<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March, 1998
SANTA FE INTERNATIONAL CORPORATION
(Translation of registrant's name into English)
5420 LBJ Freeway, Suite 1100, Dallas, Texas 75240
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934.
Yes No X
--- ---
<PAGE> 2
PROXY STATEMENT
Enclosed herewith as Exhibit 1 is a copy of the Registrant's Proxy
Statement dated March 26, 1998 for the 1998 Annual General Meeting of
Shareholders of Santa Fe International Corporation.
EXHIBITS
1 Proxy Statement dated March 26, 1998.
- 2 -
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SANTA FE INTERNATIONAL
CORPORATION
(Registrant)
Date: March 26, 1998 By: /s/ Cary A. Moomjian, Jr.
Cary A. Moomjian, Jr.
Vice President, Secretary
and General Counsel
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<PAGE> 4
EXHIBITS
Exhibit Document Page
1 Proxy Statement dated March 26, 1998.
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<PAGE> 1
[SANTA FE INTERNATIONAL CORPORATION LOGO]
SANTA FE INTERNATIONAL CORPORATION
Two Lincoln Centre
5420 LBJ Freeway, Suite 1100
Dallas, Texas 75240-2648 U.S.A.
Telephone: (972) 701-7300
Dear Shareholder:
You are cordially invited to attend the Annual General Meeting of
Shareholders of Santa Fe International Corporation on Tuesday, May 5, 1998, at
10:00 a.m., Central Daylight Time. The meeting will be held at The Westin
Hotel Galleria Dallas, 13340 Dallas Parkway, Dallas, Texas 75240 U.S.A. Your
Board of Directors and management look forward to greeting those shareholders
able to attend in person.
At the meeting, you will be asked to consider and elect three Class I
Directors to serve until the Annual General Meeting of Shareholders to be held
in 2001. Your Board of Directors has unanimously nominated these persons for
election as Directors. You also are being asked to ratify the appointment of
Ernst & Young LLP as the Company's independent auditors for the Company's
fiscal year ending December 31, 1998. Information about the business to be
conducted at the meeting is set forth in the accompanying Proxy Statement,
which you are urged to read carefully. During the meeting, management will
review the business affairs and progress of the Company during the fiscal year
ended December 31, 1997. Officers of the Company will be present to respond to
questions from shareholders.
The vote of every shareholder is important. The Board of Directors
appreciates and encourages shareholder participation in the Company's affairs.
Whether or not you plan to attend the meeting, please sign, date and return the
enclosed proxy promptly in the envelope provided or otherwise deliver same to
the address therein. Your shares will then be represented at the meeting. If
you attend the meeting, you may, at your discretion, withdraw the proxy and
vote in person.
On behalf of the Board of Directors, I thank you for your anticipated
cooperation and continued support.
Sincerely,
/s/ Gordon M. Anderson
Gordon M. Anderson
March 26, 1998 Chairman of the Board
<PAGE> 2
SANTA FE INTERNATIONAL CORPORATION
Two Lincoln Centre
5420 LBJ Freeway, Suite 1100
Dallas, Texas 75240-2648 U.S.A.
Telephone: (972) 701-7300
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
The Annual General Meeting of Shareholders of Santa Fe International
Corporation, a company incorporated under the laws of the Cayman Islands (the
"Company"), will be held at The Westin Hotel Galleria Dallas, 13340 Dallas
Parkway, Dallas, Texas 75240 U.S.A., on May 5, 1998, at 10:00 a.m., Central
Daylight Time, for the following purposes:
(1) To elect three Class I Directors to hold office until
the Annual General Meeting of Shareholders to be held in 2001 or until
their successors have been duly qualified and elected;
(2) To consider and act upon a proposal to ratify the
appointment of Ernst & Young LLP as the independent auditors of the
Company to audit the accounts of the Company for the fiscal year
ending December 31, 1998; and
(3) To transact such other business as may properly come
before the meeting or any adjournments thereof.
Only holders of the Company's ordinary shares, par value $0.01 per
share, of record at the close of business on March 23, 1998 are entitled to
notice of, and to vote at, the meeting or any adjournment or adjournments
thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO FILL OUT, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. PROXIES
FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY
THEM. THE PROMPT RETURN OF PROXIES WILL SAVE THE EXPENSE INVOLVED IN FURTHER
COMMUNICATION.
By Order of the Board of Directors,
/s/ Cary A. Moomjian, Jr.
Cary A. Moomjian, Jr.
March 26, 1998 Vice President, General
Counsel and Secretary
<PAGE> 3
SANTA FE INTERNATIONAL CORPORATION
Two Lincoln Centre
5420 LBJ Freeway, Suite 1100
Dallas, Texas 75240-2648 U.S.A.
Telephone: (972) 701-7300
PROXY STATEMENT
FOR
ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
This Proxy Statement is furnished to holders of the ordinary shares,
par value $0.01 per share (the "Ordinary Shares"), in connection with the
solicitation of proxies by the Board of Directors of Santa Fe International
Corporation, a company incorporated under the laws of the Cayman Islands
(herein referred to individually and, where the context so requires,
collectively with its subsidiaries and predecessors, as the "Company"), with a
registered office at P.O. Box 309, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands, BWI, for use at the Annual General Meeting
of Shareholders of the Company to be held at The Westin Hotel Galleria Dallas,
13340 Dallas Parkway, Dallas, Texas 75240 U.S.A., on May 5, 1998 at 10:00 a.m.,
Central Daylight Time, and at any and all postponements or adjournments thereof
(the "Annual Meeting" or "Meeting") for the purposes of:
(1) electing three Class I Directors to hold office until
the Annual General Meeting of Shareholders to be held in 2001 or until
their successors have been duly elected and qualified;
(2) considering and acting upon a proposal to ratify the
appointment of Ernst & Young LLP as the independent auditors of the
Company to audit the accounts of the Company for the fiscal year
ending December 31, 1998; and
(3) transacting such other business as may properly come
before the meeting or any adjournments or postponements thereof.
The approximate date on which this Proxy Statement and accompanying proxy card
are first being sent or given to Shareholders is March 30, 1998.
Ordinary Shares represented by each proxy, if properly executed and
returned to the Company prior to the Meeting, will be voted as directed, but if
not otherwise specified, will be voted for the election of the three nominees
for Class I Director and to ratify the appointment of Ernst & Young LLP as
independent auditors, all as recommended by the Board of Directors. Pursuant
to the Company's Amended and Restated Articles of Association (the "Articles of
Association" or "Articles") and Cayman Islands law, holders of Ordinary Shares
may appoint their own proxy, who need not be a holder of Ordinary Shares, by
written instrument in any usual or common form.
If the Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Annual Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Annual Meeting (except for proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
<PAGE> 4
The Board of Directors knows of no other business to be presented at
the Annual Meeting. If any other business is properly presented, the persons
named in the enclosed proxy have authority to vote on such matters in
accordance with such persons' discretion. A shareholder executing the proxy
may revoke it at any time before it is voted by giving written notice to the
Secretary of the Company.
The solicitation of proxies in the enclosed form is made on behalf of
the Company's Board of Directors. The entire cost of soliciting these proxies,
including the costs of preparing, printing and mailing this Proxy Statement and
accompanying materials to shareholders, will be borne by the Company. In
addition to use of the mails, proxies may be solicited personally or by
telephone or otherwise by officers, Directors and employees of the Company, who
will receive no additional compensation for such activities. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of
shares held of record by such brokerage houses, custodians, nominees and
fiduciaries. Such parties will be reimbursed for their reasonable expenses
incurred in forwarding the proxy materials.
VOTE REQUIRED FOR APPROVAL;
SHARES ENTITLED TO VOTE; RECORD DATE
The affirmative vote of the holders of a majority of the outstanding
Ordinary Shares present or represented by proxy and entitled to vote at the
Annual Meeting at which a quorum is present is required to elect each of the
three Class I Directors nominated for reelection to the Company's Board of
Directors and to ratify the appointment of Ernst & Young LLP as auditors of the
Company for the fiscal year ending December 31, 1998. The Company's Directors
and executive officers, and their affiliates (including the Company's principal
shareholder SFIC Holdings (Cayman), Inc.), had, as of February 28, 1998, a
beneficial interest in an aggregate of 74,618,984 Ordinary Shares, representing
approximately 65% of the Ordinary Shares outstanding at the close of business
on March 23, 1998 (the "Record Date") and entitled to vote on all proposals to
be presented at the Annual Meeting. The presence at the Annual Meeting,
whether in person or by proxy, of the holders of at least a majority of the
outstanding Ordinary Shares entitled to vote thereat constitutes a quorum for
the transaction of business.
At the Record Date, there were outstanding 114,771,980 Ordinary
Shares. Only holders of record of Ordinary Shares at the Record Date will be
entitled to notice of, and to vote at, the Annual Meeting. Each Ordinary Share
is entitled to one vote for each Director to be elected and upon all other
matters to be brought to a vote by the shareholders at the forthcoming Annual
Meeting.
In the election of Directors, votes may be cast in favor of or
withheld with respect to each nominee. Votes that are withheld and broker
non-votes with respect to the election of Directors will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on all
proposals, except for the election of Directors. Abstentions and broker
non-votes will be counted as present for purposes of determining the existence
of a quorum. Abstentions on the proposal to ratify the appointment of Ernst &
Young LLP will have the effect of a negative vote because approval requires the
affirmative vote of the majority of the Ordinary Shares present or represented
at the Annual Meeting.
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<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table is furnished as of February 28, 1998 to indicate
beneficial ownership of the Company's Ordinary Shares by (i) each person who is
known by the Company to be a beneficial owner of more than 5% of the Company's
Ordinary Shares and (ii) all executive officers and Directors of the Company as
a group. The information in the following table was provided by such persons.
<TABLE>
<CAPTION>
TITLE OF CLASS IDENTIFY OF PERSON OR GROUP AMOUNT OWNED PERCENT OF CLASS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary Shares SFIC Holdings (Cayman), Inc. (1) 74,500,000 64.9%
Ordinary Shares Directors and Executive Officers as a 118,984 (2) 0.1%
group (18 persons)
- ----------------------
</TABLE>
(1) SFIC Holdings (Cayman), Inc. ("Holdings") is a wholly-owned subsidiary of
Kuwait Petroleum Corporation ("KPC"), which is wholly-owned by the
Government of Kuwait.
(2) Does not include 107,600 restricted shares or 327,650 options that are not
exercisable within 60 days. Includes 19,684 shares held in the Company's
Investment Savings and Profit Sharing Plan and 250 shares held by a spouse
in a custodial account for the benefit of a minor child. Does not include
4,000 shares held of record by the spouse of Mr. Ferdinand A. Berger, a
Director of the Company. Mr. Berger disclaims beneficial ownership of
such 4,000 shares. Does not include 74,500,000 shares over which Mr.
Nader Hamad Sultan has the authority to cast votes on behalf of Holdings
at the Company's 1998 Annual General Meeting of Shareholders. Mr. Sultan
disclaims beneficial ownership of such 74,500,000 shares.
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<PAGE> 6
PROPOSALS FOR CONSIDERATION AND VOTING
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors of the Company currently has nine members. The
Company's Articles of Association divide the Board of Directors into three
classes having staggered terms of three years each, with Classes I, II and III
having initial terms expiring at the Annual General Meeting of Shareholders in
1998, 1999 and 2000, respectively. The Articles also require the number of
Directors to be not less than nine nor more than 15 and provide that the Board
is to determine, from time to time, the number of Directors to be on the Board.
Pursuant to the Articles, three Class I Directors are to be elected at
the Annual Meeting. Unless otherwise instructed, the proxy holders intend to
vote the proxies received by them FOR the three nominees below.
Gordon M. Anderson
Abdulmalik Mohammed Al-Gharabally
Abdullah Hamad Al-Roumi
Set forth below in "Directors and Executive Officers" is biographical
information about each of the Company's nominees for Directors.
Each nominee has consented to being named in this Proxy Statement and
to serve if elected. If any nominee becomes unavailable for any reason or if a
vacancy should occur before the election, the shares represented by the proxies
will be voted for such person, if any, as may be designated by the Board of
Directors. However, management of the Company has no reason to believe that any
nominee will be unavailable or that any vacancy on the Board of Directors will
occur. The three nominees will serve until the Annual Meeting of Shareholders
to be held in 2001 and until their successors are elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEES FOR DIRECTOR NAMED ABOVE.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of its Audit
Committee, has appointed Ernst & Young LLP ("E&Y") as the independent auditors
of the Company for the fiscal year ending December 31, 1998. Shareholders are
being asked to ratify this appointment. The Company has been informed that
neither E&Y nor any of its partners have any direct financial interest or any
material indirect financial interest in the Company nor have had any connection
during the past three years with the Company in the capacity of promoter,
underwriter, voting trustee, Director, officer or employee.
Representatives of E&Y are expected to be present at the Meeting with
the opportunity to make a statement if they so desire and to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
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<PAGE> 7
DIRECTORS AND EXECUTIVE OFFICERS
The following is a list of the persons who will constitute the
Company's Board of Directors following the Annual Meeting (assuming re-election
of the nominees named above) and the persons who were serving as executive
officers of the Company as of February 28, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon M. Anderson . . . . . . . . . . . 65 Chairman of the Board and Class I Director
C. Stedman Garber, Jr . . . . . . . . . . 54 President, Chief Executive Officer and Class III
Director
Abdulmalik Mohammed Al-Gharabally . . . . . 54 Class I Director
Abdullah Hamad Al-Roumi . . . . . . . . . . 48 Class I Director
Khalid Yousef Al-Fulaij . . . . . . . . . . 44 Class II Director
Ferdinand Anton Berger . . . . . . . . . . 59 Class II Director
Nader Hamad Sultan . . . . . . . . . . . . 49 Class II Director
Sami Fahed Al-Rushaid . . . . . . . . . . 43 Class III Director
Robert E. Wycoff . . . . . . . . . . . . . 67 Class III Director
Donald G. Barber . . . . . . . . . . . . . 63 Senior Vice President and Chief Financial Officer
Gordon W. McCullough . . . . . . . . . . . 63 Senior Vice President, Drilling Operations
Roger B. Hunt . . . . . . . . . . . . . . 48 Senior Vice President, Commercial Manager
Ali Awad . . . . . . . . . . . . . . . . . 57 Vice President and Area Manager
James A. Blue . . . . . . . . . . . . . . . 52 Vice President and Regional Manager
Seals M. McCarty . . . . . . . . . . . . . 51 Vice President and Controller
Cary A. Moomjian, Jr . . . . . . . . . . . 50 Vice President, General Counsel and Secretary
Tom L. Seeliger . . . . . . . . . . . . . 54 Vice President and Area Manager
C. Miles Sheldon . . . . . . . . . . . . . 49 Vice President and Area Manager
</TABLE>
The officers of the Company generally are elected each year
immediately following the Company's Annual General Meeting of Shareholders to
serve a term of one year or until their successors are duly elected and
qualified.
Set forth below is biographical information about each of the
Company's Directors and executive officers.
GORDON M. ANDERSON has served as a Director of the Company since 1969.
Mr. Anderson was appointed President and Chief Executive Officer in 1991 and
became Chairman of the Board of Directors in 1993. Mr. Anderson retired as
Chief Executive Officer in December 1997. Mr. Anderson has worked with the
Company since June 1954. Following several international assignments, he was
appointed President of Santa Fe Drilling Company in 1972. Mr. Anderson retired
in December 1997, and currently serves as a non-employee Director and Chairman
of the Board. Mr. Anderson also serves as a Director of the American Petroleum
Institute and as a Trustee of the American University in Cairo.
C. STEDMAN GARBER, JR. has served as a Director of the Company since
1989. Mr. Garber was employed by Getty Oil Company between 1977 and 1984. Mr.
Garber joined the Company in 1984 as Vice President of Planning and Acquisition
and in 1989 was appointed President of Santa Fe Minerals, Inc., a former
subsidiary of the Company. Mr. Garber was named Executive Vice President and
Chief Operating Officer of the Company in 1991, was appointed President and
Chief Operating Officer in December 1995 and was appointed Chief Executive
Officer effective January 1, 1998.
5
<PAGE> 8
ABDULMALIK MOHAMMED AL-GHARABALLY has served as a Director of the
Company since 1982. Mr. Al-Gharabally has been Adviser to Kuwait Petroleum
Corporation since 1992. Previously he was Managing Director, Exploration and
Production, of KPC and Chairman and Managing Director of Kuwait Oil Company,
K.S.C. Mr. Al-Gharabally also serves as a Director of Holdings and as Chairman
of Kuwait Santa Fe for Engineering and Petroleum Projects Company (K.S.C.).
ABDULLAH HAMAD AL-ROUMI has served as a Director of the Company since
January 1995. Since 1992 he has served as Chairman and Managing Director of
Kuwait Oil Tanker Company, a subsidiary of KPC. Mr. Al-Roumi also serves as a
Director of KPC, Holdings and the U.K. P&I Club.
KHALID YOUSEF AL-FULAIJ has served as a Director of the Company since
January 1995. Since 1992 he has served as Chairman and Managing Director of
Kuwait Oil Company, K.S.C., a subsidiary of KPC. Mr. Al-Fulaij also serves as
a Director of KPC and Holdings.
FERDINAND A. BERGER has served as a Director of the Company since
September 1997. Mr. Berger retired from the Shell Group of Companies at the
end of 1996, having served in various management positions in South America,
the Middle East and Europe since 1965. He was appointed Senior Vice President
of Shell International Trading Company in 1987 and served as a Director of
Shell International Petroleum Company Limited, with responsibility for overall
Shell Group activities in the Middle East, Africa and South Asia from 1992
until his retirement. He is also a Director of Xpronet Inc., a privately owned
oil and gas exploration and production company.
NADER HAMAD SULTAN has served as a Director of the Company since
January 1995. Since 1993, he has served as Deputy Chairman and Managing
Director, Planning and International Operations, of KPC. Mr. Sultan also
serves as a Director of KPC and Holdings.
SAMI FAHED AL-RUSHAID has served as a Director of the Company since
September 1997. Mr. Al-Rushaid joined the Kuwait National Petroleum Company
("KNPC"), a subsidiary of KPC, in 1978. He held various positions in the KNPC
Corporate Planning Department until 1995, when he assumed his current position
as KNPC's Executive Assistant Managing Director of Planning and Finance. Mr.
Al-Rushaid also is a Director of Petrochemical Industries Co., a KPC
subsidiary. Mr. Al-Rushaid also serves as a Director of Holdings.
ROBERT E. WYCOFF has served as a Director of the Company since
September 1997. Mr. Wycoff retired from the Atlantic Richfield Company
("ARCO") in 1993, having served with ARCO since 1953. After holding various
engineering and management positions, he was named Vice President and Resident
Manager of ARCO's Alaska Region in 1973. Mr. Wycoff served as a Director,
President and Chief Operations Officer of ARCO from 1986 until his retirement.
He is also a director of MagneTek, Inc., a publicly traded company engaged in
electronic equipment and controls.
DONALD G. BARBER joined the Company in 1985 as Senior Vice President
of Santa Fe Minerals, Inc., a former subsidiary of the Company, and has served
as Senior Vice President and Chief Financial Officer of the Company since
December 1986. Mr. Barber previously served as Chief Financial Officer of
Aminoil, Inc. and in senior financial positions with Exxon U.S.A.
6
<PAGE> 9
GORDON W. MCCULLOUGH joined the Company in 1962. He has worked in
progressively more senior management positions, primarily internationally,
including assignments in the United Kingdom, Holland, Norway, Nigeria, Brazil,
Libya and Angola. In 1982, Mr. McCullough was appointed Managing Director of
the Company's North Sea operations. In January 1994, Mr. McCullough was named
the Company's Senior Vice President, Drilling Operations.
ROGER B. HUNT joined the Company in 1970. During the period 1977
through 1982, he was assigned to Venezuela as Assistant Zone Manager. In 1983,
he was named Vice President and Manager of International Sales and in 1988 was
assigned regional operations responsibilities as Vice President and Regional
Manager for Asia, Australia, Venezuela, Azerbaijan, West Africa and the Gulf of
Mexico. He assumed his current responsibilities as Senior Vice President,
Commercial Manager, in September 1997.
ALI AWAD joined the Company in 1974 following a distinguished career
with major oil companies operating locally in Egypt. He has held several
managerial positions in Egypt, including Zone Manager from 1979 to 1993. In
1993, he was promoted to his current position of Vice President and Area
Manager responsible for all offshore and land operations in Egypt as well as
other operations in the Mediterranean area.
JAMES A. BLUE joined the Company in 1965. He initially served in
various assignments in England, Egypt, Libya, Scotland and Venezuela. He was
named Vice President and Regional Operations Manager in 1989. In 1997, he
assumed his current position of Vice President and Regional Manager with
responsibility for operations in Azerbaijan, the Gulf of Mexico, Venezuela and
West Africa.
SEALS M. MCCARTY joined the Company in 1985 concurrently with the
purchase of Keydril Company from Gulf/Chevron. He had served as Vice President
of Finance for Keydril since 1982. Mr. McCarty has held various financial
positions with the Company including his present position as Vice President and
Controller.
CARY A. MOOMJIAN, JR. joined the Company in 1976. After two years as
Corporate Marine Counsel, Mr. Moomjian served as Santa Fe Drilling Company's
Senior Counsel and then Vice President, General Counsel. In 1983, Mr. Moomjian
was named Vice President, Contracts for Santa Fe Drilling Company. In January
1994, Mr. Moomjian was named Vice President, General Counsel and Secretary.
TOM L. SEELIGER joined the Company in 1965. He has worked in
progressively more senior management positions, primarily internationally,
including assignments in Nigeria, the North Sea, Libya, Argentina, Trinidad,
Venezuela and London. In 1993, Mr. Seeliger assumed his current position as
Vice President and Area Manager for North Sea operations.
C. MILES SHELDON joined the Company in 1977 as Business Development
Manager for offshore construction activities. In 1981, after assignments in
Saudi Arabia and Kuwait in a marketing capacity, he was named General Manager
for the Company's operations in Kuwait and in 1984 was promoted to Vice
President. In 1993, Mr. Sheldon was assigned regional operations
responsibilities as Vice President and Area Manager for Kuwait, Saudi Arabia,
Oman and Qatar.
7
<PAGE> 10
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
BOARD OF DIRECTOR MEETINGS
During the six months ended December 31, 1997, the Board of Directors
met two times. The Board of Directors also acted one time by unanimous written
consent and conducted its statutory meeting under Cayman Islands law by proxy.
All Directors (other than Mr. Al-Roumi) attended at least 75% of the aggregate
of the meetings of the Board of Directors of the Company and of the committees
of the Board of Directors on which they served.
EXECUTIVE COMMITTEE
In September 1997, the Board of Directors established an Executive
Committee. The Executive Committee was granted all powers and authorities of
the Board of Directors in the management of the business and affairs of the
Company, except as may be limited by applicable law, the Intercompany Agreement
(as defined below) or the Company's Memorandum of Association and Articles of
Association. Further, the Executive Committee may not declare a dividend or
adopt an agreement of merger or consolidation and is not authorized to approve
transactions in excess of $10 million per transaction. The Executive Committee
did not meet during the six months ended December 31, 1997. The members of the
Executive Committee are Messrs. Al-Fulaij, Garber, Al-Gharabally and Wycoff.
Mr. Garber serves as Chairman of the Executive Committee.
AUDIT COMMITTEE
Pursuant to the Company's Articles of Association, the Audit Committee
reviews and reports to the Board of Directors on the scope and results of
audits by the Company's auditing firm and internal auditing staff. The Audit
Committee periodically recommends a firm of certified public accountants to
serve as auditors for the Company and reviews such information as is necessary
to ensure the independence and integrity of the auditors. The Audit Committee
is also responsible for overseeing the Company's Business Conduct Policy.
During the six months ended December 31, 1997, there were two meetings of the
Audit Committee. The members of the Audit Committee are Messrs. Al-Fulaij,
Berger, Al-Roumi and Al-Rushaid. Mr. Al-Fulaij serves as Chairman of the Audit
Committee.
COMPENSATION COMMITTEE
Pursuant to the Company's Articles of Association, the Compensation
Committee reviews, approves and oversees the Company's compensation and benefit
policies and programs. For the six months ended December 31, 1997, there were
three meetings of the Compensation Committee. The members of the Compensation
Committee are Messrs. Wycoff, Berger, Al- Gharabally and Sultan. Mr. Wycoff
serves as Chairman of the Compensation Committee.
NOMINATING COMMITTEE
In September 1997, the Board of Directors established a Nominating
Committee. The Nominating Committee has been designated to make
recommendations to the Board of Directors concerning the composition and
compensation of the Board of Directors, the nominees to fill vacancies or new
positions and nominees of the Board of Directors for election by the Company's
shareholders at the Annual Meeting. The Nominating Committee did not meet
during the six months ended December 31, 1997. The
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<PAGE> 11
members of the Nominating Committee are Messrs. Anderson, Al-Roumi, Al-Rushaid
and Sultan. Mr. Anderson serves as Chairman of the Nominating Committee.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND OFFICERS
For the calendar year ended December 31, 1997, the aggregate
remuneration paid by the Company (which includes salary and other cash payments
under the Company's benefit plans and policies) to all Directors and executive
officers of the Company as a group (18 persons) for services in all capacities
was $9,291,865.
The Company and Gordon M. Anderson, a Director of the Company, entered
into a Consulting Agreement dated December 10, 1997 pursuant to which Mr.
Anderson receives certain compensation. See "Item 13. Interest of Management
in Certain Transactions -- Consulting Agreement".
DIRECTOR FEES AND STOCK OPTIONS
Effective July 1, 1997, the Board adopted a policy whereby each
non-employee Director is paid an annual retainer fee of $20,000 plus meeting
fees of $2,000 for each Board and committee meeting (other than telephonic
meetings) attended by that Director. Each non-employee Director also is paid a
meeting fee of $500 for any Board or committee telephonic meeting of one hour
or longer and an additional $1,000 for each Board meeting such Director attends
outside his or her country of residence. Each non-employee Director who serves
as a committee chairman receives an additional meeting fee of $1,000. The
Company also reimburses its Directors for travel, lodging and related expenses
they may incur attending Board and committee meetings. The Company has also
adopted a stock option plan for certain non- employee Directors. See "-- Long
Term Incentive Plans -- 1997 Non-Employee Director Stock Option Plan".
INVESTMENT SAVINGS AND PROFIT SHARING (401(K)) PLAN
The Company maintains an Investment Savings and Profit Sharing Plan, a
defined contribution 401(k) plan that allows dollar payroll employees to make
both pre-tax and after-tax employee contributions. The Company matches these
employee contributions up to a maximum of 5% of a participant's base salary
subject to the limitations of eligible salary. Employees are vested in all
contributions made. Additionally, although it has not done so since 1984 and
does not currently expect to do so in the future, the Company has the option to
make additional employer contributions any year out of profits.
ANNUAL INCENTIVE COMPENSATION PLAN
The Company also maintains an Annual Incentive Compensation Plan
("AIP"). The AIP provides for payment of additional compensation to
participating employees, including executive officers, based on individual
contributions and overall performance of the Company and its key operating
business units during the fiscal year. The AIP is administered by the
Compensation Committee. Employees of the Company and its subsidiaries eligible
for awards under the AIP are executive officers, officers and other key
management personnel of the Company and its subsidiaries, whose performance, in
the judgment of the Compensation Committee, can have a significant effect on
the success of the Company. During the
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term of the AIP, an aggregate of 286,250 Ordinary Shares will be available for
awards granted wholly or partly in Ordinary Shares under the AIP.
In general, the Compensation Committee will establish a target
incentive award for each participant based on performance measures (and
performance scales for the measures) and individual objectives. The maximum
target incentive award shall not exceed 100% of the participant's base salary
in effect at the beginning of the plan year. The current performance measures
are cash flow from operations and cash flow from operations divided by revenue
as compared to certain peer group companies set forth in the AIP. In general,
except for "covered employees", as defined in Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") (relating to deduction limits for
compensation over $1 million), the Compensation Committee has discretion to
vary these measures and the relative weight to assign to the various
objectives. With respect to covered employees, the individual objectives must
be capable of determination by a third party and all of the objectives must be
established during the first 90 days of the plan year.
In the event of a Change in Control (as defined below), (i) if the
various objectives have not yet been determined during the plan year, then the
objectives and participants shall generally be based on the same rules as set
forth in the preceding plan year and (ii) in general, participants are eligible
for full unprorated target incentives for that year.
PENSION PLANS
The Company maintains a tax-qualified pension plan for employees of
the Company and participating subsidiaries who are residing in or are citizens
of the United States and who have completed one year of service, and a "mirror"
non- qualified pension plan for selected non-U.S. management and other
employees of the Company and participating subsidiaries which provides
substantially similar benefits (hereafter referred to collectively as the
"Pension Plans"). In addition, the Company maintains two non-qualified pension
plans that provide certain additional pension benefits.
The Pension Plans provide for monthly retirement benefits upon normal
retirement at age 62 based on the number of credited years of service and the
average of the highest 60 months of salary covered by the Pension Plans. The
Pension Plans permit retirement as early as age 55 with reduced benefits. The
Equity Restoration Plan restores to Pension Plan participants any benefits
otherwise lost as a result of the benefit limitations contained in Section 415
of the Code and limitations contained in Section 401(a)(17) of the Code on the
amount of compensation includable in determining benefits provided by
tax-qualified trusts. The Company's Supplemental Executive Retirement Plan
("SERP") provides additional benefits for a select group of management
employees as a means to attract and retain employees of exceptional ability who
are critical to the Company's success.
For employees who participate only in the Pension Plans and the
Company's Equity Restoration Plan, the annual retirement income benefit is
equal to 1.525% of the participant's average annual base salary in the highest
60 consecutive months during the final 10 years of service multiplied by years
of credited service, plus 0.475% of this same base salary amount less the
participant's Social Security Covered Compensation (as defined), multiplied by
years of credited service not exceeding 35 years. For employees who also
participate in the SERP, the benefit so calculated will not be less than 60% of
the participant's average annual salary and bonus in the highest consecutive 36
months during the final five years of service, reduced ratably for service
under 15 years.
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LONG TERM INCENTIVE PLANS
PERFORMANCE UNIT PLAN
On June 28, 1995, the Company adopted the Santa Fe International
Corporation Performance Unit Plan ("Performance Unit Plan") to provide
incentive via performance share units to foster and promote the long-term
financial success of the Company and materially increase the value of the
equity interests of the shareholder.
Each unit awarded under the Performance Unit Plan represents the right
to receive an amount in cash on the date of payout, the amount of which depends
upon the Company's targeted three-year total cash flow from operations and a
return on fixed assets (three-year average of the annual cash flow from
operations divided by fixed assets) compared to a comparative group of peer
companies. The minimum (threshold) is $20 per unit, which is payable if the
Company's cash flow from operations equals 80% of targeted cash flow from
operations and the Company's return on fixed assets equals the 40th percentile
of its peer companies. If the results are less than threshold for any of the
two performance criteria, no awards are earned. The target amount of $100 per
unit is payable if the Company meets targeted total cash flow from operations
and return on cash flow equals the 60th percentile of its peer companies. The
maximum amount of $300 per unit is payable if the Company's cash flow from
operations equals or exceeds 150% of targeted cash flow from operations and
return on cash flow equals or exceeds the 90th percentile of peer companies.
There are 14 persons who participate in the Performance Unit Plan.
The last awards under the Performance Unit Plan were granted in
December 1996. No further awards will be made under the Performance Unit Plan.
The Performance Unit Plan will remain in existence until the last performance
cycle has elapsed and payouts, if any, have been made to participants. It is
expected that the Performance Unit Plan will terminate shortly after the
results have been finalized for the third plan year ending June 30, 1999. In
the event of a Change in Control (as defined below) the performance share units
granted would become fully vested.
1997 LONG TERM INCENTIVE PLAN
The Company has adopted the 1997 Long Term Incentive Plan (the
"LTIP"), which is designed to retain key executives and other selected
employees by rewarding them for making major contributions to the success of
the Company and to provide participants with a proprietary interest in the
growth and performance of the Company.
Employees of the Company eligible for awards under the LTIP are
executive officers, other officers and key management personnel selected by the
Compensation Committee (including employees who are Directors), and whose
performance, in the judgment of the Compensation Committee, can have a
significant effect on the success of the Company. As of December 31, 1997,
there were 426 persons who participated in the LTIP. Awards under the LTIP may
consist of the grant of stock options, share appreciation rights, restricted
and/or performance-based share awards and/or restricted and/or
performance-based cash awards, granted singly, in combination or in tandem. The
exercise price for stock options shall not be less than 85% of the fair market
value of the stock on the date of the option grant (100% in the case of
incentive stock options). The Compensation Committee can also award
supplemental payments up to the amount necessary to pay the federal income tax
payable with respect to exercise of non-qualified stock options, share
appreciation rights, restricted shares and performance units. If approved by
the Compensation Committee, the Company may also make loans to participants to
purchase shares pursuant to the exercise of an award. During the term of the
LTIP, an aggregate of 5,725,000 Ordinary Shares will
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be available for awards granted wholly or partly in Ordinary Shares under the
LTIP. No participant may receive during a fiscal year incentive awards covering
an aggregate of more than 150,000 Ordinary Shares.
The Compensation Committee is responsible for administration and
interpretation of the LTIP. When a participant's employment with the Company is
terminated, any unexercised, deferred or unpaid awards will be treated as
provided in the specific agreement evidencing the award. If a participant is
involuntarily terminated, other than for "cause" (as defined in the LTIP), or
terminates for "good reason" (as defined in the LTIP) within two years after a
Change in Control (as defined below), all outstanding stock options shall
become vested and immediately exercisable and will remain exercisable until the
earlier of the expiration of their term or the first anniversary of the
termination of employment, all shares of restricted stock will immediately
cease to be forfeitable and all conditions relating to realization of any other
stock-based or non-stock award will immediately terminate. In addition, upon a
Change in Control (as defined below), the Company will have the right to cash
out all incentive awards (and all non-vested awards will vest) based on their
fair market value; for this purpose, their market value will be the average
fair market value per share on each of the five trading days immediately
following a Change in Control or the highest price per share, if any, offered
in connection with a Change in Control, whichever is higher. This cash out is
automatic if the stock of the surviving entity in a Change in Control is not
publicly traded.
As of February 28, 1998, the Company had granted options pursuant to
the LTIP to purchase an aggregate of 387,650 Ordinary Shares to all Directors
and executive officers as a group (18 persons). Such options were granted at
exercise prices ranging from $28.50 to $45.00 per Ordinary Share and expire
ten years from date of grant or earlier. In addition, the Company has granted
restricted share awards for an aggregate of 107,600 Ordinary Shares to all
Directors and executive officers as a group (18 persons).
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1997 Non-Employee Director Stock Option Plan (the "Director Plan")
has been adopted by the Company. The Director Plan is designed to attract and
retain the services of experienced and knowledgeable non-employee Directors and
to provide non-employee Directors with a proprietary interest in the growth and
performance of the Company. Awards under the Director Plan consist of a grant
of stock options. The purchase price for the shares as to which the option is
exercised will be payable in full upon exercise, in cash or, if permitted by
the Compensation Committee, by tender of Ordinary Shares, valued at "fair
market value". During the term of the Director Plan, an aggregate of 286,250
Ordinary Shares will be available for awards granted wholly or partly in
Ordinary Shares. No option will be granted under the Director Plan after 10
years following the consummation of the Company's initial public offering of
Ordinary Shares in June 1997 (the "Offering"). The Compensation Committee is
responsible for administration and interpretation of the Director Plan.
As of February 28, 1998, the Company had granted options to purchase
an aggregate of 28,000 Ordinary Shares to seven non-employee Directors who
participated in the Director Plan. Such options were granted at exercise
prices ranging from $28.50 to $45.50 per Ordinary Share. Any new non-employee
Director will be granted a one-time award of a right to purchase 4,000 Ordinary
Shares upon their election to the Board at the fair market stock price/value on
the date of their election. Each non-employee Director who continues in office
immediately following the Annual General Shareholders Meeting in any year
(commencing in 1998) will automatically be granted an option to acquire 2,000
Ordinary Shares. The Board may increase the number of options granted, provided
that a non-employee Director cannot receive more than 10,000 options in any
year. The price of shares that may be purchased upon exercise of an option is
the fair market value of the Ordinary Shares on the date of the
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grant. Options granted pursuant to the Director Plan are exercisable in
installments of 33 1/3% upon each anniversary of the date of grant. The term of
each option is for a period not exceeding 10 years from the date of grant.
In the event of a Change in Control of the Company (as defined below),
all outstanding stock options will become vested and immediately exercisable
and will remain exercisable until the earlier of the expiration of their term
or the first anniversary of the Change in Control. In addition, the Company may
cash out options upon a Change in Control; these provisions are substantially
the same as set forth in the LTIP.
1997 EMPLOYEE SHARE PURCHASE PLAN
The Company has adopted the 1997 Employee Share Purchase Plan (the
"Share Purchase Plan"), which is designed to furnish eligible employees of the
Company and designated subsidiaries of the Company an incentive to advance the
best interests of the Company by providing a formal program whereby they may
voluntarily purchase Ordinary Shares of the Company at a favorable price and
upon favorable terms. Generally speaking, all covered employees of a
participating company who are scheduled to work an average of at least 20 hours
per week are eligible to participate in the Plan.
Once a year, participants in the Share Purchase Plan are granted
options to purchase Ordinary Shares with a fair market value equal to the
lesser of 10% of the participant's eligible compensation (as defined in the
Share Purchase Plan) and the amount specified in Section 423(b) of the Code
(currently, $25,000). The exercise price of the options is 85% of the fair
market value of the Ordinary Shares on the date of grant or the date of
exercise, whichever is less. Options granted under the Share Purchase Plan are
exercisable on the date one year after the date of grant. Generally speaking,
participants pay option exercise prices through payroll deductions. An
aggregate of 572,500 Ordinary Shares are available for grants of options under
the Share Purchase Plan. The Share Purchase Plan policy is administered by the
Compensation Committee, which has approved its implementation effective January
1, 1998.
1997 EMPLOYEE SEVERANCE PROTECTION PLAN
The Company maintains the 1997 Employee Severance Protection Plan (the
"Severance Protection Plan") to retain the services of its employees in the
event of an unsolicited takeover of the Company or in the event of a threat of
a Change in Control of the Company. The Severance Protection Plan is intended
to ensure the continued dedication and efforts of the Company's employees in
such events without undue concern for their personal financial and employment
security. The Severance Protection Plan covers all full-time U.S.-based payroll
employees as defined therein. Severance is only payable in the event of a
termination of employment by the Company other than for "cause" or voluntary
termination by the Employee for "good reason", each as defined in the Severance
Protection Plan, within a specified period following a Change in Control. A
participant will also receive severance if the employee is terminated by the
Company without "cause" or for "good reason" at the request or direction of the
third party involved in the Change in Control or otherwise in connection with
or in anticipation of a Change in Control.
DEFINITION OF CHANGE IN CONTROL
A "Change in Control" for all of the Company's benefit plans described
above is generally deemed to occur (a) if any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20%
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or more of the combined voting power of the Company's then outstanding
securities; (b) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof, unless
the election or nomination for the election by the Company's shareholders of
each new Director was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of the
period; or (c) upon consummation of a merger, consolidation or similar event,
if the equity holders of the Company prior to the transaction have beneficial
ownership of less than 50% of the combined voting power of the surviving
entity; (d) upon any sale, disposition or similar transaction of 50% or more of
the assets or earning power of the Company or business operations which
generate a majority of the consolidated revenues; or (e) upon a liquidation of
the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of February 28, 1998, SFIC Holdings (Cayman), Inc. ("Holdings"), a
wholly owned subsidiary of Kuwait Petroleum Corporation ("KPC"), beneficially
owns approximately 64.9% of the outstanding Ordinary Shares. KPC is wholly
owned by the Government of Kuwait. Accordingly, KPC through Holdings is able
to elect the Board of Directors of the Company and effectively control the
outcome of the vote on certain matters submitted to a vote of the Company's
shareholders. The Company, Holdings and KPC have entered into agreements with
respect to the approval by Holdings of certain future corporate actions by the
Company, the management and allocation of certain liabilities relating to
former non-drilling activities of the Company, registration rights for the
Ordinary Shares owned by Holdings, and various other matters. This section
describes certain transactions among KPC, Holdings and the Company that
occurred prior to the Offering and certain arrangements that are now in effect.
Because the Company is controlled by KPC, these transactions and arrangements
were not the result of arms-length negotiations. See also "Directors and
Executive Officers."
SPECIAL DISTRIBUTIONS TO KPC
The Company made distributions in respect of the Offering and its
contract drilling operations and its drilling related services in cash or cash
equivalents to Holdings with a net value of $3.8 million, $1,147.6 million,
$50.0 million and $72.5 million during the six months ended December 31, 1996
and the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
CONTRACT DRILLING SERVICES
The Company provides contract drilling and associated services in
Kuwait to the Kuwait Oil Company K.S.C. ("KOC"), a subsidiary of KPC, and also
provides contract drilling services to a partially owned affiliate of the
Kuwait Oil Company in the Kuwait-Saudi Arabia Partitioned Neutral Zone. Such
services are performed pursuant to drilling contracts which contain terms and
conditions and rates of compensation which materially approximate those which
are customarily included in the Company's arms-length contracts of a similar
nature. In connection therewith, KOC provides the Company rent-free use of
certain land and maintenance facilities and has committed to continue providing
same, subject to availability of the maintenance facilities, through the
current February 2001 term of the drilling contracts. In relation to its
drilling business in Kuwait, the Company has an agency agreement with a
subsidiary of KPC which obligates the Company to pay an agency fee based upon a
percentage of revenues. The Company believes the terms of this agreement are
more favorable than those which could be obtained with an unrelated third party
in an arms-length negotiation, but the value of such terms is currently
immaterial to the Company's results of operations.
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The Company earned revenues from KPC affiliated companies in the
ordinary course of business of $17.3 million, $12.8 million, $25.3 million,
$35.9 million and $53.6 million for the six months ended December 31, 1997 and
1996 and for the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
The Company paid agency fees to a subsidiary of KPC of $0.2 million, $0.2
million, $0.3 million, $0.4 million and $0.5 million during the six months
ended December 31, 1997 and 1996 and for the fiscal years ended June 30, 1997,
1996 and 1995, respectively. The Company had accounts receivable from KPC
affiliated companies of $5.6 million, $2.3 million, $2.1 million and $3.7
million at December 31, 1997 and 1996 and June 30, 1997 and 1996, respectively.
REORGANIZATION
The reorganization of Holdings and its subsidiaries resulted in the
Company owning all of the drilling assets and direct and indirect subsidiaries
of Holdings and KPC that provide contract drilling and drilling related
services. In connection with the reorganization, the Company made
distributions to Holdings during the three years ended June 30, 1997 comprised
principally of certain subsidiaries which conducted the Company's former
non-drilling operations and services (the "Non-Drilling Subsidiaries") and
certain additional non-drilling assets, including real estate, cash and cash
equivalents. The operations and services formerly conducted by the Non-Drilling
Subsidiaries included oil and natural gas production and exploration
activities, pipelaying and other onshore and offshore heavy construction
activities, engineering activities and geothermal electrical production
activities. As part of the reorganization, Holdings also contributed to the
Company assets relating to the Company's contract drilling operations during
the six months ended December 31, 1996 and the fiscal years ended June 30,
1997, 1996 and 1995. These transactions have been accounted for as a
reorganization of entities under common control in a manner similar to a
pooling of interests.
RELATED PARTY AGREEMENTS
The following is a summary description of material terms of certain
agreements among the Company, Holdings and KPC and of the Articles of
Association (the "Articles").
INTERCOMPANY AGREEMENT
In connection with the Offering, the Company, Holdings and KPC entered
into an Intercompany Agreement (the "Intercompany Agreement"), certain
provisions of which are summarized below. As used herein, "KPC Affiliated
Group" means KPC and its affiliates, including Holdings, other than the Company
and its subsidiaries.
INDEMNIFICATION. As of December 31, 1997, the consolidated
financial statements of Holdings contained liabilities to third parties,
including tax liabilities, aggregating approximately $66 million incurred by
the Non-Drilling Subsidiaries on or before March 31, 1997. Holdings maintains
cash and cash equivalents (the "Liability Payment Fund") which will be used to
satisfy those liabilities remaining after such date. The Company, Holdings and
KPC have agreed in the Intercompany Agreement that all amounts paid to
claimants to satisfy those liabilities, whether by settlement, judgment or
award (including claimants' attorneys' fees), will be paid by Holdings from the
Liability Payment Fund. The Company will pay all internal and external costs
and fees (including the Company's and Holdings' attorneys' fees) associated
with management and resolution of those liabilities, and believes such costs
and fees will not be material. If any amount remains in the Liability Payment
Fund at March 31, 2002, Holdings will pay the Company the first $10 million of
such amount and 50% of any amount in excess of $10 million. Thereafter, or if
the resolution of those liabilities earlier exhausts the Liability Payment
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Fund, Holdings will have no further responsibility for those liabilities, and
the Company will be responsible for all costs, fees and amounts paid to resolve
those liabilities and will indemnify the KPC Affiliated Group in respect of
such costs and fees and those liabilities. The Company believes that the
Liability Payment Fund is adequate to provide for such costs and fees and those
liabilities. Accordingly, the Company believes that the indemnification costs,
if any, will not be material and no additional reserves have been established
by the Company in respect of such costs and fees and those liabilities or the
Company's obligation under the Intercompany Agreement relating to such costs
and fees and those liabilities. See "-- Management Services Agreement".
The Intercompany Agreement also provides that, except as may be
provided in a separate agreement, the Company will indemnify the KPC Affiliated
Group against losses based on, or taxes arising from, the following: (i) the
ownership of the assets or the operation of the business of the Company or its
subsidiaries, (ii) any other activities of the Company or its subsidiaries,
(iii) any guaranty or similar agreement by the KPC Affiliated Group provided to
any person with respect to any obligation of the Company or its subsidiaries,
and (iv) certain other matters. In addition, the Company has agreed to
indemnify the KPC Affiliated Group against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"), relating to misstatements in or omissions from the Registration
Statement filed in respect of the Offering and any other registration statement
or report that the Company files under the Securities Act. Holdings has also
agreed to indemnify the Company and its subsidiaries against losses based on
the ownership or operation of the assets or properties or the operation or
conduct of the business of Holdings and its subsidiaries on or after March 31,
1997.
CONSENT OF HOLDINGS TO CERTAIN EVENTS. The Intercompany
Agreement provides that until members of the KPC Affiliated Group cease to own
the lesser of at least 25% of the outstanding Ordinary Shares or 25% of the
Company's outstanding voting shares, the prior consent of Holdings generally
will be required for: (i) any disposition by the Company of assets involving
consideration in excess of $50 million; (ii) any issuance by the Company or any
subsidiary of the Company of any equity securities; (iii) the incurrence of any
indebtedness or guaranty in a consolidated amount in excess of $250 million at
any time outstanding; and (iv) a change in corporate domicile of the Company or
any of its subsidiaries. Analogous provisions are contained in the Articles.
Under this arrangement, consents may be requested from time to time. In the
event Holdings does not respond within 30 days after receipt of written notice
from the Company requesting consent to a proposed action, then the consent will
be deemed to have been given by Holdings to the Company.
REGISTRATION RIGHTS. The Company has granted to the KPC
Affiliated Group certain demand and "piggyback" registration rights with
respect to equity securities owned by it. Pursuant to the demand registration
rights, the KPC Affiliated Group may, at any time, request the Company to
register under the Securities Act any or all Ordinary Shares held by the KPC
Affiliated Group whenever it wishes to sell Ordinary Shares in a transaction it
reasonably expects will yield gross proceeds of at least $250 million. The
Company has agreed to use its best efforts to effect any demand registrations
requested by the KPC Affiliated Group and has also agreed to register under the
Securities Act a certain amount of Ordinary Shares held by the KPC Affiliated
Group when the Company initiates certain other registrations of equity
securities of the Company on its own behalf or on behalf of any shareholder of
the Company. Such registration rights are transferable by the KPC Affiliated
Group. The Company has agreed to pay all costs and expenses in connection with
each such registration, except underwriting discounts and commissions
applicable to the equity securities sold by the KPC Affiliated Group and its
transferees. The Intercompany Agreement also contains specified restrictions on
the ability of the KPC Affiliated Group to exercise its demand and piggyback
registration rights and also contains customary terms and provisions with
respect to, among other things, registration procedures and certain rights to
indemnification granted
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by parties thereunder in connection with the registration of Ordinary Shares on
behalf of the KPC Affiliated Group under the Securities Act and otherwise.
OTHER PROVISIONS. Until the end of the first fiscal year of
KPC in which the KPC Affiliated Group owns the lesser of at least 25% of the
outstanding Ordinary Shares or 25% of the Company's outstanding voting shares,
the Company has agreed to furnish extensive financial information to Holdings,
including certain information before it becomes publicly available. So long as
the KPC Affiliated Group owns at least 10% of the outstanding Ordinary Shares
or 10% of the Company's outstanding voting shares, the Company has agreed to
discuss its affairs, finances and accounts with Holdings and to permit Holdings
to inspect its properties, corporate books, and financial and other records.
MANAGEMENT SERVICES AGREEMENT
The Company has also entered into a Management Services Agreement with
Holdings (the "Management Services Agreement") for the purpose of providing
asset (primarily real estate) management services, general and administrative
services and liability management and resolution services to Holdings, the
Non-Drilling Subsidiaries and inactive subsidiaries of Holdings. The Management
Services Agreement authorizes the Company to resolve the liabilities of the
Non-Drilling Subsidiaries described under "Intercompany Agreement" using the
Liability Payment Fund. Although Holdings retains the right to reduce or expand
the scope of services to be performed by the Company pursuant to the Management
Services Agreement, the Company's liability management and resolution services
may not be reduced or terminated. The Management Services Agreement also
provides for payment of an initial asset management fee to the Company of
$173,000 per year as well as reimbursement of out-of-pocket costs in respect of
asset management services, and stipulates that the fees are subject to
negotiation on an annual basis and upon any reduction in or expansion of the
scope of services provided by the Company. The Company will pay all internal
and external costs and fees (including the Company's and Holdings' attorneys'
fees) associated with the Company's liability management and resolution
services and all internal and external costs and fees associated with the
provision of general and administrative services pursuant to the Management
Services Agreement. The Company believes such costs and fees will not be
material.
CHARTER PROVISIONS RELATING TO CORPORATE OPPORTUNITIES AND INTERESTED DIRECTORS
The Company's Board of Directors currently includes persons who are
also Directors or officers of Holdings or KPC. As a consequence, Directors of
the Company who are also Directors or officers of KPC or Holdings charged with
granting or withholding consent for certain of the Company's actions may be
faced with conflicts of interest. In addition, potential conflicts of interest
exist or could arise in the future for such Directors with respect to a number
of areas, including the Company's contract drilling activities in Kuwait and
its other business relationships with KPC subsidiaries.
In order to address certain potential conflicts of interest between
the Company and the KPC Affiliated Group, the Articles contain provisions
regulating and defining the conduct of certain affairs of the Company as they
may involve the KPC Affiliated Group and their Directors and officers, and the
powers, rights, duties and liabilities of the Company and its officers,
Directors and shareholders in connection therewith. In general, these
provisions recognize that the Company and the KPC Affiliated Group may engage
in the same line of business and have an interest in the same areas of
corporate opportunities and that the Company and the KPC Affiliated Group will
continue to have certain contractual and business relations with each other
(including service of Directors and officers of the KPC Affiliated Group as
Directors of the Company).
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The Articles provide that the KPC Affiliated Group shall have no duty
to refrain from (i) engaging in the same line of business as the Company, (ii)
doing business with any customer of the Company or (iii) employing any employee
of the Company. The Articles also provide that the KPC Affiliated Group is not
under any duty to present any corporate opportunity to the Company which may be
a corporate opportunity for both the KPC Affiliated Group and the Company.
When corporate opportunities are offered to persons who are Directors
or officers of the Company and the KPC Affiliated Group, the Articles provide
that such Directors or officers of the Company shall not be liable to the
Company or its shareholders by reason of the fact that such members of the KPC
Affiliated Group pursue such corporate opportunities for themselves or do not
present such corporate opportunities to the Company, except in the case of
willful default or fraud of such Directors or officers, if such Directors or
officers act in a manner consistent with a policy that provides for allocation
based principally on the capacities in which the individual Director or officer
is offered the opportunity.
The Articles also provide that no arrangement between the Company and
the KPC Affiliated Group or another related party shall be voidable, and no
liability shall be imposed, solely because a member of the KPC Affiliated Group
is a party thereto, or solely because any Directors or officers who are related
parties are present at, participate in or vote with respect to, the
authorization of the arrangement, except in the case of willful default or
fraud on the part of the Directors or officers, if the material facts as to the
arrangement are disclosed to the Company's Board of Directors or the holders of
the Ordinary Shares who approve the arrangement.
The affirmative vote of a two-thirds majority of the shares entitled
to vote thereon and voting at a meeting of shareholders is required to amend
the Articles, including the provisions concerning corporate opportunity and
interested Directors described above and the provisions requiring the consent
of Holdings to certain actions described in "- Intercompany Agreement-Consent
of Holdings to Certain Events." Accordingly, so long as the KPC Affiliated
Group controls more than one third of such voting power, it can prevent any
such amendment.
CONSULTING AGREEMENT
On December 10, 1997, Gordon M. Anderson, a Director of the Company,
and the Company entered into a Consulting Agreement pursuant to which Mr.
Anderson shall serve as an independent consultant to the Company with respect
to matters relating to or affecting the operations of the Company. The term of
the Consulting Agreement is one year, terminating on January 1, 1999. Pursuant
to the Consulting Agreement, the Company has compensated Mr. Anderson by
issuing to Mr. Anderson 4,000 restricted Ordinary Shares under the Company's
1997 Long Term Incentive Plan. In addition, on the 25th month anniversary from
the date of the grant of restricted Ordinary Shares, the Company will further
compensate Mr. Anderson under the Consulting Agreement by paying Mr. Anderson
cash in an amount equal to the federal income tax payable with respect to the
vesting of the 4,000 Ordinary Shares and the federal income tax payable with
respect to the cash payment to Mr. Anderson. The Consulting Agreement also
provides that Mr. Anderson will be entitled to the standard Directors' cash and
noncash compensation that all other non-employee Directors are entitled to
receive.
18
<PAGE> 21
GENERAL
The Annual Report to Shareholders for the six months ended December
31, 1997 is enclosed herewith. The Annual Report does not form any part of the
material for the solicitation of proxies.
A proposal or Director nomination to be presented by a shareholder at
the Company's 1999 Annual General Meeting of Shareholders must be received by
the Company at its principal executive offices no later than December 1, 1998
to be considered for inclusion in the Company's proxy statement for that
meeting. Pursuant to the Company's Articles of Association, if a shareholder
desires to submit a proposal or nominate persons for election as Directors at
the Company's 1999 Annual General Meeting of Shareholders, the Secretary of the
Company must receive written notice of such intent (which notice must set forth
the information required by the Articles of Association) not later than March
16, 1999.
OTHER BUSINESS
Management knows of no other matter that will come before the Annual
Meeting. However, if other matters do come before the Meeting, the proxy
holders will vote in accordance with their best judgment.
March 26, 1998 By Order of the
Board of Directors,
/s/ Gordon M. Anderson
Gordon M. Anderson
Chairman of the Board
/s/ C. Stedman Garber, Jr.
C. Stedman Garber, Jr.
President and Chief Executive Officer
19
<PAGE> 22
APPENDIX A
PROXY
SANTA FE INTERNATIONAL CORPORATION
Two Lincoln Centre
5420 LBJ Freeway, Suite 1100
Dallas, Texas 75240-2648 U.S.A.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints C. Stedman Garber, Jr., Donald G. Barber and
Cary A. Moomjian, Jr. as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the Ordinary Shares held of record by the undersigned as of the
close of business on March 23, 1998 at the Annual General Meeting of
Shareholders (the "Meeting") to be held at The Westin Hotel Galleria Dallas,
13340 Dallas Parkway, Dallas, Texas 75240 U.S.A., on May 5, 1998 at 10:00 a.m.,
Central Daylight Time, or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
PROPOSALS. PLEASE REVIEW CAREFULLY THE PROXY STATEMENT DELIVERED WITH THIS
PROXY.
1. Proposal to elect Gordon M. Anderson, Abdulmalik Mohammed
Al-Gharabally and Abdullah Hamad Al-Roumi as Class I Directors until
the Annual General Meeting of Shareholders to be held in 2001 or until
their successors have been duly qualified and elected.
<TABLE>
<S> <C>
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed above
</TABLE>
_______________________________________________________________________
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED ABOVE)
2. Proposal to ratify the appointment of Ernst & Young LLP as the
independent auditors of the Company to audit the accounts of the
Company for the fiscal year ending December 31, 1998.
<TABLE>
<C> <C> <C> <C> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
<PAGE> 23
The proxies are authorized to vote, in their discretion, upon such other
business as may properly come before the Meeting.
------------------------------
Signature
Dated: , 1998
------------
------------------------------
Signature, if held jointly
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
2
