive's continuing education in
general business or continuing professional education. For each
fiscal year during the Employment Period the reimbursement shall not
exceed ten percent of Executive's annual base compensation as set
forth in Section 2.1.
2.4 VACATION. During the Employment Period, Executive shall
accrue paid vacation time in such amounts and at such times as determined by
Company's Board of Directors, in its sole discretion; provided, however, that
the minimum amount of paid vacation to which Executive shall be entitled shall
be no less than that to which he is entitled as an Executive of Company
immediately prior to the effective date of this Agreement. If such vacation
time is not taken by Executive during the term of this Agreement, Executive
may, at his option, receive a lump sum payment of cash value of the vacation
pay in lieu thereof, or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
1. Work product resulting from or related to work or
projects performed or to be performed for Company or for clients of
Company, including but not limited to data bases, draft and other
non-public written documents, the
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interim and final lines of inquiry, hypotheses, research and
conclusions related thereto and the methods, processes, procedures,
analyses, techniques and audits used in connection therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flow charts, coding sheets, and the
like), source codes, object codes and load modules, programming,
program patches and system designs;
3. Information relating to Company's proprietary rights
prior to any public disclosure thereof, including but not limited to
the nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details
of research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal
cost information, internal service and operational manuals, and the
manner and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques and methods of obtaining business,
forecasts and forecast assumptions and volumes, and future plans and
potential strategies of Company which have been or are being
discussed;
6. Names of customers and their representatives,
contracts and their contents and parties, customer services, and the
type, quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or
potential customer, government agency, or other third party (including
businesses, consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
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3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company which
Executive could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication and, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential
Information to any person or entity, either inside or outside of
Company, other than as necessary in carrying out duties on behalf of
Company, without obtaining Company's prior written consent (unless
such disclosure is compelled pursuant to court order or subpoena, and
at which time Executive gives notice of such proceedings to Company),
and Executive will take all reasonable precautions to prevent
inadvertent disclosure of such Confidential Information. This
prohibition against Executive's disclosure of Confidential Information
includes, but is not limited to, disclosing the fact that any
similarity exists between the Confidential Information and information
independently developed by another person or entity, and Executive
understands that such similarity does not excuse Executive from
abiding by his covenants or other obligations under this Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer
Confidential Information other than as necessary in carrying out his
duties on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to prevent
inadvertent use, copying or transfer of such Confidential Information.
This prohibition against Executive's use, copying, or transfer of
Confidential Information includes, but is not limited to, selling,
licensing or otherwise exploiting, directly or indirectly, any
products or services (including data bases, written documents and
software in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses based upon
knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination
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interview with the General Counsel to confirm turnover of such materials and to
discuss any questions the undersigned may have about his continuing obligations
under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will
hold for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except
in the ordinary course of his employment hereunder during the Employment
Period, Executive shall not during the Employment Period and for a period of
one (1) year thereafter within any geographic area in which Company conducts
business during the Employment Period (all references to Company shall include
its Affiliates as defined in Section 1.4):
0(a) Directly or indirectly, engage or invest in, own,
manage, operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any manner
connected with, or render services or advice to, any Competing
Business (as defined below) provided, however, that the Executive may
invest in the securities of any enterprise with the power to vote up
to 5% of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such securities
are listed on
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any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934;
(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
either (1) hire, attempt to hire, contact or solicit with respect to
hiring any Executive of Company, (2) induce or otherwise counsel,
advise or encourage any Executive of Company to leave the employment
of Company, or (3) induce any distributor, representative or agent of
Company to terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
The provisions of this Section 4.1 shall not apply to Executive if
this Agreement is terminated pursuant to the provisions of Section 5.3(c)
hereof.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood
and agreed by and between the parties hereto that the covenants made by
Executive in Section 4.1 are essential elements of this Agreement and that, but
for the agreement of the Executive to comply with such covenants, Company would
not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are valuable
trade secrets, and (2) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
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(c) Company, during the term of this Agreement and after
its termination, will be engaged in its highly competitive business in
which many firms, including Company, compete;
(d) A substantial portion of Company's business is
conducted outside the United States;
(e) Company, pursuant to acquiring certain patents,
technology and associated trade secrets and know-how, will further
develop its worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm
if Executive terminates his employment and enters directly or
indirectly, into competition with Company;
(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Company;
(i) The enforcement of this Agreement in general, and of
this Article 4 in particular, will not work an undue or unfair
hardship on Executive or otherwise be oppressive to him, it being
specifically acknowledged and agreed by Executive that he has
activities and other business interests and opportunities which will
provide him adequate means of support if the provisions of this
Article 4 are enforced after termination of his employment with
Company; and
(j) the enforcement of this Agreement in general, and of
this Article 4 in particular, will neither deprive the public of
needed goods or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect.
Executive further agrees that if a court of competent jurisdiction determines
that any provision of this Article 4 is invalid or against public policy, the
remaining provisions of this Article 4 and the remainder of this Agreement
shall not be affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of
Executive set forth in this Article 4 are of a continuing nature and shall
survive the expiration,
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termination or cancellation of the remainder of this Agreement regardless of
the reason for such therefor and shall survive the termination, if any, of the
Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base Salary, and (b) twelve
(12) monthly installments equal to his monthly Base Salary, as defined in
Section 2.1, ("NONCOMPETITION PAYMENTS"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall
be applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any
period in which Executive is in breach of the obligations set forth in
Articles 3 and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this
Agreement, at any time during the Employment Period, including,
without limitation, the Initial Term, this Agreement and Executive's
employment hereunder shall terminate upon his death, and Company shall
have the right, in its sole and absolute discretion, to terminate this
Agreement and Executive's employment hereunder at any time by giving
him written notice of such termination (1) for "Cause" (as defined
below), or (2) if Executive shall suffer a Disability (as defined
below). In the event of Executive's death during the Employment
Period, the Company shall (i) pay to Executive's estate an amount
equal to one year's Base Salary, (ii) pay to Executive's estate a pro
rata portion of any bonus which would have been payable but for
Executive's death; (iii) vest Executive fully in any Company stock
grant and stock options held by Executive at his death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken
by the Executive and intended to result in substantial
personal enrichment of the Executive at the expense of the
Company;
2. Repeated violations by the Executive of
Executive's obligations under this Agreement or under written
policies of the Company which are demonstrably willful on the
Executive's part, and for
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which Executive has received more than one written warning
that specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo
contendere or equivalent pleas of a felony in a court of
competent jurisdiction;
4. Executive's use of illegal drugs as
evidenced by a drug test authorized by Company; or
5. Executive's conviction or the entry of a plea
of nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral
turpitude.
(c) "DISABILITY" shall mean any mental or physical
illness, impairment or condition which renders the Executive incapable
of performing any material portion of his duties for a continuous
period of six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 5.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Executive may
terminate this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall:
(1) pay to Executive an amount equal to the greater of (i) his total
Base Salary for the remainder of the Employment Period, or (ii) one
month of Base Salary for each full year of service completed with
Company as of the date of termination, (2) continue Executive's
participation in company's medical, health, and dental plans, as
provided in Section 2.3(b) of this Agreement, for the remainder of the
Employment Period, subject to COBRA required benefits thereafter, (3)
cause Executive to be fully vested in any stock options and stock
grants held by Executive, and (4) pay to Executive such amounts as are
due under the Dailey Incentive Compensation Plan referred to in
Section 2.3(a) of this Agreement. Company shall at its option, make
such payments either in one lump sum on the effective date of
termination or over the remainder of the Employment Period as if the
Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 5.1 and such termination occurs
within one year of the
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occurrence of a Change in Control, then Company shall: (1) pay to
Executive an amount equal to 2.99 times (a) his annualized Base Salary
in effect upon the occurrence of the Change of Control and 2.99 times
(b) the greater of (x) the bonus paid to Executive for the year
preceding the year in which the Change of Control occurs or (y) a
target bonus of $50,000, (2) continue Executive's participation in
Company's medical, health, and dental plans, as provided in Section
2.3(b) of this Agreement, for the remainder of the Employment Period,
subject to COBRA required benefits thereafter, and (3) cause Executive
to be fully vested in any stock options or stock grants held by
Executive. Company shall make such payments in one lump sum on the
effective date of termination. A "CHANGE IN CONTROL" shall be deemed
to have occurred at any time after the date of this Agreement that (i)
any person (other than those persons who own more than 10% of the
combined voting power of the Company's outstanding voting securities
on the date hereof) becomes the beneficial owner, directly or
indirectly, of 30% or more of the combined voting power of the
Company's then outstanding voting securities, or (ii) individuals who
at the beginning of any period of two consecutive fiscal years
constitute the Company's Board of Directors cease for any reason to
constitute a majority of such Board of Directors at any time during
such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER
CHANGE IN CONTROL." If Executive terminates this Agreement for Good
Cause (defined below) and such termination occurs within one year of
the occurrence of a Change in Control, then Company shall: (1) pay
to Executive an amount equal to 2.99 times (a) his annualized Base
Salary in effect upon the occurrence of the Change of Control and 2.99
times (b) the greater of (x) the bonus paid to Executive for the year
preceding the year in which the Change of Control occurs or (y) a
target bonus of $50,000, (2) continue Executive's participation in
Company's medical, health, and dental plans, as provided in Section
2.3(b) of this Agreement, for the remainder of the Employment Period,
subject to COBRA required benefits thereafter, and (3) cause Executive
to be fully vested in any stock options or stock grants held by
Executive. "GOOD CAUSE" shall mean the occurrence of any of the
following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office
with Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a
senior officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any
failure to reelect or to reappoint the Executive to, the
office stated in Section 1.2;
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(iv) Company's direction that the Executive
discontinue service (or not seek reelection or reappointment)
as a director, officer or member of any corporation or
association of which the Executive is a director, officer, or
member at the date of this Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of
a Change in Control or the failure of Company to pay such
salary to the Executive at the time and in the manner
specified in this Agreement;
(vi) other than with respect to the annual
performance bonus specified in Article 2 or, as made with the
Executive's prior written consent, the discontinuance (without
comparable replacement) or material reduction by Company of
the Executive's participation in any bonus or other employee
benefit arrangement (including, without limitation, any
profit-sharing, thrift, life insurance, medical, dental,
hospitalization, stock option or retirement plan or
arrangement) in which the Executive is a participant under the
terms of this Agreement, as in effect on the date hereof or as
may be improved from time to time hereafter;
(vii) the moving by Company of the Executive's
principal office space, related facilities, or support
personnel, from Company's principal operating offices, or
Company's requiring the Executive to perform a majority of his
duties outside Company's principal operating offices for a
period of more than 30 consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located
at the time of the signing of this Agreement;
(ix) in the event Company requires the Executive
to reside at a location more than 25 miles from Company's
principal executive offices, except for occasional travel in
connection with Company business to an extent and in a manner
which is substantially consistent with the Executive's current
business travel obligations;
(x) in the event the Executive consents to a
relocation of Company's principal executive offices, the
failure of Company to (A) pay or reimburse the Executive on
an after-tax basis for all reasonable moving expenses incurred
by the Executive in connection with such relocation or (B)
indemnify the Executive on an after-tax basis against any
loss realized by the Executive on the sale his principal
residence in connection with such relocation;
(xi) the failure of Company to continue to provide
the Executive with office space, related facilities and
support personnel (including, without limitation,
administrative and secretarial assistance) that are
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commensurate with the Executive's responsibilities to and
position with Company, and no less than those prior to this
Agreement;
(xii) the failure by Company to promptly reimburse
the Executive for the reasonable business expenses incurred by
the Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.6, 5.1 or 5.3,
upon termination of this Agreement and Executive's employment
hereunder by either Company or Executive, Executive shall have no
right to receive any compensation or benefits for any period
subsequent to the effective date of such termination, or for any
period prior to such date which have not been earned or vested as of
such date except as may be provided for in any employee benefit plan
relating to such benefits, including the Company's 1996 Key Employee
Stock Plan and the Company's 1997 Long-Term Incentive Plan.
(e) Company's right of termination shall be in addition
to and shall not affect Company's rights and remedies under Articles 3
and 4, and Section 6.1 of this Agreement, and Company's rights and
remedies shall survive termination of Executive's employment
hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to
the contrary notwithstanding, Executive shall immediately resign from any
offices held with Company or its Affiliates upon written request by the
Company. Any resignation made pursuant to a written request by Company under
this Section 5.4 shall not affect Executive's rights under this Agreement for
any compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of
Executives employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("EXTRATERRITORIAL RIGHTS") then the compensation and benefits of this
Agreement shall supersede and replace such Extraterritorial Rights to the
extent permitted by law. Furthermore, to the extent the Extraterritorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, shall reduce any payments or benefits under this
Agreement on a dollar for dollar basis for any amounts paid Executive for any
Extraterritorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment
relationship with Company and its Affiliates is to be governed solely
by reference to the laws of
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the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights
under the laws of any country other than the United States of America
for any Extraterritorial Rights as heretofore defined; and
(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extraterritorial Rights.
ARTICLE 6
GROSS-UP PAYMENTS
6.1 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or any of its affiliates (as that term
is defined in the regulations promulgated under the Securities
Exchange Act of 1934, as amended) under this Agreement to or for the
benefit of Executive (any such payments or distributions being
individually referred to herein as a "PAYMENT," and any two or more of
such payments or distributions being referred to herein as
"PAYMENTS"), would be subject to the excise tax imposed by Section
4999 of the Code (such excise tax, together with any interest thereon,
any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties,
additions to tax or additional amounts, being collectively referred
herein to as the "EXCISE TAX"), then Executive shall be entitled to
receive an additional payment or payments (individually referred to
herein as a "GROSS-UP PAYMENT" and any two or more of such additional
payments being referred to herein as "GROSS-UP PAYMENTS") in an amount
such that after payment by Executive of all taxes (as defined in
Section 6(k)) imposed upon the Gross-Up Payment, Executive retains an
amount of such Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 6(c) through
(i), any determination (individually, a "DETERMINATION") required to
be made under this Section 6(b), including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall initially
be made, at the Company's expense, by nationally recognized tax
counsel mutually acceptable to the Company and Executive ("TAX
COUNSEL"). Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and
Executive within 15 business days of the termination of Executive's
employment, if applicable, or such other time or times as is
reasonably requested by the Company or Executive. If Tax Counsel
makes the initial Determination that no Excise Tax is payable by
Executive with respect to a Payment or Payments, it
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shall furnish Executive with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to any such
Payment or Payments. Executive shall have the right to dispute any
Determination (a "DISPUTE") within 15 business days after delivery of
Tax Counsel's opinion with respect to such Determination. The
Gross-Up Payment, if any, as determined pursuant to such Determination
shall, at the Company's expense, be paid by the Company to Executive
within five business days of Executive's receipt of such
Determination. The existence of a Dispute shall not in any way affect
Executive's right to receive the Gross-Up Payment in accordance with
such Determination. If there is no Dispute, such Determination shall
be binding, final and conclusive upon the Company and Executive,
subject in all respects, however, to the provisions of Section 6(c)
through (i) below. As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been made by the
Company should have been made ("UNDERPAYMENT"), and if upon any
reasonable written request from Executive or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the
Company's expense, thereafter determines that Executive is required to
make a payment of any Excise Tax or any additional Excise Tax, as the
case may be, Tax Counsel shall, at the Company's expense, determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to Executive.
(c) The Company shall defend, hold harmless, and
indemnify Executive on a fully grossed-up after tax basis from and
against any and all claims, losses, liabilities, obligations, damages,
impositions, assessments, demands, judgements, settlements, costs and
expenses (including reasonable attorneys', accountants', and experts'
fees and expenses) with respect to any tax liability of Executive
resulting from any Final Determination (as defined in Section 6(j))
that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or
pending or threatened audit, examination, investigation or
administrative, court or other proceeding which, if pursued
successfully, could result in or give rise to a claim by Executive
against the Company under this Section 6 ("CLAIM"), including, but not
limited to, a claim for indemnification of Executive by the Company
under Section 6(c), then such party shall promptly notify the other
party hereto in writing of such Claim ("TAX CLAIM NOTICE").
(e) If a Claim is asserted against Executive ("EXECUTIVE
CLAIM"), Executive shall take or cause to be taken such action in
connection with contesting such Executive Claim as the Company shall
reasonably request in writing from time to time, including the
retention of counsel and experts as are reasonably designated by the
Company (it being understood and agreed by the parties hereto that the
terms of any such retention shall expressly provide that the Company
shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
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(i) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim Notice
relating to such Executive Claim (or such earlier date that
any payment of the taxes claimed is due from Executive, but in
no event sooner than five calendar days after the Company
receives or delivers such Tax Claim Notice), the Company shall
have notified Executive in writing ("ELECTION NOTICE") that
the Company does not dispute its obligations (including, but
not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to
control the defense or prosecution of, such Executive Claim at
the Company's sole risk and sole cost and expense; and
(ii) the Company shall have advanced to Executive
on an interest-free basis, the total amount of the tax claimed
in order for Executive, at the Company's request, to pay or
cause to be paid the tax claimed, file a claim for refund of
such tax and, subject to the provisions of the last sentence
of Section 6(g), sue for a refund of such tax if such claim
for refund is disallowed by the appropriate taxing authority
(it being understood and agreed by the parties hereto that the
Company shall only be entitled to sue for a refund and the
Company shall not be entitled to initiate any proceeding in,
for example, United States Tax Court) and shall indemnify and
hold Executive harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to such advance or
with respect to any imputed income with respect to such
advance; and
(iii) the Company shall reimburse Executive for any
and all costs and expenses resulting from any such request by
the Company and shall indemnify and hold Executive harmless,
on fully grossed- up after-tax basis, from any tax imposed as
a result of such reimbursement.
(f) Subject to the provisions of Section 6(e) hereof, the
Company shall have the right to defend or prosecute, at the sole cost,
expense and risk of the Company, such Executive Claim by all
appropriate proceedings, which proceedings shall be defended or
prosecuted diligently by the Company to a Final Determination;
provided, however, that (i) the Company shall not, without Executive's
prior written consent, enter into any compromise or settlement of such
Executive Claim that would adversely affect Executive, (ii) any
request from the Company to Executive regarding any extension of the
statute of limitations relating to assessment, payment, or collection
of taxes for the taxable year of Executive with respect to which the
contested issues involved in, and amount of, the Executive Claim
relate is limited solely to such contested issues and amount, and
(iii) the Company's control of any contest or proceeding shall be
limited to issues with respect to the Executive Claim and Executive
shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or
any other taxing authority. So long as the Company is diligently
defending or prosecuting such Executive Claim, Executive shall provide
or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Executive Claim, and
shall
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otherwise cooperate with the Company and its representatives in good
faith in order to contest effectively such Executive Claim. The
Company shall keep Executive informed of all developments and events
relating to any such Executive Claim (including, without limitation,
providing to Executive copies of all written materials pertaining to
any such Executive Claim), and Executive or his authorized
representatives shall be entitled, at Executive's expense, to
participate in all conferences, meetings and proceedings relating to
any such Executive Claim.
(g) If, after actual receipt by Executive of an amount of
a tax claimed (pursuant to an Executive Claim) that has been advanced
by the Company pursuant to Section 6(e)(ii) hereof, the extent of the
liability of the Company hereunder with respect to such tax claimed
has been established by a Final Determination, Executive shall
promptly pay or cause to be paid to the Company any refund actually
received by, or actually credited to, Executive with respect to such
tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions
of this Agreement or otherwise. If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 6(e)(ii), a
determination is made by the Internal Revenue Service or other
appropriate taxing authority that Executive shall not be entitled to
any refund with respect to such tax claimed, and the Company does not
notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of any Gross-Up Payments and other payments
required to be paid hereunder.
(h) With respect to any Executive Claim, if the Company
fails to deliver an Election Notice to Executive within the period
provided in Section 6(e)(i) hereof or, after delivery of such Election
Notice, the Company fails to comply with the provisions of Section
6(e)(ii) and (iii) and (f) hereof, then Executive shall at any time
thereafter have the right (but not the obligation), at his election
and in his sole and absolute discretion, to defend or prosecute, at
the sole cost, expense and risk of the Company, such Executive Claim.
Executive shall have full control of such defense or prosecution and
such proceedings, including any settlement or compromise thereof. If
requested by Executive, the Company shall cooperate, and shall cause
its Affiliates to cooperate, in good faith with Executive and his
authorized representatives in order to contest effectively such
Executive Claim. The Company may attend, but not participate in or
control, any defense, prosecution, settlement or compromise of any
Executive Claim controlled by Executive pursuant to this Section 6(h)
and shall bear its own costs and expenses with respect thereto. In
the case of any Executive Claim that is defended or prosecuted by
Executive, Executive shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from the Company with
respect to costs and expenses incurred by Executive in connection with
such defense or prosecution.
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(i) In the case of any Executive Claim that is defended
or prosecuted to a Final Determination pursuant to the terms of this
Section 6(i), the Company shall pay, on a fully grossed-up after tax
basis, to Executive in immediately available funds the full amount of
any taxes arising or resulting from or incurred in connection with
such Executive Claim that have not theretofore been paid by the
Company to Executive, together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection therewith that have
not theretofore been paid by the Company to Executive, within ten
calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company
shall pay, on a fully grossed-up after tax basis, to Executive in
immediately available funds the full amount of any taxes arising or
resulting from or incurred in connection with such Executive Claim at
least ten calendar days before the date payment of such taxes is due
from Executive, except where payment of such taxes is sooner required
under the provisions of this Section 6(i), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any
costs and expenses required to be paid under this Section 6(i)) shall
be made within the time and in the manner otherwise provided in this
Section 6(i).
(j) For purposes of this Agreement, the term "FINAL
DETERMINATION" shall mean (A) a decision, judgment, decree or other
order by a court or other tribunal with appropriate jurisdiction,
which has become final and non-appealable; (B) a final and binding
settlement or compromise with an administrative agency with
appropriate jurisdiction, including, but not limited to, a closing
agreement under Section 7121 of the Code; (C) any disallowance of a
claim for refund or credit in respect to an overpayment of tax unless
a suit is filed on a timely basis; or (D) any final disposition by
reason of the expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "TAX" and
"TAXES" mean any and all taxes of any kind whatsoever (including, but
not limited to, any and all Excise Taxes, income taxes, and employment
taxes), together with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax, or additional
amounts."
ARTICLE 7
MISCELLANEOUS
7.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of
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Articles 3 and 4 without the necessity of proving inadequacy of legal remedies
or irreparable harm.
7.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
7.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
7.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified
or superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
7.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions,
covenants, representations, warranties, and conditions of this Agreement shall
bind, be enforceable by, and inure to the benefit of, the parties hereto, but
this Agreement and the rights and obligations hereunder shall not be assignable
or delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
7.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other
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Sections of this Agreement shall have the meaning so ascribed to it. Whenever
the context requires, the gender of all words used herein shall include the
masculine, feminine and neuter, and the number of all words shall include the
singular and plural. References to Articles or Sections shall be to Articles
or Sections of this Agreement unless otherwise specified. The headings and
captions used in this Agreement are solely for convenient reference and shall
not affect the meaning or interpretation of any article, section or paragraph
herein, or this Agreement. The terms "HEREOF," "HEREIN" or "HEREUNDER" shall
refer to this Agreement as a whole and not to any particular Section.
7.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been
executed and is performable in Montgomery County, Texas. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the internal law, and not the law of conflicts, of the State of
Texas. Each party hereto hereby acknowledges and agrees that it has had the
opportunity to consult with its own legal counsel in connection with the
negotiation of this Agreement, and that it has bargaining power equal to that
of the other party hereto in connection with the negotiation, execution and
delivery of this Agreement. Accordingly, the parties hereto agree that the
rule of contract construction that an agreement shall be construed against the
drafter shall have no application in the construction or interpretation of this
Agreement. The invalidity of any provision of this Agreement shall not affect
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity of a portion of any provision of this
Agreement affect the balance of such provision.
7.8 EXPENSES. Each party hereto shall pay all of its respective
fees and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
7.9 CONSULTING AGREEMENT. Company may, at its option, retain
Executive as a consultant following Executive's termination of employment on
such terms as may be agreed to by Executive and Company.
7.10 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof, except any agreement entered into
pursuant to Company's 1996 Key Employee Stock Plan as contemplated by Section
2.2 of this Agreement and the Company's 1997 Long-Term Incentive Plan.
7.11 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY INTERNATIONAL INC.
By: /s/ JAMES F. FARR
-------------------------------------------
Name: James F. Farr
Title: President and Chief Executive Officer
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ DAVID T. TIGHE
---------------------------------------------
Name: David T. Tighe
Address: 35 North Highland Court
The Woodlands, Texas 77381
[INTENTIONALLY LEFT BLANK]
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<PAGE> 23
COMPANY ACKNOWLEDGMENT
----------------------
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President and Chief Executive Officer of Dailey International
Inc., a Delaware corporation, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
stated, and as the act and deed of said corporation.
Given under my hand and seal this 31st day of December, 1997.
/s/ Virginia J. Cross
-----------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
---------
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
David T. Tighe, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 31st day of December, 1997.
/s/ Virginia J. Cross
-----------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
---------
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<PAGE> 1
EXHIBIT 10.28
DAILEY PETROLEUM SERVICES CORP.
1997 LONG-TERM INCENTIVE PLAN
ARTICLE I: GENERAL
SECTION 1.1 Purpose of the Plan. The Long-Term Incentive Plan
(the "Plan") of Dailey Petroleum Services Corp. (the "Company") is intended to
advance the best interests of the Company, its subsidiaries and its
stockholders in order to attract, retain and motivate key employees by
providing them with additional incentives through (i) the grant of options
("Options") to purchase shares of Class A Common Stock, par value $.01 per
share, of the Company ("Common Stock"), (ii) the grant of stock appreciation
rights ("Stock Appreciation Rights"), (iii) the award of shares of restricted
Common Stock ("Restricted Stock") and (iv) the award of units payable in cash
or shares of Common Stock based on performance ("Performance Awards"), thereby
increasing the personal stake of such key employees in the continued success
and growth of the Company.
SECTION 1.2 Administration of the Plan. (a) The Plan shall be
administered either by the full Board of Directors of the Company (the "Board
of Directors") or by the Compensation Committee or other designated committee
of the Board of Directors. The Board of Directors or such committee is
referred to herein as the "Committee". The Committee shall have authority to
interpret conclusively the provisions of the Plan, to adopt such rules and
regulations for carrying out the Plan as it may deem advisable, to decide
conclusively all questions of fact arising in the application of the Plan, to
establish performance criteria in respect of Awards (as defined herein) under
the Plan, to certify that Plan requirements have been met for any participant
in the Plan, to submit such matters as it may deem advisable to the Company's
shareholders for their approval, and to make all other determinations and take
all other actions necessary or desirable for the administration of the Plan.
The Committee is expressly authorized to adopt rules and regulations limiting
or eliminating its discretion in respect of certain matters as it may deem
advisable to comply with or obtain preferential treatment under any applicable
tax or other law rule, or regulation. The actions of the Committee in
exercising all the rights, powers, and authorities set out in this Article and
all other Articles of this Plan, when performed in good faith and in its sole
judgment, shall be final, conclusive, and binding on all parties.
(b) The Committee shall designate the eligible employees, if any,
to be granted Awards and the type and amount of such Awards and the time when
Awards will be granted. All Awards granted under the Plan shall be on the
terms and subject to the conditions determined by the Committee consistent with
the Plan.
SECTION 1.3 Eligible Participants. Key employees, including
officers and advisory directors, of the Company and its subsidiaries (all such
subsidiaries being referred to as "Subsidiaries") shall be eligible for Awards
under the Plan.
SECTION 1.4 Awards Under the Plan. Awards to key employees may
be in the form of (i) Options, (ii) Stock Appreciation Rights, which may be
issued independent of or in tandem
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with Options, (iii) shares of Restricted Stock, (iv) Performance Awards, or (v)
any combination of the foregoing (collectively, "Awards").
SECTION 1.5 Shares Subject to the Plan. Initially, the aggregate
number of shares of Common Stock that may be issued under the Plan shall be
720,000. This number of shares, represent approximately 7.85% of the total
outstanding number of shares of Common Stock as of the effective date of the
Plan. As of January 1 of each year the Plan is in effect, if the total number
of shares of Common Stock issued and outstanding, not including any shares
issued under the Plan, exceeds the total number of shares of Common Stock
issued and outstanding as of January 1 of the preceding year (or, for 1998, as
of the commencement of the Plan), the number of shares that may be issued under
the Plan shall be increased by an amount such that the total number of shares
of Common Stock available for issuance under the Plan equals 7.85% of the total
number of shares of Common Stock outstanding, not including any shares issued
under the Plan. Shares distributed pursuant to the Plan may consist of
authorized but unissued shares or treasury shares of the Company, as shall be
determined from time to time by the Board of Directors. For purposes of this
first paragraph of Section 1.5 only, "Common Stock" shall include both the
Company's Class A Common Stock and Class B Common Stock.
If any Award under the Plan shall expire, terminate or be canceled
(including cancellation upon an Option holder's exercise of a related Stock
Appreciation Right) for any reason without having been exercised in full, or if
any Award shall be forfeited to the Company, the unexercised or forfeited Award
shall not count against the above limits and shall again become available for
Awards under the Plan (unless the holder of such Award received dividends or
other economic benefits with respect to such Award, which dividends or other
economic benefits are not forfeited, in which case the Award shall count
against the above limits). Shares of Common Stock equal in number to the
shares withheld in a "cashless exercise" in payment of the exercise price, and
shares of Common Stock which are withheld in order to satisfy Federal, state or
local tax liability, shall count against the above limits. Only the number of
shares of Common Stock actually issued upon exercise of a Stock Appreciation
Right shall count against the above limits, and any shares which were estimated
to be used for such purposes and were not in fact so used shall again become
available for Awards under the Plan. Cash payments of Stock Appreciation
Rights and cash settlement of other Awards will not count against the above
limits.
The aggregate number of shares of Common Stock subject to Options or
Stock Appreciation Rights that may be granted to any one participant in any one
year under the Plan shall be 100,000. The aggregate number of shares of Common
Stock that may be granted to any one participant in any one year in respect of
Restricted Stock shall be 100,000. The aggregate number of shares of Common
Stock that may be issued to any one participant in any one year in respect of a
Performance Award shall be 100,000 and the aggregate amount of cash that may be
received by any one participant in any one year in respect to a Performance
Award shall be $500,000.
The total number of Awards (or portions thereof) settled in cash under
the Plan, based on the number of shares covered by such Awards (e.g., 100
shares for a Stock Appreciation Right with respect to 100 shares), shall not
exceed a number equal to (i) the number of shares initially available for
issuance under the Plan plus (ii) the number of shares that have become
available for issuance under the Plan pursuant to the first paragraph of this
Section 1.5.
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The aggregate number of shares of Common Stock that are available
under the Plan for Options granted in accordance with Section 2.4(i) ("ISOs")
is 720,000, subject to adjustments as provided in Section 5.2 of the Plan.
SECTION 1.6 Other Compensation Programs. Nothing contained in
the Plan shall be construed to preempt or limit the authority of the Board of
Directors to exercise its corporate rights and powers, including, but not by
way of limitation, the right of the Board of Directors (i) to grant incentive
awards for proper corporate purposes otherwise than under the Plan to any
employee, officer, director or other person or entity or (ii) to grant
incentive awards to, or assume incentive awards of, any person or entity in
connection with the acquisition (whether by purchase, lease, merger,
consolidation or otherwise) of the business or assets (in whole or in part) of
any person or entity.
ARTICLE II: STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
SECTION 2.1 Terms and Conditions of Options. Subject to the
following provisions, all Options granted under the Plan shall be in such form
and shall have such terms and conditions as the Committee, in its discretion,
may from time to time determine consistent with the Plan.
(a) Option Price. The option price per share shall be determined
by the Committee, except that in the case of an ISO the option price per share
shall not be less than the fair market value of a share of Common Stock (as
determined by the Committee) on the date the Option is granted (other than in
the case of substitute or assumed Options to the extent required to qualify
such Options for preferential tax treatment under the Code as in effect at the
time of such grant). In the case of any 10% stockholder, the price at which
shares of Common Stock may be purchased under an ISO shall not be less than
110% of the fair market value of the Common Stock on the date the ISO is
granted.
(b) Term of Option. The term of an Option shall be determined by
the Committee, except that in the case of an ISO the term of the Option shall
not exceed ten years from the date of grant, and, notwithstanding any other
provision of this Plan, no Option shall be exercised after the expiration of
its term. In addition, in the case of a 10% Stockholder, no ISO shall be
exercisable after the expiration of five years from the date the ISO is
granted.
(c) Exercise of Options. Options shall be exercisable at such
time or times and subject to such terms and conditions as the Committee shall
specify in the Option grant. Unless the Option grant specifies otherwise, the
Committee shall have discretion at any time to accelerate such time or times
and otherwise waive or amend any conditions in respect of all or any portion of
the Options held by any optionee, except that the Committee cannot take any
action that invalidates the ISO status of an Option granted to an employee
without obtaining the written consent of such employee. An Option may be
exercised in accordance with its terms as to any or all shares purchasable
thereunder. To the extent that the aggregate fair market value (determined as
of the time an ISO is granted) of the Common Stock with respect to which an ISO
first becomes exercisable by the optionee during any calendar year (under this
Plan and any other incentive stock option plan(s) of the Company or any
affiliate) exceeds $100,000, the Options shall be treated as Nonqualified
Options (as defined under the Code). In making this determination, Options
shall be taken into account in the order in which they were granted.
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(d) Payment of Exercise Price for Shares. The Committee may
authorize payment of the exercise price for shares as to which an Option is
exercised to be made in cash, shares of Common Stock, a combination thereof, by
"cashless exercise" or in such other manner as the Committee in its discretion
may provide. In a "cashless exercise", the exercise price for the Option shall
be paid by the Company retaining and not issuing to the holder of the Option a
number of shares, the fair market value of which on the exercise date is, equal
to the exercise price (with the holder of the Option paying in cash to the
Company the value of any fractional shares) and subject to the withholding tax
provisions of Section 5.5. In determining the number of shares that is equal
in value to the exercise price, the closing price of the Common Stock reported
on the Nasdaq National Market (or any national securities exchange on which the
Common Stock is regularly traded) on the date notice of the exercise of the
Option is received by the Company shall be utilized.
(e) Stockholder Rights. The holder of an Option shall, as such,
have none of the rights of a stockholder.
(f) Termination of Employment. The Committee shall have
discretion to specify in the Option grant, or, with the consent of the
optionee, an amendment thereof, provisions with respect to the period, not
extending beyond the term of the Option, during which the Option may be
exercised following the optionee's termination of employment.
Unless it is expressly provided otherwise in the option agreement or
Section 2.5 applies:
(i) Options shall terminate one day less than three
months after severance of employment of the employee from the Company
for any reason, with or without cause, other than death, retirement
under the then established rules of the Company or severance for
disability. Whether authorized leave of absence or absence on
military or government service shall constitute severance of the
employment of the employee shall be determined by the Committee at
that time.
(ii) If, before the expiration of an ISO, the employee
shall be retired in good standing from the employ of the Company under
the then established rules of the Company, the ISO shall terminate on
the earlier of the Option's expiration date or one year after his
retirement. Exercise of an ISO by a former employee after the period
provided in the Code will cause the ISO to be treated as a
Nonqualified Option. If before the expiration of a Nonqualified
Option, the employee shall be retired in good standing from the employ
of the Company under the then established rules of the Company, the
Nonqualified Option shall terminate on the earlier of the Option's
expiration date or one year after his retirement. In the event of
retirement the employee shall have the right prior to the termination
of the Option to exercise the Option to the extent to which he was
entitled to exercise it immediately prior to his retirement unless it
is expressly provided otherwise in the option agreement.
(iii) If, before the expiration of an Option, the employee
shall be retired for disability under the then established rules of
the Company, or severed from the employ of the Company for disability,
the Option shall terminate on the earlier of the Option's expiration
date or one day less than one year after the date he retired or was
severed because of disability. In the event that the employee shall be
retired for disability under the then established rules of the Company
or severed from the employ of the Company for disability, the Employee
shall have the right prior to the termination of the Option
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to exercise the Option to the extent to which he was entitled to
exercise it immediately prior to his retirement or severance of
employment for disability unless it is expressly provided otherwise in
the option agreement.
(iv) If, before the expiration of an Option, the employee,
whether in the employ of the Company or after he has retired or was
severed for disability, dies the Option shall continue until the
earlier of the Option's expiration date or one year following the date
of his death. After the death of the Employee, his executors,
administrators or any persons to whom his Option may be transferred by
will or by the laws of descent and distribution shall have the right,
at any time prior to the Option's termination, to exercise it to the
extent to which he was entitled to exercise it immediately prior to
the death unless it is expressly provided otherwise in the option
agreement.
In determining the employment relationship between the Company
and the Employee, employment by any affiliate shall be considered employment by
the Company, as shall employment by a corporation issuing or assuming a stock
option in a transaction to which Section 424(a) of the Code applies, or by a
parent corporation or subsidiary corporation of the corporation issuing or
assuming a stock option (and for this purpose, the phrase "corporation issuing
or assuming a stock option" shall be substituted for the word "Company" in the
definitions of parent corporation and subsidiary corporation in Section 2.1,
and the parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code).
SECTION 2.2 Stock Appreciation Rights in Tandem with Options.
(a) The Committee may, either at the time of grant of an Option or at any time
during the term of the Option, grant Stock Appreciation Rights ("Tandem SARs")
with respect to all or any portion of the shares of Common Stock covered by
such Option, except that the Committee will not grant Tandem SARs relating to
an outstanding ISO without the written consent of the holder of such ISO, and
if a Tandem SAR is granted pursuant to such ISO, such ISO will immediately
become a non-statutory option. A Tandem SAR may be exercised at any time the
Option to which it relates is then exercisable, but only to the extent the
Option to which it relates is exercisable, and shall be subject to the
conditions applicable to such Option. When a Tandem SAR is exercised, the
Option to which it relates shall cease to be exercisable to the extent of the
number of shares with respect to which the Tandem SAR is exercised. Similarly,
when an Option is exercised, the Tandem SARs relating to the shares covered by
such Option exercise shall terminate. Any Tandem SAR which is outstanding on
the last day of the term of the related Option (as determined pursuant to
Section 2.1(b) or 2.1(f) in the event of a termination of employment) shall be
automatically exercised on such date for cash without any action by the
optionee.
(b) Upon exercise of a Tandem SAR, the holder shall receive, for
each share with respect to which the Tandem SAR is exercised, an amount (the
"Appreciation") equal to the difference between the option price per share of
the Option to which the Tandem SAR relates and the fair market value (as
determined by the Committee) of a share of Common Stock on the date of exercise
of the Tandem SAR. The Appreciation shall be payable in cash, Common Stock, or
a combination of both, at the option of the Committee, and shall be paid within
30 days of the exercise of the Tandem SAR.
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(c) Stockholder Rights. The holder of a Tandem SAR shall, as
such, have none of the rights of a stockholder.
SECTION 2.3 Stock Appreciation Rights Independent of Options.
Subject to the following provisions, all Stock Appreciation Rights granted
independent of Options ("Independent SARs") under the Plan to employees of the
Company and its Subsidiaries shall be in such form and shall have such terms
and conditions as the Committee, in its discretion, may from time to time
determine consistent with the Plan.
(a) Exercise Price. The exercise price per share shall be
determined by the Committee on the date the Independent SAR is granted.
(b) Term of Independent SAR. The term of an Independent SAR shall
be determined by the Committee, and, notwithstanding any other provision of
this Plan, no Independent SAR shall be exercised after the expiration of its
term.
(c) Exercise of Independent SARs. Independent SARs shall be
exercisable at such time or times and subject to such terms and conditions as
the Committee shall specify in the Independent SAR grant. Unless the
Independent SAR grant specifies otherwise, the Committee shall have discretion
at any time to accelerate such time or times and otherwise waive or amend any
conditions in respect of all or any portion of the Independent SARs held by any
participant. Upon exercise of an Independent SAR, the holder shall receive,
for each share specified in the Independent SAR grant, an amount (the
"Appreciation") equal to the difference between the exercise price per share
specified in the Independent SAR grant and the fair market value (as determined
by the Committee) of a share of Common Stock on the date of exercise of the
Independent SAR. The Appreciation shall be payable in cash, Common Stock, or a
combination of both, at the option of the Committee, and shall be paid within
30 days of the exercise of the Independent SAR.
(d) Stockholder Rights. The holder of an Independent SAR shall,
as such, have none of the rights of a stockholder.
(e) Termination of Employment. The Committee shall have
discretion to specify in the Independent SAR grant, or, with the consent of the
holder, an amendment thereof, provisions with respect to the period, not
extending beyond the term of the Independent SAR, during which the Independent
SAR may be exercised following the holder's termination of employment.
SECTION 2.4 Statutory Options. Subject to the limitations on
Option terms set forth in Section 2.1, the Committee shall have the authority
to grant (i) ISOs within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) Options containing such terms
and conditions as shall be required to qualify such Options for preferential
tax treatment under the Code as in effect at the time of such grant, including,
if then applicable, limits with respect to minimum exercise price, duration and
amounts and special limitations applicable to any individual who, at the time
the Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any affiliate.
Options granted pursuant to this Section 2.4 may contain such other terms and
conditions permitted by Article II of this Plan as the Committee, in its
discretion, may from time to time determine (including, without limitation,
provision for Stock Appreciation Rights), to the extent that such terms and
conditions do not cause the Options
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to lose their preferential tax treatment. If an Option intended to be an ISO
ceases or is otherwise not eligible to be an ISO, such Option (or portion
thereof necessary to maintain the status of the remaining portion of the Option
as an ISO) shall remain valid but be treated as an Option other than an ISO.
SECTION 2.5 Change of Control. Notwithstanding the
exercisability schedule governing any Option or Stock Appreciation Right, upon
the occurrence of a Change of Control (as defined in Section 5.9) all Options
and Stock Appreciation Rights outstanding at the time of such Change of Control
and held by participants who are employees of the Company or its subsidiaries
at the time of such Change of Control shall (unless specifically provided
otherwise in the grant thereof) become immediately exercisable and, unless the
participant agrees otherwise in writing, remain exercisable for three years
(but not beyond the term of the Option or Stock Appreciation Right) after the
employee's termination of employment for any reason other than termination by
the Company or a subsidiary of the Company for dishonesty, conviction of a
felony, wilful unauthorized disclosure of confidential information or wilful
refusal to perform the duties of such employee's position or positions with the
Company or such subsidiary (termination for "cause"); provided that this
Section 2.5 shall not apply to Awards granted to a participant if, in
connection with a Change of Control pursuant to clause (1) of Section 5.9, such
participant is the Person or forms part of the Person specified in such clause
(1).
ARTICLE III: RESTRICTED STOCK
SECTION 3.1 Terms and Conditions of Restricted Stock Awards.
Subject to the following provisions, all Awards of Restricted Stock under the
Plan shall be in such form and shall have such terms and conditions as the
Committee, in its discretion, may from time to time determine consistent with
the Plan.
(a) Restricted Stock Award. The Restricted Stock Award shall
specify the number of shares of Restricted Stock to be awarded, the price, if
any, to be paid by the recipient of the Restricted Stock, and the date or dates
on which the Restricted Stock will vest. The vesting and number of shares of
Restricted Stock may be conditioned upon the completion of a specified period
of service with the Company or its Subsidiaries, upon the attainment of
specified performance objectives, or upon such other criteria as the Committee
may determine in accordance with the provisions hereof. Performance objectives
will be based on increases in share prices, operating income, net income or
cash flow thresholds on a company-wide, subsidiary, division or other group
basis, return on common equity or any combination of the foregoing.
(b) Restrictions on Transfer. Stock certificates representing the
Restricted Stock granted to an employee shall be registered in the employee's
name. Such certificates shall either be held by the Company on behalf of the
employee, or delivered to the employee bearing a legend to restrict transfer of
the certificate until the Restricted Stock has vested, as determined by the
Committee. No share of Restricted Stock may be sold, transferred, assigned, or
pledged by the employee until such share has vested in accordance with the
terms of the Restricted Stock Award. Unless the grant of a Restricted Stock
Award specifies otherwise, in the event of an employee's termination of
employment before all the employee's Restricted Stock has vested, or in the
event other conditions to the vesting of Restricted Stock have not been
satisfied prior to any deadline for the satisfaction of such conditions set
forth in the Award, the shares of Restricted Stock that have not vested shall
be forfeited and the lesser of
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(i) the fair market value of the forfeited shares (determined utilizing the
closing price of the Common Stock on the date of forfeiture as reported on the
Nasdaq National Market or other national securities exchange on which the
Common Stock is regularly traded, or as determined by the Committee) on the
date of forfeiture or (ii) the portion of the purchase price paid allocable to
the forfeited shares shall be returned to the employee. At the time Restricted
Stock vests (and, if the employee has been issued legended certificates of
Restricted Stock, upon the return of such certificates to the Company), a
certificate for such vested shares shall be delivered to the employee or the
employee's estate, free of all restrictions (other than legends required by
federal or state securities laws).
(c) Accelerated Vesting. Notwithstanding the vesting conditions
set forth in the Restricted Stock Award, (i) unless the Restricted Stock grant
specifies otherwise, the Committee may in its discretion at any time accelerate
the vesting of Restricted Stock or otherwise waive or amend any conditions of a
grant of Restricted Stock, and (ii) all shares of Restricted Stock shall vest
upon a Change of Control of the Company; provided that clause (ii) above shall
not apply to Awards granted to a participant if, in connection with a Change of
Control pursuant to clause (1) of Section 5.9, such participant is the Person
or forms part of the Person specified in such clause (1).
ARTICLE IV: PERFORMANCE AWARDS
SECTION 4.1 Terms and Conditions of Performance Awards. The
Committee shall be authorized to grant Performance Awards, which are payable in
stock, cash or a combination thereof, at the discretion of the Committee.
(a) Performance Period. The Committee shall establish with
respect to each Performance Award a performance period over which the
performance goal of such Performance Award shall be measured. The performance
period for a Performance Award shall be established prior to the time such
Performance Award is granted and may overlap with performance periods relating
to other Performance Awards granted hereunder to the same employee. The terms
and provisions herein relating to performance based awards are intended to
allow the Committee to satisfy Section 162(m) of the Code and the regulations
issued thereunder. The designation of an employee eligible for a specific
performance based stock award shall be made by the Committee in writing prior
to the beginning of the 12-month period (or such other period) for which the
performance is measured (and within such period as permitted by IRS
regulations). The Committee shall establish the number of shares to be issued
to a designated employee if the performance goal is met; provided the maximum
number of shares which may be issued to any one employee per year under this
Section 4.1 is 100,000 shares.
(b) Performance Objectives. The Committee shall establish a
minimum level of acceptable achievement for the holder at the time of each
Award. Each Performance Award shall be contingent upon future performances and
achievement of objectives described either in terms of Company-wide performance
or in terms that are related to performance of the employee or of the division,
subsidiary, department or function within the Company in which the employee is
employed. The Committee shall have the authority to establish the specific
performance objectives and measures applicable to such objectives. Such
objectives, however, shall be based on increases in share prices, operating
income, net income or cash flow thresholds on a company-wide, subsidiary,
division or other group basis, return on common equity or any combination of
the foregoing.
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(c) Size, Frequency and Vesting. The Committee shall have the
authority to determine at the time of the Award the maximum value of a
Performance Award, the frequency of Awards and the date or dates when Awards
vest.
(d) Payment. Following the end of each performance period, the
holder of each Performance Award will be entitled to receive payment of an
amount, not exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. If at the end of the performance period the
specified objectives have been attained, the employee shall have earned the
Performance Award. If the employee exceeds the specified minimum level of
acceptable achievement but does not fully attain such objectives, the employee
shall have partly earned the Performance Award, and shall become entitled to
receive a portion of the total Award, as determined by the Committee. If a
Performance Award is granted after the start of a performance period, the Award
may be reduced to reflect the portion of the performance period during which
the Award was in effect. Unless the Award specifies otherwise, including
restrictions in order to satisfy the conditions under Section 162(m) of the
Code, the Committee may adjust the payment of Awards or the performance
objectives if events occur or circumstances arise which would cause a
particular payment or set of performance objectives to be inappropriate, as
determined by the Committee. With respect to performance-based stock awards,
the Committee must certify in writing that a performance goal has been met
prior to issuance of any certificate for a performance-based stock award or
payment of a cash amount to any employee. If the Committee certifies the
entitlement of an employee to the performance based award, the cash payment
shall be made or the certificate issued to the employee as soon as
administratively practicable, and subject to other applicable provisions of the
Plan, including but not limited to, all legal requirements and tax withholding.
(e) Termination of Employment. A recipient of a Performance Award
who, by reason of death, disability or retirement, terminates employment before
the end of the applicable performance period shall be entitled to receive, to
the extent earned, a portion of the Award which is proportional to the portion
of the performance period during which the employee was employed. A recipient
of a Performance Award who terminates employment for any other reason shall not
be entitled to any part of the Award unless the Committee determines otherwise;
however, the Committee may in no event pay the employee more than that portion
of the Award which is proportional to his or her period of actual service.
(f) Accelerated Vesting. Notwithstanding the vesting conditions
set forth in a Performance Award, (i) unless the Award specifies otherwise, the
Committee may in its discretion at any time accelerate vesting of the Award or
otherwise waive or amend any conditions (including but not limited to
performance objectives) in respect of a Performance Award, and (ii) all
Performance Awards shall vest, to the extent a portion has been earned, upon a
Change of Control of the Company. In addition, each participant in the Plan
shall receive the maximum Performance Award he or she could have earned for the
proportionate part of the performance period prior to the Change of Control,
and shall retain the right to earn any additional portion of his or her Award
if he or she remains in the Company's employ. However, clause (ii) above shall
not apply to Awards granted to a participant if, in connection with a Change of
Control pursuant to clause (1) of Section 5.9, such participant is the Person
or forms part of the Person specified in such clause (1).
(g) Stockholder Rights. The holder of a Performance Award shall,
as such, have none of the rights of a stockholder.
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ARTICLE V: ADDITIONAL PROVISIONS
SECTION 5.1 General Restrictions. Each Award under the Plan
shall be subject to the requirement that, if at any time the Committee shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock subject or related thereto upon any securities exchange or under
any state or Federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the recipient of an Award with
respect to the disposition of shares of Common Stock, is necessary or desirable
(in connection with any requirement or interpretation of any Federal or state
securities law, rule or regulation) as a condition of, or in connection with,
the granting of such Award or the issuance, purchase or delivery of shares of
Common Stock thereunder, such Award may not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
SECTION 5.2 Adjustments for Changes in Capitalization. In the
event of any stock dividends, stock splits, recapitalizations, combinations,
exchanges of shares, mergers, consolidation, liquidations, split-ups,
split-offs, spin- offs, or other similar changes in capitalization, or any
distribution to shareholders, including a rights offering, other than regular
cash dividends, changes in the outstanding stock of the Company by reason of
any increase or decrease in the number of issued shares of Common Stock
resulting from a split-up or consolidation of shares or any similar capital
adjustment or the payment of any stock dividend, any share repurchase at a
price in excess of the market price of the Common Stock at the time such
repurchase is announced or other increase or decrease in the number of such
shares, the Committee shall make appropriate adjustment in the number and kind
of shares authorized by the Plan (including shares available for ISOs), in the
number, price or kind of shares covered by the Awards and in any outstanding
Awards under the Plan; provided, however, that no such adjustment shall
increase the aggregate value of any outstanding Award.
In the event of any adjustment in the number of shares covered by any
Award, any fractional shares resulting from such adjustment shall be
disregarded and each such Award shall cover only the number of full shares
resulting from such adjustment.
SECTION 5.3 Amendments. (a) The Board of Directors may at any
time and from time to time and in any respect amend or modify the Plan.
(b) The Committee shall have the authority to amend any Award to
include any provision which, at the time of such amendment, is authorized under
the terms of the Plan; however, no outstanding Award may be revoked or altered
in a manner unfavorable to the holder without the written consent of the
holder.
SECTION 5.4 Cancellation of Awards. Any Award granted under the
Plan may be canceled at any time with the consent of the holder and a new Award
may be granted to such holder in lieu thereof, which Award may, in the
discretion of the Committee, be on more favorable terms and conditions than the
canceled Award.
SECTION 5.5 Withholding. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the
Company shall have the right to require the holder to pay an amount in cash or
to retain or sell without notice, or demand surrender of, shares of Common
Stock in value sufficient to satisfy any Federal, state or local withholding
tax liability ("Withholding Tax") prior to the delivery of any certificate for
such shares (or
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remainder of shares if Common Stock is retained to satisfy such tax liability).
Whenever under the Plan payments are to be made in cash, such payments shall be
net of an amount sufficient to satisfy any Federal, state or local withholding
tax liability. An Award may also provide the holder with the right to satisfy
the Withholding Tax with previously owned shares of Common Stock or shares of
Common Stock otherwise issuable to the holder.
Whenever Common Stock is so retained or surrendered to satisfy
Withholding Tax, the value of shares of Common Stock so retained or surrendered
shall be determined by the Committee, and the value of shares of Common Stock
so sold shall be the net proceeds (after deduction of commissions) received by
the Company from such sale, as determined by the Committee.
SECTION 5.6 Non-assignability. Except as expressly provided in
the Plan, no Award under the Plan shall be assignable or transferable by the
holder thereof except by will or by the laws of descent and distribution.
During the life of the holder, Awards under the Plan shall be exercisable only
by such holder or by the guardian or legal representative of such holder.
SECTION 5.7 Non-uniform Determinations. Determinations by the
Committee under the Plan (including, without limitation, determinations of the
persons to receive Awards; the form, amount and timing of such Awards; the
terms and provisions of such Awards and the agreements evidencing same; and
provisions with respect to termination of employment) need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons are similarly
situated.
SECTION 5.8 No Guarantee of Employment. The grant of an Award
under the Plan shall not constitute an assurance of continued employment for
any period.
SECTION 5.9 Change of Control. A "Change of Control" shall be
deemed to have occurred if:
(1) any Person (as defined below), other than a
Designated Person, is or becomes the Beneficial Owner (as defined
below) of securities of the Company representing 35% or more of the
Voting Power (as defined below); provided however, a Change in Control
shall not be deemed to have occurred due to Lawrence Industries' or
its affiliates' aggregate Voting Power falling below 35% or
subsequently increasing above 35%.
(2) there shall occur a change in the composition of a
majority of the Board of Directors within any period of four
consecutive years which change shall not have been approved by a
majority of the Board of Directors as constituted immediately prior to
the commencement of such period;
(3) at any meeting of the stockholders of the Company
called for the purpose of electing directors, more than one of the
persons nominated by the Board of Directors for election as directors
shall fail to be elected; or
(4) the stockholders of the Company approve a merger,
consolidation, sale of substantially all assets or other
reorganization of the Company, other than a reincorporation, in which
the Company does not survive.
A-11
<PAGE> 12
For purposes of this Section 5.9, (i) "Person" shall have the meaning
set forth in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934 (the "Exchange Act"), as in effect on July 9, 1997, (ii) "Beneficial
Owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 promulgated
under the Exchange Act on July 9, 1997; (iii) "Voting Power" shall mean the
voting power of the outstanding securities of the Company having the right
under ordinary circumstances to vote at an election of the Board of Directors;
and (iv) "Designated Person" shall mean any Person whose Beneficial Ownership
of securities is solely the result of such Person acquiring securities as an
underwriter in an underwritten public offering of such securities or who owned
greater than 35% or more of the Voting Power as of July 9, 1997.
SECTION 5.10 Duration and Termination. (a) The Plan shall be of
unlimited duration. Notwithstanding the foregoing, no ISO (within the meaning
of Section 422 of the Code) shall be granted under the Plan ten (10) years
after the effective date of the Plan, but Awards granted prior to such date may
extend beyond such date, and the terms of this Plan shall continue to apply to
all Awards granted hereunder.
(b) The Board of Directors may suspend, discontinue or terminate
the Plan at any time. Such action shall not impair any of the rights of any
holder of any Award outstanding on the date of the Plan's suspension,
discontinuance or termination without the holder's written consent.
SECTION 5.11 Deferred Compensation and Trust Agreements. The
Committee may authorize and establish deferred compensation agreements and
arrangements in connection with Awards under the Plan and may establish trusts
and other arrangements including "rabbi trusts", with respect to such
agreements and appoint one or more trustees for such trusts. Shares of Common
Stock under the Plan may also be acquired by one or more trustees from the
Company, in the open market or otherwise.
SECTION 5.12 Effective Date. The Plan shall be effective as of
July 9, 1997, subject in all respects to approval of the Corporation's
stockholders.
SECTION 5.13 Indemnification. With respect to administration of
the Plan, the Company shall indemnify each present and future member of the
Committee and the Board of Directors against, and each member of the Committee
and the Board of Directors shall be entitled without further act on his part to
indemnity from the Company for, all expenses (including the amount of judgments
and the amount of approved settlements made with a view to the curtailment of
costs of litigation, other than amounts paid to the Company itself) reasonably
incurred by him in connection with or arising out of any action, suit, or
proceeding in which he may be involved by reason of his being or having been a
member of the Committee and/or the Board of Directors, whether or not he
continues to be a member of the Committee and/or the Board of Directors at the
time of incurring the expenses. However, this indemnity shall not include any
expenses incurred by any member of the Committee and/or the Board of Directors
(a) in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee and the
Board of Directors, or (b) in respect of any matter in which any settlement is
effected, to an amount in excess of the amount approved by the Company on the
advice of its legal counsel. In addition, no right of indemnification under
this Plan shall be available to or enforceable by any member of the Committee
and the Board of Directors unless, within 60 days after institution of any
action, suit or proceeding, he shall
A-12
<PAGE> 13
have offered the Company, in writing, the opportunity to handle and defend same
at its own expense. This right of indemnification shall inure to the benefit
of the heirs, executors or administrators of each member of the Committee and
the Board of Directors and shall be in addition to all other rights to which a
member of the Committee and the Board of Directors may be entitled as a matter
of law, contract, or otherwise.
SECTION 5.14 Section 83(b) Election. No employee shall exercise
the election permitted under Section 83(b) of the Code without written approval
of the Committee. Any employee doing so shall forfeit all Options, Stock
Appreciation Rights and/or Awards issued to him under this Plan.
SECTION 5.15 Governing Law. The provisions of this Plan shall be
construed, administered and governed under the laws of the State of Texas and,
to the extent applicable, the federal laws of the United States.
A-13
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
DAILEY INTERNATIONAL INC.
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except for ratio)
Fiscal Year Ended April 30, Six Months Ended October 31,
------------------------------------------- --------------------------------------------------
Pro Forma Pro Forma
1995 1996 1997 1997 1996 1997 1997
(unaudited) (unaudited)
Earnings:
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax income (loss)
from continuing
operations $806 $4,041 $3,975 ($15,580) $3,622 $2,353 ($3,815)
Interest expensed
and capitalized 1,061 967 833 26,348 552 3,561 13,636
Less: Capitalized (411) (411)
interest
Net amortization of
debt discount and
premium and
issuance expense 20 21 23 751 14 83 447
Interest portion of
rental expense 563 716 593 636 307 373 395
------------------------------------------- --------------------------------------------------
Earnings $2,450 $5,745 $5,424 $12,155 $4,495 $5,959 $10,252
Fixed Charges:
Interest expensed
and capitalized 1,061 967 833 26,348 552 3,561 13,636
Net amortization of
debt discount and
premium and
issuance expense 20 21 23 751 14 83 447
Interest portion of
rental expense 563 716 593 636 307 373 395
------------------------------------------- --------------------------------------------------
Fixed Charges $1,644 $1,704 $1,449 $27,735 $873 $4,017 $14,478
Ratio of earnings to
fixed charges 1.5 3.4 3.7 0.4 5.1 1.5 0.7
</TABLE>
<PAGE> 1
EXHIBIT 21.1
DAILEY INTERNATIONAL INC.
AND SUBSIDIARIES
Dailey Energy Services, Inc. Delaware
Dailey International Sales Corporation Delaware
Columbia Petroleum Services Corp. Delaware
International Petroleum Services, Inc. Delaware
Dailey Environmental Remediations Technologies Texas
Dailey Worldwide Services, Corp. Texas
Dailey de Venezuela, S.A. - Venezuela Venezuela
GL/95 Services, C.A. Venezuela
Directional World Engineering Services
(Nigeria) Limited Nigeria
Air Drilling International, Inc. Delaware
Air Drilling Services, Inc. Wyoming
Canadian Air Drilling Services Ltd. Alberta
3-D Drilling Tools & Services
International Ltd. Alberta
Specialty Testing & Consulting LTD. Alberta
Air Drilling Services de Venezuela Venezuela
Air Drilling Services France - France France
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated June 27, 1997, with respect to the consolidated
financial statements and schedule of Dailey International Inc. and our report
dated January 16, 1998 (except for Note 1 as to which the date is January 28,
1998), with respect to the combined financial statements of Directional Wireline
Services, Inc., DAMCO Services, Inc. and DAMCO Tong Services, Inc. included in
the Registration Statement on Form S-4 and related Prospectus of Dailey
International Inc. for the registration of $275,000,000 of 9 1/2% Senior Notes
due 2008, Series B.
ERNST & YOUNG LLP
Houston, Texas
February 27, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of Dailey
International Inc. on Form S-4 (File No. 333- ) of out report dated April 2,
1997, on our audits of the consolidated financial statements of Air Drilling
International, Inc. and subsidiaries as of December 31, 1996 and 1995 and for
the year ended December 31, 1996 and for the period from May 19, 1995
(Inception) to December 31, 1995, and of our report dated July 25, 1995, on our
audits of the combined financial statements of Air Drilling Services, Inc.,
Canadian Air Drilling Services Ltd., Specialty Testing & Consulting Ltd. and
Global Air Drilling Services Ltd. as of May 18, 1995 and for the period from
January 1, 1995 through May 18, 1995. We also consent to the reference to our
firm under the caption "Experts".
/s/ COOPER & LYBRAND L.L.P.
Denver, Colorado
March 2, 1998
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF
1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
------------------------------
Dailey International, Inc.
(Exact name of obligor as specified in its charter)
Delaware 76-0503351
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
2507 North Frazier
Conroe, Texas 77305
(Address of principal executive offices) (Zip Code)
------------------------------
9.5% Senior Notes due 2008
(Title of the indenture securities)
================================================================================
<PAGE> 2
GENERAL
1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities
of the Trustee:
As of February 24, 1998
- --------------------------------------------------------------------------------
Col A. Col B.
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust
Company of Texas, N.A.; incorporated herein by reference
to Exhibit T-1.1 filed with Form T-1 Statement,
Registration No. 22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to
Exhibit T-1.2 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference
to Exhibit T-1.3 filed with Form T-1 Statement,
Registration No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date; incorporated herein by reference
to Exhibit T-1.4 filed with Form T-1 Statement,
Registration No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of February 24, 1998 the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of February 24,
1998 U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 18,955,454 shares of $5 par value Common Stock as of February 24,
1998.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
In as much as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
--------------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
24th day of February, 1998.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ BILL BARBER
-------------------------
Bill Barber
Vice President
<PAGE> 6
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Dailey International,
Inc. 9.5% Senior Notes Due 2008, we hereby consent that reports of examination
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefore.
U.S. Trust Company of Texas, N.A.
By: /s/BILL BARBER
--------------------------------
Bill Barber
Vice President
<PAGE> 7
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
Federal Financial Institutions Examination Council OMB Number: 1557-0081
Expires March 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Please Refer to Page i, (1)
(LOGO) Table of Contents, for
the required disclosure
of estimated burden
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH
DOMESTIC OFFICES ONLY AND TOTAL ASSETS OF LESS THAN $100
MILLION - - FFIEC 034
(970331)
----------
REPORT AT THE CLOSE OF BUSINESS September 30,1997 (RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 This report form is to be filed by banks with domestic
(State member banks); 12 U.S. c. Section 1817 (State offices only. Banks with branches and consolidated
nonmember banks); and 12 U.S. C. Section 161 (National subsidiaries in U.S. territories and possessions, Edge or
banks). Agreement subsidiaries, foreign branches, consolidated
foreign subsidiaries, or International Banking Facilities
must file FFIEC 031.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be prepared in
an authorized officer and the Report of Condition must be accordance with Federal regulatory authority
attested to by not less than two directors (trustees) for instructions. NOTE: these instructions may in some
State nonmember banks and three directors for State member cases differ from generally accepted accounting
and National Banks. principles.
I, Alfred B. Childs, SVP & Cashier We, the undersigned directors (trustees), attest to the
Name and Title of Officer Authorized to Sign Report correctness of this Report of Condition (including the
supporting schedules) and declare that it has been
of the named bank do hereby declare that these Reports of examined by us and to the best of our knowledge and
Condition and Income (including the supporting schedules) belief has been prepared in conformance with the
have been prepared in conformance with the instructions instructions issued by the appropriate Federal regulatory
issued by the appropriate Federal regulatory authority and authority and is true and correct.
are true to the best of my knowledge and belief.
/s/ Stuart M. Pearman
--------------------------
/s/ Alfred B. Childs Director (Trustee)
- ----------------------------
Signature of Officer Authorized to Sign Report
/s/ Arthur White
---------------------
1/21/98 Director (Trustee)
- ---------------------
Date of Signature
/s/. J. T. Moore Jr.
-----------------------
Director (Trustee)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to NATIONAL BANKS: Return the original only in the special
the appropriate Federal Reserve District Bank. return address envelope provided. If express mail is used
in lieu of the special return address envelope, return the
STATE NONMEMBER BANKS: Return the original only in the original only to the FDIC, c/o Quality Data Systems, 2127
special return address envelope provided. If express mail Espey Court, Suite 204, Crofton, MD 21114.
is used in lieu of the special return address envelope,
return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number ____________ 12/31/97
(RCRI 9050) Banks should affix the address label in this space.
U. S. Trust Company of Texas, National Association
--------------------------------------------------
Legal Title of Bank (TEXT 9010)
2001 Ross Avenue, Suite 2700
----------------------------
City (TEXT 9130)
Dallas, TX 75201
--------------------------------------------------
State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
</TABLE>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C> <C>
Call Date: 09/30/97 State #: 6797 FFIEC 034
U.S. TRUST COMPANY OF TEXAS, N.A. Vendor ID: D Cert #: 33217 Page RC-2
2100 ROSS AVENUE, SUITE 2700 Transit #: 11101765
DALLAS, TX 75201 -----------
9
-----------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30,1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C100
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions: RCON
----
a. Noninterest-bearing balances and currency and coin (1,2) 0081 886 1.a
------------------ ------ -------
b. Interest bearing balances (3) 0071 2061 1.b
--------------------------------------------- ------ -------
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a
---------------- ------ -------
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 130,637 2.b
-------------- ------ -------
3. Federal funds sold (4) and securities purchased under agreements to resell: 1350 9,000 3
4. Loans and lease financing receivables: RCON
----
a. Loans and leases, net of unearned income (from Schedule RC-C) 2122 15,528 4.a
-------------
b. LESS: Allowance for loan and lease losses 3123 200 4.b
--------------------------------
c. LESS: Allocated transfer risk reserve 3128 0 4.c
------------------------------------
d. Loans and leases, net of unearned income, allowance, and reserve RCON
----
(item 4.a minus 4.b and 4.c) 2125 15,328 4.d
--------------------------------------------- ------ -------
5. Trading assets 3545 0 5.
---------------------------------------------------------------- ------ -------
6. Premises and fixed assets (including capitalized leases) 2145 780 6.
---------------------- ------ -------
7. Other real estate owned (from Schedule RC-M) 2150 0 7.
---------------------------------- ------ -------
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 2130 0 8.
---------------------------------------------------------- ------ -------
9. Customers' liability to this bank on acceptances outstanding 2155 0 9.
------------------ ------ -------
10. Intangible assets (from Schedule RC-M) 2143 0 10.
---------------------------------------- ------ -------
11. Other assets (from Schedule RC-F) 2160 1,962 11.
--------------------------------------------- ------ -------
12. a. Total assets (sum of items 1 through 11) 2170 160,654 12.a
--------------------------------- ------ -------
b. Losses deferred pursuant to U.S.C. 1823(j) 0306 0 12.b
-------------------------------- ------ -------
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 12.a and 12.b) 0307 160,654 12.c
------------------------------------------- ------ -------
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.a and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report 'term federal funds sold' in Schedule RC, item 4.a, 'Loans and
leases, net of unearned income,' and in Schedule RC-C, part 1.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.a, 'Federal
funds sold.'
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C> <C>
Call Date: 12/31/97 State #: 6797 FFIEC 034
U.S. TRUST COMPANY OF TEXAS, N.A. Vendor ID: D Cert #: 33217 Page RC-2
2100 ROSS AVENUE, SUITE 2700 Transit #: 11101765
DALLAS, TX 75201 -----------
10
-----------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E) RCON 2200 132,784 13.a
--------------------------------------- ----
(1) Noninterest-bearing (1) 6631 24,929 13.a.1
----------------------------------------------
(2) Interest-bearing 6636 107,855
----------------------------------------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
-------------------------------------------------
(2) Interest-bearing
----------------------------------------------------
14. Federal funds purchased(2) and securities sold under agreements to repurchase: RCON 0 14
----
2800
15. a. Demand notes issued to the U.S. Treasury 2840 0 15.a
---------------------------------- ------ ------
b. Trading liabilities 3548 0 15.b
-------------------------------------------------------- ------ ------
16. Other borrowed money:
A. WITH A REMAINING MATURITY OF ONE YEAR OR LESS 2332 1,000 16.a
------------------------------ ------ ------
B. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE YEARS A547 2,000 16.b
--------- ------ ------
C. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS A548 2,000 16.c
-------------------------- ------ ------
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 2920 0 18.
---------------------- ------ ------
19. Subordinated notes and debentures 3200 0 19.
--------------------------------------------- ------ ------
20. Other liabilities (from Schedule RC-G) 2930 2,323 20.
---------------------------------------- ------ ------
21. Total liabilities (sum of items 13 through 20) 2948 140,107 21.
-------------------------------- ------ ------
22. Not applicable
EQUITY CAPITAL
RCON 7,000 23.
----
23. Perpetual preferred stock and related surplus 3838
--------------------------------- ------ ------
24. Common stock 3230 500 24.
------------------------------------------------------------------ ------ ------
25. Surplus (exclude all surplus related to preferred stock) 3839 8,384 25.
---------------------- ------ ------
26. a. Undivided profits and capital reserves 3632 4,298 26.a
------------------------------------ ------ ------
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 365 26.b
---- ------ ------
27. Cumulative foreign currency translation adjustments
---------------------------
28. a. Total equity capital (sum of items 23 through 27) 3210 20,547 28.a
------------------------- ------ ------
b. Losses deferred pursuant to 12 U.S.C. 1823(j) 0306 0 28.b
----------------------------- ------ ------
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 28.a and 28.b) 3559 20,547 28.c
-------------------------------------------- ------ ------
29. Total liabilities, limited-life preferred stock, equity capital, and
losses deferred pursuant to 12 U.S.C. 1823(j) 2257 160,654 29.
(sum of items 21, 22, and 28.c)
-------------------------- ------ ------
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes the most RCON
comprehensive level of auditing work performed for the bank by independent external auditors as ----
of any date during 1996 6724 N/A M.1
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16, 'Other
borrowed money.'
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day
or roll over under a continuing contract in Schedule RC, item 14.a,
'Federal funds purchased.'
<PAGE> 1
LETTER OF TRANSMITTAL
DAILEY INTERNATIONAL INC.
OFFER TO EXCHANGE ITS
9 1/2% SERIES B SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SERIES A SENIOR NOTES DUE 2008
(PRINCIPAL AMOUNT $1,000 PER NOTE)
PURSUANT TO THE PROSPECTUS
DATED , 1998.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Overnight Delivery:
United States Trust Company of (212) 420-6504 United States Trust Company of
Texas, N.A. Texas, N.A.
P. O. Box 841 Corporate Trust Municipal
Operations
Peter Cooper Station 770 Broadway, 13th Floor
New York NY 10276-0841 New York NY 10003-9598
Confirm by Telephone: By Hand Delivery:
(800) 225-2398 United States Trust Company of
Customer Service Texas, N.A.
Corporate Trust Municipal
Operations
111 Broadway, Lower Level
New York, NY 10006
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus"), of Dailey International Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to exchange up to
$275,000,000 aggregate principal amount of the Company's 9 1/2% Series B Senior
Notes due 2008 (the "Exchange Notes") for a like principal amount of its
outstanding 9 1/2% Series A Senior Notes due 2008 (the "Outstanding Notes" and,
together with the Exchange Notes, the "Notes"). The Exchange Notes will be
unsecured obligations of the Company and are identical in all respects to the
Outstanding Notes, except (i) the Exchange Notes have been registered pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and, therefore,
will not bear legends restricting their transfer, (ii) the holders of the
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement dated as of February 13, 1998 among the Company, the Subsidiary
Guarantors (as defined in the Prospectus) and the Initial Purchaser (as defined
in the Prospectus) of the Outstanding Notes, and (iii) the Exchange Notes will
not contain certain provisions providing for an increase in the interest rate
paid thereon. The Outstanding
<PAGE> 2
Notes have been, and the Exchange Notes will be, issued under an Indenture dated
as of February 13, 1998 among the Company, the Subsidiary Guarantors (as defined
in the Prospectus) and U.S. Trust Company of Texas, N.A., as trustee. The term
"Expiration Date" shall mean 5:00 p.m. New York City time, on , 1998,
unless the Exchange Offer is extended as provided in the Prospectus, in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended. Capitalized terms used but not defined herein shall
have the same meaning given them in the Prospectus.
The Letter of Transmittal is to be completed by holders of Outstanding
Notes either (i) if the Outstanding Notes are forwarded herewith or (ii) if
tender of Outstanding Notes is to be made by book-entry transfer to an account
maintained by U.S. Trust Company of Texas, N.A. (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering" in the Prospectus.
Holders of Outstanding Notes whose certificates (the "Certificates") for
such Outstanding Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date or who cannot complete the
procedures for book-entry transfer prior to the Expiration Date must tender
their Outstanding Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
See Instruction 1.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Outstanding Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Outstanding
Notes must complete this Letter of Transmittal in its entirety.
-2-
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING THIS LETTER OF TRANSMITTAL
ALL TENDERING HOLDERS COMPLETE THIS BOX
DESCRIPTION OF OUTSTANDING NOTES TENDERED
<TABLE>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
----------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF OUTSTANDING NOTES
REGISTERED HOLDER TENDERED (ATTACH PRINCIPAL AMOUNT OF NUMBER OF BENEFICIAL
(PLEASE FILL IN IF ADDITIONAL LIST OUTSTANDING NOTES HOLDERS FOR WHOM
BLANK) CERTIFICATE NUMBERS* IF NECESSARY) (IF LESS THAN ALL)** OUTSTANDING NOTES ARE HELD
----------------------------------------------------------------------------------------------------------------------
$
----------------------------------------------------------------------------------------------------------------------
$
----------------------------------------------------------------------------------------------------------------------
$
----------------------------------------------------------------------------------------------------------------------
Total Amount Tendered: $
----------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Outstanding Notes may be tendered in integral multiples of $1,000. All Outstanding Notes held shall be deemed
tendered unless a lesser number is specified in this column.
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH DTC AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN DTC
MAY DELIVER NOTES BY BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1)):
Name of Tendering Institution:
DTC Account Number:
Transaction Code Number:
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED
DELIVERY IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING (SEE INSTRUCTION 5):
Name of Registered Holder(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which executed the notice of Guaranteed Delivery:
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution:
DTC Account Number:
Transaction Code Number:
-3-
<PAGE> 4
[ ] CHECK HERE IF OUTSTANDING NOTES TENDERED BY BOOK-ENTRY TRANSFER BUT
NOT EXCHANGED ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER
SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OUTSTANDING
NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
Area Code and Telephone Number:
Ladies and Gentlemen:
The undersigned hereby tenders to the Company the above described aggregate
principal amount of Outstanding Notes in exchange for a like aggregate principal
amount of Exchange Notes.
Subject to and effective upon the acceptance for exchange of all or any
portion of the Outstanding Notes tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or, upon the
order of the Company, all right, title and interest in and to such Outstanding
Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Outstanding Notes, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), subject only to the
right of withdrawal described in the Prospectus, to (i) deliver Certificates for
Outstanding Notes together with all accompanying evidence of transfer and
authenticity to, or upon the order of the Company, upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to be issued in
exchange for such Outstanding Notes, (ii) present Certificates for such
Outstanding Notes for transfer, and to transfer the Outstanding Notes on the
books of the Company, and (iii) receive for the account of the Company all
benefits and otherwise exercise all rights of beneficial ownership of such
Outstanding Notes, all in accordance with the terms and conditions of the
Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OUTSTANDING NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OUTSTANDING NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY
OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE
OUTSTANDING NOTES TENDERED HEREBY. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Outstanding
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Outstanding Notes.
The Certificate number(s) and the Outstanding Notes that the undersigned wishes
to tender should be indicated in the appropriate boxes above.
-4-
<PAGE> 5
If any tendered Outstanding Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more
Outstanding Notes than are tendered or accepted for exchange, Certificates for
such nonexchanged or nontendered Outstanding Notes will be returned (or, in the
case of Outstanding Notes tendered by book-entry transfer, such Outstanding
Notes will be credited to an account maintained at DTC) without expense to the
tendering holder, as soon as practicable following the withdrawal or rejection
of tender or the expiration or termination of the Exchange Offer.
The undersigned understands that tender of Outstanding Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering and--Guaranteed Delivery Procedures" in the Prospectus and in this
Letter of Transmittal, and the Company's acceptance for exchange of such
tendered Outstanding Notes, will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer. The undersigned recognizes that, under certain circumstances set
forth in the Prospectus, the Company may not be required to accept for exchange
any of the Outstanding Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Registration
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of book-entry transfer
of Outstanding Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Outstanding Notes not exchanged or not accepted for exchange will
be issued to the undersigned or, in the case of a book-entry transfer of
Outstanding Notes, will be credited to the account indicated above maintained at
DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver Exchange Notes to the undersigned at the address
shown below the undersigned's signature.
BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES
TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE
NOTES BY TENDERING OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER AND
EXECUTING THIS LETTER OF TRANSMITTAL. A HOLDER OF OUTSTANDING NOTES WHICH IS A
BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OUTSTANDING
NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE OR (B) SUCH
OUTSTANDING NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER A PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OUTSTANDING
NOTES, WHERE SUCH OUTSTANDING NOTES WERE ACQUIRED BY SUCH PARTICIPATING
BROKER-DEALER FOR ITS OWN
-5-
<PAGE> 6
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR
A PERIOD ENDING [ ] DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER
CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN
ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING
BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OUTSTANDING NOTES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OUTSTANDING NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM
THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH
MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS
UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A
MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER
WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO THE PROSPECTUS UNTIL THE
COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT
OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS
TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES
SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE NOTES, IT SHALL EXTEND THE
[ ] DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS
ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF EXCHANGE
NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE
GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING
BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED
PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE NOTES OR TO AND INCLUDING
THE DATE ON WHICH THE COMPANY GIVES NOTICE THAT THE SALE OF EXCHANGE NOTES MAY
BE RESUMED, AS THE CASE MAY BE.
Holders of Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive accrued interest on such Outstanding Notes for any
period from and after the exchange of such Outstanding Notes for the Exchange
Notes. The Exchange Notes will bear interest from the date of issuance of the
Exchange Notes. Interest on the Outstanding Notes that are tendered in exchange
for the Exchange Notes that has accrued from February 13, 1998, the date of
issuance of the Outstanding Notes, through the date of issuance of the Exchange
Notes will be payable on or before August 15, 1998. Interest on the Exchange
Notes will be payable semi-annually on each February 15 and August 15,
commencing August 15, 1998.
Except as stated in the Prospectus, this tender is irrevocable.
-6-
<PAGE> 7
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE [ ])
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Outstanding Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become the registered
holder(s) by endorsements and documents transmitted herewith (including such
opinions of counsel, certifications and other information as may be required by
the Company for the Outstanding Notes to comply with the restrictions on
transfer applicable to the Outstanding Notes). If signature is by an
attorney-in-fact, trustee, officer of a corporation or another acting in a
fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
================================================================================
(SIGNATURE(S) OF HOLDER(S))
Dated
- ---------------------------------------------, 1998
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- -------------------------------------------------------------------------------
Tax Identification or Social Security Number:
- ---------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Dated
- ---------------------------------------------, 1998
Name of Firm:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- -------------------------------------------------------------------------------
-7-
<PAGE> 8
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Notes are to be issued in the name of
someone other than the registered holder of the Outstanding Notes whose name(s)
appear(s) above.
Issue
[ ] Exchange Notes and/or
[ ] Outstanding Notes not tendered
to:
Name(s):
Address:
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
Tax Identification or Social Security Number(s):
-8-
<PAGE> 9
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes are to be sent to someone other than
the registered holder of the Outstanding Notes whose name(s) appear(s) above, or
to such registered holder(s) at an address other than that shown above.
Mail
[ ] Exchange Notes and/or
[ ] Outstanding Notes not tendered
to:
Name(s):
Address:
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
Tax Identification or Social Security Number(s):
-9-
<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES, GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are forwarded herewith or (b) tenders are to be made pursuant to
the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus. Certificates for Outstanding
Notes being tendered, or timely confirmation of a book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at DTC, as well as this
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Outstanding Notes may be tendered in integral multiples of
$1,000.
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, this Letter of Transmittal or any other required documents to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date or (iii) who cannot complete the procedures for delivery by book-entry
transfer prior to the Expiration Date may tender their Outstanding Notes by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent prior to 5:00 p.m., New York City time,
on the Expiration Date; and (iii) the Certificates (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility (as defined in the Prospectus)) representing
all tendered Outstanding Notes, in proper form for transfer, together with a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within five New York Stock Exchange, Inc. trading days after the Expiration
Date, all as provided in "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
as an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Exchange Act, including (as such terms are defined therein) (i) a bank; (ii)
a broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a securities transfer association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
-10-
<PAGE> 11
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Outstanding Notes) of Outstanding Notes tendered herewith, unless such
holder has completed either the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" above, or
(ii) such Outstanding Notes are tendered for the account of a firm
that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Outstanding Notes Tendered" is inadequate, the Certificate
number(s) and/or the principal amount of Outstanding Notes and any other
required information should be listed on a separate signed schedule which is
attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Outstanding Notes will
be accepted only in integral multiples of $1,000. If less than all the
Outstanding Notes evidenced by any Certificate submitted are to be tendered,
fill in the principal amount of Outstanding Notes which are to be tendered in
the box entitled "Principal Amount of Outstanding Notes Tendered (if less than
all)." In such case, the holder will receive new Certificate(s) for the
remainder of the Outstanding Notes, promptly after the Expiration Date. All
Outstanding Notes represented by Certificates delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. In order for a withdrawal to be effective on or prior to that time, a
written or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify
the Outstanding Notes to be withdrawn (including the certificate number(s) and
principal amount of such Outstanding Notes, or, in the case of Outstanding Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Outstanding Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Outstanding Notes register the transfer of such
Outstanding Notes into the name of the person withdrawing the tender, (iv)
specify the name in which any such Outstanding Notes are to be registered, if
different from that of the Depositor and (v) if applicable because the
Outstanding Notes have been tendered pursuant to book-entry procedures, specify
the name and number of the participant's account at DTC to be credited, if
different from that of the depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Outstanding Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Outstanding Notes so withdrawn are validly tendered.
Properly withdrawn Outstanding Notes may be retendered by following one of the
procedures described in "The Exchange Offer--Procedures for Tendering" in the
Prospectus at any time prior to the Expiration Date.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
The Company, any affiliates or assigns of the Company, the Exchange Agent or any
other person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Outstanding Notes which have been tendered but
which
-11-
<PAGE> 12
are withdrawn will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the
Outstanding Notes tendered hereby, the signature(s) must correspond exactly with
the name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Outstanding Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Outstanding Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing and, unless waived by the Company,
evidence satisfactory to the Company, in its sole discretion, of their authority
to so act must be submitted with this Letter of Transmittal.
When this Letter of Transmittal is signed by the registered owner(s) of the
Outstanding Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes are
to be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Outstanding Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed by the registered
owner(s) exactly as the name or names of the registered owner(s) appear(s) on
the Certificates[, and also must be accompanied by such opinions of counsel,
certifications and other information as the Company or the Trustee for the
Outstanding Notes may require in accordance with the restrictions on transfer
applicable to the Outstanding Notes]. Signatures on such Certificates or bond
powers must be guaranteed by an Eligible Institution.
If tendered Outstanding Notes are registered in the name of the signer of
the Letter of Transmittal and the Exchange Notes to be issued in exchange
therefor are to be issued (and any untendered Outstanding Notes are to be
reissued) in the name of the registered holder (including any participant in The
Depository Trust Company (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of Outstanding Notes), the signature
of such signer need not be guaranteed. In any other case, the tendered
Outstanding Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the registered
holder and the signature on the endorsement or instrument of transfer must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" as defined by Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Outstanding Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of
-12-
<PAGE> 13
which, or exchange for, may, in the view of counsel to the Company, be unlawful.
The Company also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer set forth in the Prospectus
under "The Exchange Offer--Conditions" or defects, irregularities or conditions
of tender as to particular Outstanding Notes, whether or not similar conditions
or irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding on
all parties. No tender of Outstanding Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been waived or
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Outstanding Notes, neither the Company, any affiliate or assign of the
Company or the Exchange Agent nor any person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification. Any Outstanding Notes received by the Exchange Agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering Holders as soon as practicable following the Expiration Date.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING, SUBSTITUTE FORM W-9. Under the U.S. Federal
income tax law, a Holder whose tendered Outstanding Notes are accepted for
exchange and who receives interest on Exchange Notes is required to provide the
payor of interest with such Holder's correct taxpayer identification number
("TIN") on the Substitute Form W-9 below. If the payor is not provided with the
correct TIN, the Internal Revenue Service (the "IRS") may subject the Holder or
the payee to a $50 penalty. In addition, interest payments to such Holders or
other payees with respect to Exchange Notes exchanged pursuant to the Exchange
Offer may be subject to 31% backup withholding.
The box in Part 3 of Substitute Form W-9 may be checked if the tendering
Holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 3 is checked, the Holder or
other payee must also complete the certifications in Part 2 and the Certificate
of Awaiting Taxpayer Identification Number below in order to avoid backup
withholding. Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the payor
will withhold 31% of all reportable payments made to the payee 7 days following
receipt by the payor of the Certificate of Awaiting Taxpayer Identification
Number and prior to the time a properly certified TIN is provided to the payor.
The Holder is required to give the payor the TIN (e.g., social security
number or employer identification number) of the person or entity that will be
the registered owner of Exchange Notes. If the Exchange Notes are to be
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such Holders should nevertheless
complete the Substitute Form W-9 below, and write "exempt" on the face thereof,
to avoid possible erroneous backup withholding. A foreign person may qualify as
an exempt recipient by submitting a properly completed IRS Form W-8, signed
under penalties of perjury, attesting to that Holder's exempt status. Please
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which Holders are
exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be applied for.
-13-
<PAGE> 14
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Outstanding Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The holder will then be instructed by
the Exchange Agent as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Outstanding Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, certificates representing the Exchange Notes or the
Outstanding Notes for the principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Outstanding Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
-14-
<PAGE> 15
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: U.S. TRUST COMPANY OF TEXAS, N.A.
- ----------------------------------------------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number or Employer Identi-
SUBSTITUTE RIGHT AND CERTIFY BY SIGNING AND DATING fication Number
FORM W-9 BELOW.
DEPARTMENT
OF THE
TREASURY
INTERNAL
REVENUE
SERVICE
PAYER'S
REQUEST FOR
TAXPAYER
IDENTIFICATION
NUMBER ("TIN")
------------------------------------------------------------------------------------------------
PART 2--CERTIFICATIONS--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a result of failure to report all interest
or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified
by the IRS that you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by the IRS that
you are subject to backup withholding, you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out such item (2).
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS
DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- ----------------------------------------------------------------------------------------------------------------------
Signature Date PART 3
Name (please print) Awaiting TIN [ ]
Address (please print)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY INTEREST OR OTHER REPORTABLE PAYMENTS MADE TO YOU WITH
RESPECT TO EXCHANGE NOTES EXCHANGED PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number. Moreover, I understand that during this 60-day period, 31% of all
reportable payments made to me will be withheld commencing 7 business days after
the payor receives this Certificate of Awaiting Taxpayer Identification Number
and terminating on the date I provide a certified TIN to the payor.
Signature Date
Name (please print)
Address (please print)
-15-
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens (i.e.
000-00-0000). Employer identification numbers have nine digits separated by only
one hyphen (i.e. 00-0000000). The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
Give the NAME and
SOCIAL SECURITY
For this type of account: number of --
------------------------- ----------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor or
incompetent person
7.a. The usual revocable savings The grantor-trustee(1)
trust (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid
trust under state law
8. Sole proprietorship account The owner(4)
</TABLE>
<TABLE>
<CAPTION>
Give the NAME and
EMPLOYER
IDENTIFICATION
For this type of account: number of --
------------------------- ----------------------
<S> <C> <C>
9. A valid trust, estate or The legal entity (5)
pension trust (Do not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)
10. Corporate account The corporation
11. Religious, charitable or The organization
educational organization
account
12. Partnership account The partnership
13. Association, club or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district or prison)
that receives agricultural
program payments
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
-16-
<PAGE> 17
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL interest and
dividend payments include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under Section 501(a) of the Internal Revenue
Code or an individual retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A dealer in securities or commodities required to register in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a) of the Internal
Revenue Code.
- - An exempt charitable remainder trust or a non-exempt trust described in
Section 4947(a)(1) of the Internal Revenue Code.
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Internal Revenue Code).
- - Payments described in Section 6049(b)(5) of the Internal Revenue Code to
non-resident aliens.
- - Payments on tax-free covenant bonds under Section 1451 of the Internal
Revenue Code.
- - Payments made by certain foreign organizations.
Exempt payees described above must still complete the Substitute Form W-9
enclosed herewith to avoid possible erroneous backup withholding. FILE THIS FORM
WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON
THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments, other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N of the Internal Revenue Code.
PRIVACY ACT NOTICE.--Section 6109 of the Internal Revenue Code requires most
recipients of dividends, interest, or other payments to give taxpayer
identification numbers to payers who must report the payments to the Internal
Revenue Service. The Internal Revenue Service uses the numbers for
identification purposes and to help verify the accuracy of the recipient's tax
return. Payers must be given the numbers whether or not recipients are required
to file tax returns. Payers must generally withhold 31% of the gross amount of
interest, dividends, and certain other payments to a payee who does not furnish
a taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
-17-
<PAGE> 18
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 1/2% SERIES A SENIOR NOTES DUE 2008
(PRINCIPAL SERIES A AMOUNT $1,000 PER NOTE)
OF
DAILEY INTERNATIONAL INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used for a holder of the Issuer's (as defined below) 9 1/2% Series
A Senior Notes due 2008 (the "Outstanding Notes") to accept the Exchange Offer
(as defined below) if (i) certificates for such holder's Outstanding Notes are
not immediately available, (ii) such holder cannot deliver its certificates for
Outstanding Notes, the Letter of Transmittal or any other required documents to
U.S. Trust Company of Texas, N.A. (the "Exchange Agent") prior to 5:00 p.m., New
York City time, on the Expiration Date (as defined in the Prospectus referred to
below) or (iii) the procedures for delivery by book-entry transfer cannot be
completed prior to the Expiration Date. This Notice of Guaranteed Delivery may
be delivered by hand, [overnight courier or] mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Overnight Delivery:
United States Trust Company of (212) 420-6504 United States Trust Company of
Texas, N.A. Texas, N.A.
P. O. Box 841 Corporate Trust Municipal
Peter Cooper Station Operations
New York NY 10276-0841 770 Broadway, 13th Floor
New York NY 10003-9598
Confirm by Telephone: By Hand Delivery:
(800) 225-2398 United States Trust Company of
Customer Service Texas, N.A.
Corporate Trust Municipal
Operations
111 Broadway, Lower Level
New York, NY 10006
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to Dailey International Inc., a Delaware
corporation (the "Issuer"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Outstanding Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." All capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Prospectus.
-18-
<PAGE> 19
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1998, unless extended by
the Issuer. The term "Expiration Date" shall mean 5:00 p.m., New York City time,
on , 1998, unless the Exchange Offer is extended as provided in the
Prospectus, in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended.
SIGNATURE
x Date:
x Date:
Signature(s) of Registered Holder(s)
or Authorized Signatory
Area Code and Telephone Number:
Name(s):
(Please Print)
Capacity (full title, if signing in a fiduciary or
representative capacity):
----------------------------------------------------
Address:
Taxpayer Identification Number or
Social Security No.:
Aggregate Principal Amount of
Outstanding Notes Tendered
(must be integral multiples of $1,000): $
Certificate Number(s) of Outstanding
Notes (if available):
Aggregate Principal Amount
Represented by Certificate(s): $
IF TENDERED OUTSTANDING NOTES WILL
BE DELIVERED BY BOOK-ENTRY TRANSFER,
PROVIDE THE DEPOSITORY TRUST COMPANY
("DTC") ACCOUNT NO. AND TRANSACTION
CODE (IF AVAILABLE):
Account No.:
Transaction No.:
-19-
<PAGE> 20
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified as an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the
Securities Exchange Act of 1934, as amended, guarantees deposit with the
Exchange Agent of a properly completed and executed Letter of Transmittal (or
facsimile thereof), [or an Agent's Message,] as well as the certificate(s)
representing all tendered Outstanding Notes in proper form for transfer, or
confirmation of the book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at DTC as described in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures" and other documents
required by the Letter of Transmittal, all by 5:00 p.m., New York City time, on
the fifth New York Stock Exchange trading day following the Expiration Date.
Name of Eligible Institution:
Authorized Signature
Address: Name:
Title:
Date:
Area Code and Telephone
No.
NOTE: DO NOT SEND OUTSTANDING NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. ACTUAL SURRENDER OF OUTSTANDING NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS.
-20-
<PAGE> 21
DAILEY INTERNATIONAL INC.
OFFER TO EXCHANGE ITS 9 1/2% SERIES B SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SERIES A SENIOR NOTES DUE 2008
(PRINCIPAL AMOUNT $1,000 PER NOTE)
PURSUANT TO THE PROSPECTUS
DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998 UNLESS THE OFFER IS EXTENDED.
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Dailey International Inc., a Delaware corporation (the "Issuer"), is
offering, upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (the "Prospectus") and the accompanying Letter
of Transmittal enclosed herewith (which together constitute the "Exchange
Offer"), to exchange its 9 1/2% Series B Senior Notes due 2008 (the "Exchange
Notes") for a like principal amount of its outstanding 9 1/2% Series A Senior
Notes due 2008 (the "Outstanding Notes", and together with the Exchange Notes,
the "Notes"). The Exchange Notes will be unsecured obligations of the Company
and are identical in all respects to the Outstanding Notes, except (i) the
Exchange Notes have been registered pursuant to the Securities Act of 1933, as
amended (the "Securities Act") and, therefore, will not bear legends restricting
their transfer, (ii) the holders of the Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement dated as of February 13,
1998 among the Company, the Subsidiary Guarantors (as defined in the Prospectus)
and the Initial Purchaser (as defined in the Prospectus) of the Outstanding
Notes, and (iii) the Exchange Notes will not contain certain provisions
providing for an increase in the interest rate paid thereon. The Outstanding
Notes have been, and the Exchange Notes will be, issued under an Indenture dated
as of February 13, 1998 among the Company, the Subsidiary Guarantors (as defined
in the Prospectus) and U.S. Trust Company of Texas, N.A., as trustee.
Outstanding Notes may be tendered in whole or in part in integral multiples of
$1,000.
THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE EXCHANGE
OFFER--CONDITIONS" IN THE PROSPECTUS.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. the Prospectus, dated , 1998;
2. the Letter of Transmittal for your use and for the information of your
clients (facsimile copies of the Letter of Transmittal may be used to
tender Outstanding Notes);
3. a form of letter which may be sent to your clients for whose accounts
you hold Outstanding Notes registered in your name or in the name of
your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer; and
4. a Notice of Guaranteed Delivery.
YOUR PROMPT ACTION IS REQUESTED. PLEASE NOTE THAT THE EXCHANGE OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
PLEASE FURNISH COPIES OF THE ENCLOSED MATERIALS TO THOSE OF YOUR CLIENTS FOR
WHOM YOU HOLD OUTSTANDING NOTES REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR
NOMINEE AS QUICKLY AS POSSIBLE.
-21-
<PAGE> 22
In all cases, exchanges of Outstanding Notes accepted for exchange pursuant
to the Exchange Offer will be made only after receipt by the Exchange Agent of
(a) certificates representing such Outstanding Notes, or a confirmation of a
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility (as defined in the Prospectus), as the case may be, (b) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, [or an
Agent's Message (as defined in the Prospectus)] and (c) any other required
documents.
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal [or an Agent's Message] or any
other documents required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date or (iii) who cannot complete the procedures for
book-entry transfer prior to the Expiration Date must tender their Outstanding
Notes according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Outstanding Notes residing in any jurisdiction in
which the making of the Exchange Offer or acceptance thereof would not be in
compliance with the laws of such jurisdiction.
The Issuer will not make any payments to brokers, dealers or other persons
for soliciting acceptances of the Exchange Offer. The Issuer will, however, upon
request, reimburse you for customary clerical and mailing expenses incurred by
you in forwarding any of the enclosed materials to your clients. The Issuer will
pay or cause to be paid any transfer taxes payable on the transfer of
Outstanding Notes to it, except as otherwise provided in the Letter of
Transmittal.
Questions and requests for assistance with respect to the Exchange Offer or
for copies of the Prospectus and Letter of Transmittal may be directed to the
Exchange Agent at its address set forth in the Prospectus or at [(
) ].
Very truly yours,
DAILEY INTERNATIONAL INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE ISSUER OR ANY AFFILIATE THEREOF, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
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<PAGE> 23
DAILEY INTERNATIONAL INC.
OFFER TO EXCHANGE ITS
9 1/2% SERIES B SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SERIES A SENIOR NOTES DUE 2008
(PRINCIPAL AMOUNT $1,000 PER NOTE)
PURSUANT TO THE PROSPECTUS
DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus dated , 1998 (the
"Prospectus") and a Letter of Transmittal (which together constitute the
"Exchange Offer") relating to the offer by Dailey International Inc. (the
"Issuer") to exchange its 9 1/2% Series B Senior Notes due 2008 (the "Exchange
Notes") for a like principal amount of its outstanding 9 1/2% Series A Senior
Notes due 2008 (the "Outstanding Notes", and together with the Exchange Notes,
the "Notes"). The Exchange Notes will be unsecured obligations of the Company
and are identical in all respects to the Outstanding Notes, except (i) the
Exchange Notes have been registered pursuant to the Securities Act of 1933, as
amended (the "Securities Act") and, therefore, will not bear legends restricting
their transfer, (ii) the holders of the Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement dated as of February 13,
1998 among the Company, the Subsidiary Guarantors (as defined in the Prospectus)
and the Initial Purchaser (as defined in the Prospectus) of the Outstanding
Notes, and (iii) the Exchange Notes will not contain certain provisions
providing for an increase in the interest rate paid thereon. The Outstanding
Notes have been, and the Exchange Notes will be, issued under an Indenture dated
as of February 13, 1998 among the Company, the Subsidiary Guarantors (as defined
in the Prospectus) and U.S. Trust Company of Texas, N.A., as trustee.
Outstanding Notes may be tendered in whole or in part in integral multiples of
$1,000.
The enclosed material is being forwarded to you as the beneficial owner of
Outstanding Notes held by us for your account at benefit but not registered in
your name. An exchange of any Outstanding Notes may only be made by us as the
registered Holder pursuant to your instructions. Therefore, the Issuer urges
beneficial owners of Outstanding Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee to contact such Holder
promptly if they wish to exchange Outstanding Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to exchange
any or all such Outstanding Notes held by us for your account or benefit,
pursuant to the terms and conditions set forth in the Prospectus and Letter of
Transmittal. We urge you to read carefully the Prospectus and Letter of
Transmittal before instructing us to exchange your Outstanding Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exchange Outstanding Notes on your behalf in accordance
with the provisions of the Exchange Offer. The Exchange Offer expires at 5:00
p.m., New York City time, on , 1998, unless extended. The term
"Expiration Date" shall mean 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended as provided in the Prospectus, in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended. A tender of Outstanding Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
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<PAGE> 24
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of Outstanding Notes.
$275,000,000 aggregate principal amount of Outstanding Notes was
outstanding as of , 1998.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE
EXCHANGE OFFER--CONDITIONS" IN THE PROSPECTUS.
3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m.,
New York City time, on , 1998, unless extended.
4. The Issuer has agreed to pay certain expenses of the Exchange Offer.
Any transfer taxes incident to the transfer of Outstanding Notes from
the tendering Holder to the Issuer will be paid by the Issuer, except
as provided in the Prospectus and the Letter of Transmittal. See "The
Exchange Offer--Fees and Expenses" in the Prospectus.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of Holders of Outstanding Notes, residing in any jurisdiction in
which the making of the Exchange Offer or acceptance thereof would not be in
compliance with the laws of such jurisdiction.
If you wish us to tender any or all of your Outstanding Notes held by us
for your account or benefit, please do instruct us by completing, executing and
returning to us the attached instruction form. THE ACCOMPANYING LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL PURPOSES ONLY AND MAY NOT BE
USED BY YOU TO EXCHANGE OUTSTANDING NOTES HELD BY US AND REGISTERED IN OUR NAME
FOR YOUR ACCOUNT OR BENEFIT.
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<PAGE> 25
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Dailey
International Inc.
This will instruct you to tender for exchange the aggregate principal
amount of Outstanding Notes indicated below (or, if no aggregate principal
amount is indicated below, all Outstanding Notes) held by you for the account or
benefit of the undersigned, pursuant to the terms of and conditions set forth in
the Prospectus and the Letter of Transmittal.
Aggregate Principal Amount of Outstanding Notes to be tendered for exchange:
$________________________*
* I (we) understand that if I (we) sign this instruction form without indicating
an aggregate principal amount of Outstanding Notes in the space above, all
Outstanding Notes held by you for my (our) account will be tendered for
exchange.
----------------------------------------------------
----------------------------------------------------
Signature(s)
----------------------------------------------------
Capacity (full title) if signing in a
fiduciary or representative capacity
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
Name(s) and address, including zip code
Date:
----------------------------------------------------
Area Code and Telephone Number
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Taxpayer Identification or Social Security No.
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