<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1998
REGISTRATION NO. 333-57325
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHILES OFFSHORE LLC
(Exact Name of Co-Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0547408
(State or Other Jurisdiction (I.R.S. Employer
of Identification No.)
Incorporation or Organization)
</TABLE>
<TABLE>
<S> <C> <C>
Reg. No. 333-57325-01 Reg. No. 333-57325-02 Reg. No. 333-57325-03
CHILES OFFSHORE FINANCE CORP. CHILES COLUMBUS LLC CHILES MAGELLAN LLC
(Exact Name of Co-Registrant as (Exact Name of Co-Registrant as (Exact Name of Co-Registrant as
Specified in its Charter) Specified in its Charter) Specified in its Charter)
DELAWARE DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization)
76-0568691 76-0568690 76-0568689
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1381
(Primary Standard Industrial
Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
WILLIAM E. CHILES
11200 WESTHEIMER, SUITE 410 11200 WESTHEIMER, SUITE 410
HOUSTON, TEXAS 77042 HOUSTON, TEXAS 77042
(713) 339-3777 (713) 339-3777
(Address, including Zip Code, and Telephone Number, (Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Co-Registrants' Principal Executive including Area Code, of Agent for Service)
Offices)
</TABLE>
COPY TO:
JAMES L. RICE III
WEIL, GOTSHAL & MANGES LLP
700 LOUISIANA, SUITE 1600
HOUSTON, TEXAS 77002
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, 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. / / __________________
------------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 6, 1998
PRELIMINARY PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND 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.
<PAGE>
OFFER FOR ALL OUTSTANDING
10% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
[LOGO]
10% SENIOR NOTES DUE 2008
OF
CHILES OFFSHORE LLC
CHILES OFFSHORE FINANCE CORP.
---------------
Chiles Offshore LLC, a Delaware limited liability company (the "Company"),
and Chiles Offshore Finance Corp., a special purpose Delaware corporation and a
wholly owned subsidiary of the Company ("Finance" and, together with the
Company, the "Issuers") and the Subsidiary Guarantors (as defined; see
"Description of New Notes--Certain Definitions") hereby offer, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange $1,000 principal amount of registered 10% Senior Notes Due 2008 (the
"New Notes") issued by the Issuers, for each $1,000 principal amount of
unregistered 10% Senior Notes Due 2008 (the "Old Notes") issued by the Issuers
of which an aggregate principal amount of $110,000,000 is outstanding. The form
and terms of the New Notes are identical to the form and terms of the Old Notes
except that the New Notes are being registered under the Securities Act of 1933,
as amended (the "Securities Act"), and will not bear any legends restricting
their transfer. The New Notes will evidence the same debt as the Old Notes and
will be issued pursuant to, and entitled to the benefits of, the indenture
governing the Old Notes. Interest on the New Notes shall accrue from the date of
issuance of the Old Notes. The Exchange Offer is being made in order to satisfy
certain contractual obligations of the Issuers. See "The Exchange Offer" and
"Description of New Notes." The New Notes and the Old Notes are sometimes
collectively referred to herein as the "Notes."
Interest on the New Notes will be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1998. The Company will not be
required to make any sinking fund payment with respect to the New Notes. The New
Notes will not be redeemable at the option of the Issuers prior to May 1, 2003,
except that until May 1, 2001, the Issuers may redeem, at their option, in the
aggregate up to 35% of the original principal amount of the Notes, on a pro rata
basis, at the redemption price set forth herein with the net proceeds of one or
more Public Equity Offerings (as defined; see "Description of New Notes--Certain
Definitions") if at least $71.5 million aggregate principal amount of the Notes
remains outstanding after each such redemption. On and after May 1, 2003, the
Notes may be redeemed at the option of the Issuers, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid interest to the date
of redemption. See "Description of New Notes--Optional Redemption."
The net proceeds to the Issuers from the sale of the Old Notes (the
"Original Offering") were placed in escrow to be used to (a) partially fund the
construction of two premium jackup offshore drilling rigs (the "Rigs"), (b) pay
interest on the Notes through the first two semi-annual interest payment dates
(see "Description of New Notes--Escrow of Proceeds") and (c) provide working
capital. One of the Rigs will be wholly owned and operated by Chiles Columbus
LLC and the other by Chiles Magellan LLC, each a Delaware limited liability
company and a wholly owned subsidiary of the Company (each, an "Owner" and,
collectively, the "Owners").
In the event that a Construction Contract (as defined; see "Description of
New Notes--Certain Definitions") with respect to a Rig is terminated prior to
delivery of such Rig, or in certain circumstances, following an Event of Loss
(as defined; see "Description of New Notes--Certain Definitions"), after
delivery of a Rig, each Holder (as defined; see "Description of New
Notes--Certain Definitions") shall have the right to require the Issuers to
purchase the Allocated Principal Amount (as defined; see "Description of New
Notes--Certain Definitions") of such Holder's Notes for such Rig at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase. See "Description of New Notes--Right to
Require Repurchase Upon Contract Termination." Upon a Change of Control (as
defined; see "Description of New Notes--Change of Control"), each Holder shall
have the right to require the Issuers to purchase such Holder's Notes, in whole
or in part, at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of purchase. See "Description of
New Notes-- Change of Control."
The New Notes will be senior obligations of the Issuers, will rank PARI
PASSU, I.E., equally with, and without preference to, all existing and future
senior indebtedness of the Issuers and will be senior in right of payment to all
future subordinated indebtedness. Currently the Company has no subordinated
indebtedness outstanding. Except as described herein with respect to the
Collateral under the Escrow Security Agreement (each as defined; see
"Description of New Notes--Escrow of Proceeds"), the New Notes will be
unsecured, and effectively subordinated to the claims of secured creditors to
the extent of the collateral securing such claims. Concurrently with, and as a
condition to, the closing of the Original Offering, the Company entered into a
$25.0 million bank credit agreement (the "Bank Facility"), which is secured by
substantially all the assets of the Company and its subsidiaries, including the
Rigs, other than the Collateral under the Escrow Security Agreement. See
"Description of New Notes--Ranking" and "Description of Bank Facility." Payment
of the principal of, premium, if any, and interest on the New Notes will be
guaranteed, jointly and severally, on an unsecured basis by the Company's
Restricted Subsidiaries (as defined; see "Description of New Notes--Certain
Definitions"), which includes the Owners, both of which have also guaranteed,
jointly and severally, the Bank Facility on a secured basis. The guarantees of
the Company's Restricted Subsidiaries will be irrevocable, full and
unconditional, but limited in amount to the extent required by laws relating to
fraudulent transfer or similar laws. See "Risk Factors--Effective Subordination
of the Notes; Dependence on Subsidiaries" and "Description of New
Notes--Subsidiary Guarantees." (CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
NEW NOTES.
------------------------
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.
------------------------
The date of this Prospectus is August , 1998.
<PAGE>
PREMIUM JACKUP DRILLING RIG
LeTourneau Super 116 Design
[GRAPHIC]
<TABLE>
<CAPTION>
CHILES OFFSHORE'S HIGH-END
PREMIUM JACKUPS PREMIUM JACKUP
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Year Built (Average) 1999 1982
- ----------------------------------------------------------------------------------------------------
Maximum Design Water Depth/Leg Length 375 feet/511 feet 375 feet/511 feet
- ----------------------------------------------------------------------------------------------------
Cantilever Distance 70 feet 70 feet
- ----------------------------------------------------------------------------------------------------
Maximum Substructure Loads 1,500 kips 1,300 kips
- ----------------------------------------------------------------------------------------------------
Number of Engines/Total Engine Horsepower 5/9,275 HP 3/6,600 HP
- ----------------------------------------------------------------------------------------------------
Number of Mud Pumps 3 2
- ----------------------------------------------------------------------------------------------------
Hydraulic Horsepower/Drilling Horsepower 6,600 HP/3,000 HP 3,200 HP/2,000 HP
- ----------------------------------------------------------------------------------------------------
Derrick Rating 1,500 kips 1,500 kips
- ----------------------------------------------------------------------------------------------------
Dual Pipe Handling Yes No
- ----------------------------------------------------------------------------------------------------
Storage (bbls): Drilling Fluid/Brine/Base Oil 2,500/1,100/670 1,650/None/None
- ----------------------------------------------------------------------------------------------------
Bulk Mud/Cement Storage 11,100 cf 6,300 cf
- ----------------------------------------------------------------------------------------------------
Maximum Deck Loading Rating 8,000 kips 7,500 kips
- ----------------------------------------------------------------------------------------------------
Quarters Capacity 84 person 74 person
- ----------------------------------------------------------------------------------------------------
Zero Discharge Yes No
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(CONTINUED FROM FRONT COVER)
The Company is a recently formed entity with no significant prior operating
history. Finance was formed to consummate the Original Offering as a co-issuer
of the Notes, and will conduct no other business. Certain institutional
investors that might otherwise be limited in their ability to invest in
securities issued by limited liability companies, by reason of the legal
investment laws of their states of incorporation or their charter documents, may
be able to invest in the Notes because Finance is a co-obligor. Certain of the
Company's subsidiaries (the "Guarantors") will guarantee, jointly and severally,
and irrevocably, fully and unconditionally, on an unsecured basis, the New Notes
(collectively, the "Subsidiary Guarantees"). The Company and the Guarantors will
accept for exchange any and all Old Notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on September , 1998, unless extended
(as so extended, the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to the Expiration Date. The Exchange Offer is subject to
certain customary conditions. See "The Exchange Offer."
In order for a holder of Old Notes to participate in the Exchange Offer,
such holder must represent to the Issuers that, among other things, (i) the New
Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving New Notes, whether or not such person
is the holder of the Old Notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes,
(iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and (iv) neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 promulgated under the Securities Act, of either of the
Issuers. See "The Exchange Offer--Purpose and Effect."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. The letter of transmittal accompanying this Prospectus (the "Letter of
Transmittal") states that by so acknowledging and by delivering such a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. 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 New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period of 180 days after the Expiration Date, they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
No public market has existed for the Old Notes before the Exchange Offer.
The Company and the Guarantors currently do not intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system, and no active public market for the New Notes is currently
anticipated. The Issuers and the Guarantors will pay all the expenses incident
to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
OTHER UNCERTAINTIES. WHEN INCLUDED IN THIS PROSPECTUS, THE WORDS "EXPECTS,"
"INTENDS," "ANTICIPATES," "ESTIMATES" AND ANALOGOUS EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INHERENTLY ARE SUBJECT TO A
VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, INDUSTRY FLEET CAPACITY,
CHANGES IN FOREIGN AND DOMESTIC OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITY,
COMPETITION, CHANGES IN FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, INCLUDING FACTORS SET FORTH UNDER "RISK
FACTORS," "CERTAIN FINANCIAL FORECAST INFORMATION" AND "BUSINESS," MANY OF WHICH
ARE BEYOND THE COMPANY'S CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS
OF THE DATE OF THIS PROSPECTUS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION
OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENT OR FINANCIAL FORECAST CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT OR FORECAST IS
BASED.
THE INFORMATION SET FORTH UNDER "CERTAIN FINANCIAL FORECAST INFORMATION" WAS
PREPARED BY THE COMPANY SOLELY FOR USE IN CONNECTION WITH THE PRIVATE PLACEMENT
OF THE OLD NOTES AND NOT FOR PUBLICATION OR WITH A VIEW TO COMPLYING WITH THE
PUBLISHED GUIDELINES OF THE COMMISSION (AS DEFINED) REGARDING PROJECTIONS OR
WITH THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS AND IS INCLUDED IN THIS PROSPECTUS ONLY BECAUSE IT WAS FURNISHED TO
PURCHASERS OF OLD NOTES. THE INCLUSION OF THIS INFORMATION SHOULD NOT BE
REGARDED AS AN INDICATION THAT THE COMPANY OR ANYONE WHO RECEIVED THIS
INFORMATION CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS, AND THIS
INFORMATION SHOULD NOT BE RELIED ON AS SUCH. THIS INFORMATION HAS NOT BEEN
UPDATED SUBSEQUENT TO CONSUMMATION OF THE ORIGINAL OFFERING AND WILL NOT BE
UPDATED IN THIS PROSPECTUS, IN ANY SUPPLEMENT OR AMENDMENT HERETO OR OTHERWISE
IN ANY MANNER. HOWEVER, HOLDERS SHOULD BE AWARE THAT RECENT DECLINES IN AVERAGE
DAYRATES FOR COMPARABLE RIGS WOULD ADVERSELY AFFECT PROJECTED CONTRACT DRILLING
REVENUES, INCOME FROM RIG OPERATIONS, NET INCOME AND EBITDA (AS DEFINED IN
"CERTAIN FINANCIAL FORECAST INFORMATION"). SEE "CERTAIN FINANCIAL FORECAST
INFORMATION--RECENT DEVELOPMENTS."
ii
<PAGE>
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 AND THE
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, EACH REFERENCE TO THE "COMPANY" MEANS CHILES OFFSHORE LLC, A DELAWARE
LIMITED LIABILITY COMPANY ("CHILES"), OR CHILES TOGETHER WITH ITS SUBSIDIARIES
CHILES OFFSHORE FINANCE CORP. ("FINANCE"), A SPECIAL PURPOSE DELAWARE
CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF CHILES, AND CHILES COLUMBUS LLC AND
CHILES MAGELLAN LLC (EACH AN "OWNER" AND, COLLECTIVELY, THE "OWNERS"), EACH A
DELAWARE LIMITED LIABILITY COMPANY AND A WHOLLY OWNED SUBSIDIARY OF CHILES, AS
THE CONTEXT REQUIRES. DATA RELATING TO INDUSTRY FLEET UTILIZATION LEVELS,
AVERAGE DAYRATES AND OTHER INDUSTRY FLEET STATISTICS CONTAINED HEREIN, UNLESS
OTHERWISE INDICATED, ARE DERIVED FROM INFORMATION PROVIDED BY OFFSHORE DATA
SERVICES.
THE COMPANY
The Company was formed in 1997 for the purpose of constructing, owning and
operating a fleet of state-of-the-art premium jackup offshore drilling rigs. In
1997, the Company commenced construction of the first two such rigs at the
AMFELS, Inc. ("AMFELS") shipyard in Brownsville, Texas under fixed-price
contracts. The first rig, the CHILES COLUMBUS, is a LeTourneau Enhanced 116-C
design, and the second, the CHILES MAGELLAN, is a LeTourneau Super 116 design
(together, the "Rigs"). The Company expects that it will pay, net of capitalized
interest, $83.5 million and $87.8 million, respectively, in total construction
and outfitting costs for the Rigs. The Company and AMFELS have scheduled the
Rigs for delivery in April and September 1999, respectively.
SEACOR SMIT Inc. ("SEACOR"), operator of the second largest fleet of
offshore service vessels in the world, has invested $35.0 million for
approximately 55.4% of the outstanding equity interests in the Company. SEACOR
is a Delaware corporation whose common stock is listed for trading on the New
York Stock Exchange under the symbol "CKH." The remaining equity interests in
the Company are held by private investors, including the original founders and
senior management.
The Company's management team has extensive experience in the offshore
contract drilling industry. William E. Chiles, the President and CEO of the
Company, has over 25 years of experience in the industry. During his career, Mr.
Chiles founded or co-founded three offshore contract drilling companies and
supervised the construction of four jackup rigs at the Brownsville, Texas
shipyard facility where the Rigs are being constructed. The Company's operating
and engineering personnel have substantial experience operating, marketing,
building, refurbishing and upgrading premium jackup rigs, including the
LeTourneau 116-C design.
THE RIGS
Jackup rigs are the largest category of mobile offshore drilling units,
representing approximately 60% of such units. Oil and gas exploration companies
use jackup rigs extensively for offshore drilling in water depths from 20 feet
to 350 feet. Jackup rigs are mobile, self-elevating drilling platforms equipped
with legs that are lowered to the ocean floor until a foundation is established
to support the drilling platform. A jackup rig consists of the hull, jacking
system, drilling equipment, crew quarters, loading and unloading facilities,
storage areas, heliport and other related equipment. A jackup rig is towed to
the drillsite with its hull riding in the sea and its legs retracted. At the
drillsite, the legs are jacked down to the ocean floor until the hull has been
elevated a sufficient distance above the water to allow storm waves to pass
beneath. Jackup rigs vary a great deal in size and capability. Premium jackup
drilling rigs are distinguished by their technological features, which generally
allow for increased productivity, flexibility and safety of operation. Most
premium jackup rigs have a drillstring cantilevering feature that enables the
drilling of multiple exploratory or development wells from the same location
over an existing fixed production platform. The Company defines premium jackup
rigs as cantilevered jackup rigs capable of operating in water depths of 300
feet or greater, excluding (due to their substantially higher construction cost)
the class of jackup rigs built for service in "harsh environments," such as the
North Sea and Eastern Canada.
1
<PAGE>
The Rigs will be state-of-the-art premium jackup drilling rigs capable of
operating at a water depth of 360 feet. Both Rigs incorporate the LeTourneau
Super 116's hull design and enhanced design features together with a
technologically advanced equipment package, which the Company believes provide
greater versatility and production efficiency compared to other rigs of similar
class. Each of the Rigs will feature 70-foot cantilevering capability, the
maximum reach currently available in the premium jackup rig market. The Rigs
will have capabilities that substantially exceed those of typical existing
premium jackup rigs, including increased engine horsepower, increased hydraulic
horsepower and enlarged mud handling and solids control systems. The Rigs will
also incorporate such features as digital drilling controls, dual pipe handling,
pipe handling robotics and drillpipe identification and tracking systems. The
Company expects that the Rigs will differentiate themselves in particular by
their increased productivity, mainly resulting from their superior engine and
hydraulic horsepower.
The Company expects to operate the Rigs initially in the Gulf of Mexico, but
with certain modifications, the Rigs are capable of operating in essentially all
markets for jackup rigs, except for "harsh environment" drilling areas. Other
non-"harsh environment" markets include West Africa, Southeast Asia, Latin
America, the Middle East/Persian Gulf and the southern sector of the North Sea.
The Company believes that the superior operating performance of the Rigs will
enable it to enter into attractive drilling contracts with high quality
customers at the appropriate time.
MARKET OVERVIEW
The world's jackup rig fleet currently consists of 380 rigs, which vary
significantly in terms of technological advancement, water depth capability and
age. A total of 117 are premium jackup rigs and as of March 1998, 29 such rigs
were employed in the Gulf of Mexico, the largest single market for jackup rigs.
The current average age of the world's jackup rig fleet is 17.5 years with
premium jackup rigs having an average age of 16.4 years, which compares to an
expected original useful life for such units of approximately 25 years. In
addition to the Company's Rigs, seven other jackup rig newbuildings are on order
with shipyards around the world (collectively representing 2.4% of the existing
fleet), of which six are jackup rigs designed for work in "harsh environment"
areas.
Based on published industry data, the Company estimates that as of March 31,
1998, the average dayrate for premium jackup rigs worldwide was $73,000 and that
it averaged $62,000 in 1997 and $39,000 in 1996. (1997 and 1996 dayrate data
include a small number of "harsh environment" jackup rigs, which increases
slightly the average historical dayrate information for premium jackup rigs.)
Based on published industry data, the Company estimates that premium jackup rig
utilization levels have averaged 93% over the last ten years and that as of
March 31, 1998, average utilization exceeded 96%. Major factors underlying these
improvements include an increase in demand due to greater offshore exploration
and development expenditures by the world's oil and gas companies, and a
reduction in rig supply, due to the advancing age of the existing fleet and the
small number of newbuildings. Growth in offshore expenditures by oil and gas
companies has been due in part to substantial technological advances in
exploration and production (including 3-D seismic, horizontal drilling and
subsea completion procedures), which have reduced the overall cost of finding
and producing oil and gas. In addition, the offshore drilling industry has
experienced a worldwide consolidation during the last ten years which has
substantially reduced the number of drilling contractors.
BUSINESS STRATEGY
The Company intends to become a leading provider of state-of-the-art premium
jackup rigs and to maximize dayrates and rig utilization by offering its
customers the most productive premium jackup rigs available. The Company will
focus on establishing a reputation for customer service, higher productivity and
safety of operation in the offshore contract drilling market. The key elements
of the Company's strategy are as follows:
- FOCUS ON PREMIUM JACKUP RIG MARKET. The Company will focus on premium
jackup rigs, which the Company believes enjoy strong and growing worldwide
demand, have the versatility to work in a
2
<PAGE>
variety of different markets, represent a relatively low investment
compared to new semisubmersibles, drillships and "harsh environment"
jackup rigs, possess a favorable relationship between potential revenues
and operating costs, and are familiar to the management of the Company
through prior operations and newbuildings.
- OWN AND OPERATE HIGH QUALITY ASSETS. The Rigs will represent a new
generation of premium jackup rigs with significantly enhanced capabilities
incorporating the latest technologies. Such capabilities will assist the
Company in offering its customers equipment with superior productivity and
safety features.
- BUILD TO MEET STRONG DEMAND GROWTH. The Company intends to be among the
first offshore drilling contractors to provide new generation premium
jackup rigs to the industry. The Company believes that this is the early
stage of a period of strong growth in the demand for, and utilization of,
premium jackup rigs. The Company believes that it has been able to secure
favorable contract terms by placing orders during this early stage, at a
time when relatively few new premium jackup rigs are being built.
- EXPAND RIG FLEET. The Company expects to expand its rig fleet prudently
over time. The Company may achieve this growth through the exercise of
three sequential options (the "Construction Options") that the Company
holds to construct additional LeTourneau Super 116 design premium jackup
rigs at a total delivered cost of approximately $100.0 million per rig.
- FOCUS ON THE GULF OF MEXICO. The Company will focus its operations
initially on the Gulf of Mexico market, which is the largest single market
for jackup rigs in the world. Furthermore, the presence of an established
pipeline and production infrastructure makes the Gulf of Mexico an
economically attractive market for continued exploration and production
activity.
- UTILIZE SEACOR EXPERTISE. SEACOR will directly advise the Company
concerning strategic, financial and marketing matters through
representation on the Company's Management Committee (I.E., its board of
directors). Additionally, pursuant to the Services Agreement (as defined),
SEACOR has made available its Vice President, Finance to serve as the
Company's Senior Vice President and Chief Financial Officer. The Company
believes that SEACOR's marketing expertise and its extensive oil and gas
company client base will greatly assist the Company in the marketing of
the Rigs.
- EMPLOY, RETAIN AND MOTIVATE EXPERIENCED AND INCENTIVIZED MANAGEMENT. The
Company will seek to employ, retain and motivate experienced senior
management and key employees through the implementation of an equity
participation and performance incentive program.
THE FINANCING
The Company intends to finance construction of the Rigs and the start-up
phase of its operations through aggregate capital contributions of $63.9 million
(of which $55.4 million has been received in cash) from SEACOR, the original
founders and other equity investors (the "Equity Financing"), $110.0 million in
gross proceeds from the Original Offering and borrowings under its $25.0 million
Bank Facility. The Company consummated the final phase of the Equity Financing
on December 16, 1997 and the Original Offering on April 29, 1998, the date of
original issuance of the Notes (the "Issue Date"). As of March 31, 1998, a total
of approximately $36.6 million of the cash proceeds of the Equity Financing had
been spent on construction of the Rigs, offering costs associated with the
Equity Financing and supporting activities and at such date the Company had
approximately $18.8 million cash on hand. The Company anticipates that less than
half of the Bank Facility will be drawn at the time the second Rig is scheduled
to be delivered, and therefore the undrawn portion thereof would be available
for debt service and other general corporate purposes.
3
<PAGE>
The sources and uses of funds on the Issue Date, were as follows, assuming
an Issue Date of March 31, 1998:
<TABLE>
<CAPTION>
AMOUNTS
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS:
Bank Facility(1)................................................................. $ 0.0
Notes Offering................................................................... 110.0
Equity Financing (available balance)(2).......................................... 18.8
------
Total.......................................................................... $ 128.8
------
------
USES OF FUNDS:
Deposit to Escrow Accounts
Pre-Funded Rig Construction Costs.............................................. $ 95.2
Pre-Funded Capitalized Interest................................................ 11.1
Notes Issuance Costs............................................................. 3.7
Bank Facility Fees and Expenses.................................................. 0.2
Available Cash................................................................... 18.6
------
Total............................................................................ $ 128.8
------
------
</TABLE>
- ------------------------
(1) The Bank Facility provides a $25.0 million revolving credit commitment,
which is not permitted to be drawn until delivery of the first of the two
Rigs.
(2) Represents the balance of the $55.4 million cash component of the Equity
Financing as of March 31, 1998.
THE CONSTRUCTION PROJECTS
The scheduled delivery dates (each, a "Scheduled Delivery Date") of the Rigs
will be April 30, 1999 for the CHILES COLUMBUS and September 10, 1999 for the
CHILES MAGELLAN. The Company expects the total construction cost of the CHILES
COLUMBUS to be approximately $83.5 million and the total construction cost of
the CHILES MAGELLAN to be approximately $87.8 million, in each case net of
capitalized interest. The major components of the construction costs are the
fixed contract prices payable to AMFELS pursuant to the respective Platform
Construction Agreement (the "Construction Contract") for each Rig, the cost of
owner furnished equipment ("OFE"), which includes the major components of the
drilling and power system (including engines, generators, draw works and top
drives), and the Company's internal expenditures during the construction period.
The Company currently has contracted for over 95% of the total cost of OFE on a
fixed-price basis. The total amount of these expenditures is summarized in the
following table:
<TABLE>
<CAPTION>
CHILES CHILES
COLUMBUS MAGELLAN TOTAL
----------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Construction Contracts(1)...................................................... $ 61,032 $ 64,684 $ 125,716
OFE(2)......................................................................... 17,189 17,189 34,378
Internal Expenditures(3)....................................................... 5,259 5,957 11,216
----------- --------- ----------
Total...................................................................... $ 83,480 $ 87,830 $ 171,310
</TABLE>
- ------------------------
(1) The Construction Contracts are fixed-price contracts.
(2) The Company currently has contracted for over 95% of the total cost of OFE
on a fixed-price basis.
(3) Internal expenditures are costs associated with Company personnel overseeing
construction which are capitalized and general and administrative costs
which are expensed.
The AMFELS shipyard, originally built and operated by Marathon LeTourneau,
Inc., has a long-term commitment to the offshore drilling industry and many of
the key personnel who designed and built LeTourneau jackup rigs in the past are
currently working there. The shipyard's newbuilding construction
4
<PAGE>
experience includes 24 jackup rigs and two semisubmersibles. AMFELS is 100%
owned by Keppel FELS, Ltd., an established international shipyard and
engineering group based in Singapore. To mitigate the risk of a delay in
construction, the Company has procured standard "delay-in-delivery" insurance
that provides for coverage of $30,000 per day per Rig up to a maximum of 360
days for certain delays in excess of 30 days up to a total combined limit of
$21.6 million for both Rigs.
THE EXCHANGE OFFER
The Exchange Offer applies to $110.0 million aggregate principal amount of
the Old Notes. The form and terms of the New Notes are the same as the form and
terms of the Old Notes except that the New Notes are being registered under the
Securities Act and, therefore, will not bear legends restricting their transfer.
The New Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture pursuant to which the Old Notes were issued.
Interest on the New Notes shall accrue from the date of issuance of the Old
Notes. The Old Notes and the New Notes are sometimes referred to collectively
herein as the "Notes." See "Description of New Notes" and "The Exchange Offer."
<TABLE>
<S> <C>
The Exchange Offer................ $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of Old Notes. As of the
date hereof, Old Notes representing $110.0 million
aggregate principal amount are outstanding. The terms of
the New Notes and the Old Notes are substantially
identical.
Based on an interpretation by the Commission's staff set
forth in no-action letters issued to third parties
unrelated to the Issuers and the Guarantors, the Issuers
and the Guarantors believe that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise
transferred by any person receiving the New Notes,
whether or not that person is the Holder (other than any
such holder or such other person that is an "affiliate"
of either of the Issuers or either of the Guarantors
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 (i) the New Notes are acquired in the
ordinary course of business of that Holder or such other
person, (ii) neither the Holder nor such other person is
engaging in or intends to engage in a distribution of
the New Notes and (iii) neither the Holder nor such
other person has an arrangement or understanding with
any person to participate in the distribution of the New
Notes. See "The Exchange Offer--Purpose and Effect."
Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where those Old Notes
were acquired by the broker-dealer as a result of its
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of these New Notes. See "The
Exchange Offer--Purpose and Effect" and "--Procedures
for Tenders," and "Plan of Distribution."
Registration Rights Agreement..... The Old Notes were sold by the Issuers on April 29, 1998
in a private placement. In connection with the sale, the
Issuers entered into a Registration Rights Agreement
with the purchasers (the "Registration Rights
Agreement") providing for
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
the Exchange Offer. See "The Exchange Offer--Purpose and
Effect."
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, September , 1998, or such later date and
time to which it is extended.
Withdrawal........................ The tender of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. Any Old Notes
not accepted for exchange for any reason will be
returned without expense to the tendering Holder thereof
as promptly as practicable after the expiration or
termination of the Exchange Offer.
Interest on the New Notes and
Old Notes....................... Interest on the New Notes will accrue from the Issue
Date, which is April 29, 1998.
Conditions to the Exchange The Exchange Offer is subject to certain customary
Offer........................... conditions, certain of which may be waived by the
Company. See "The Exchange Offer--Certain Conditions to
Exchange Offer."
Procedures for Tendering Old Each Holder of Old Notes wishing to accept the Exchange
Notes........................... Offer must complete, sign and date the Letter of
Transmittal, or a copy thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver the Letter of Transmittal, or the
copy, together with the Old Notes and any other required
documentation, to the Exchange Agent at the address set
forth in the Letter of Transmittal. Persons holding Old
Notes through The Depository Trust Company ("DTC") and
wishing to accept the Exchange Offer must do so pursuant
to DTC's Automated Tender Offer Program, by which each
tendering Participant will agree to be bound by the
Letter of Transmittal. By executing or agreeing to be
bound by the Letter of Transmittal, each Holder will
represent to the Company that, among other things, (i)
the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of
the person receiving such New Notes, whether or not such
person is the Holder of the Old Notes, (ii) neither the
Holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes,
(iii) neither the Holder nor any such other person has
an arrangement or understanding with any person to
participate in the distribution of such New Notes and
(iv) neither the Holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under
the Securities Act, of either of the Issuers or either
of the Guarantors. Pursuant to the Registration Rights
Agreement, the Issuers and the Guarantors are required
to file a "shelf" registration statement for a
continuous offering pursuant to Rule 415 under the
Securities Act in respect of the Old Notes (and use
their reasonable best efforts to cause such shelf
registration statement to be declared effective by the
Commission and keep it continuously effective,
supplemented and amended for prescribed periods) if (i)
because of any
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
change in law or in applicable interpretations of the
staff of the Commission, the Issuers are not permitted
to effect the Exchange Offer, or (ii) if for any other
reason the Exchange Offer is not consummated within 150
days of date of the Original Offering, or (iii) if
Credit Suisse First Boston Corporation or Wasserstein
Perella Securities, Inc., the initial purchasers in the
Original Offering (the "Initial Purchasers"), so
requests with respect to Old Notes not eligible to be
exchanged for New Notes in the Exchange Offer, and held
by it following consummation of the Exchange Offer or
(iv) if any Holder of Old Notes (other than a
broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of
market-making or other trading activities (a
"Participating Dealer")) is not eligible to participate
in the Exchange Offer or any such Holder (other than a
Participating Dealer) does not receive freely tradeable
New Notes in the Exchange Offer.
Acceptance of Old Notes and
Delivery of New Notes........... The Company will accept for exchange any and all Old
Notes that are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Exchange Agent.................... U.S. Bank Trust National Association is serving as
Exchange Agent in connection with the Exchange Offer.
Federal Income Tax The exchange pursuant to the Exchange Offer should not
Considerations.................. be a taxable event for federal income tax purposes. See
"Certain Material Federal Income Tax Considerations."
Effect of Not Tendering........... Old Notes that are not tendered or that are tendered but
not accepted will, following the completion of the
Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. Except as described
in "The Exchange Offer-- Procedures for Tenders," the
Issuers will have no further obligation to provide for
the registration under the Securities Act of such Old
Notes.
</TABLE>
7
<PAGE>
TERMS OF NEW NOTES
CERTAIN CAPITALIZED TERMS USED IN THIS PROSPECTUS WITH RESPECT TO THE NOTES,
AND NOT OTHERWISE DEFINED HEREIN, HAVE THE MEANINGS SET FORTH UNDER "DESCRIPTION
OF NEW NOTES--CERTAIN DEFINITIONS."
<TABLE>
<S> <C>
Issuers...................... Chiles Offshore LLC and Chiles Offshore Finance Corp.
Securities Offered........... $110.0 million principal amount of 10% Senior Notes Due
2008.
Maturity Date................ May 1, 2008.
Interest Payment Dates....... May 1 and November 1, commencing November 1, 1998.
Use of Proceeds; Escrow...... Concurrently with the closing of the Original Offering, the
Issuers deposited the net proceeds of the Original Offering
with the Escrow Agent. Such funds will be used to pay
interest on the Notes through the first two semi-annual
interest payment dates, pay a portion of the construction
costs of the Rigs and provide working capital. See
"Description of New Notes--Escrow of Proceeds."
Optional Redemption.......... The New Notes are not redeemable at the option of the
Issuers prior to May 1, 2003, except that until May 1, 2001,
the Issuers may redeem, at their option, in the aggregate up
to 35% of the original principal amount of the New Notes, on
a pro rata basis, at the redemption price set forth herein
with the net proceeds of one or more Public Equity Offerings
if at least $71.5 million aggregate principal amount of the
New Notes remains outstanding after each such redemption. On
and after May 1, 2003, the Notes may be redeemed at the
option of the Issuers, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption. See "Description of New
Notes--Optional Redemption."
Right to Require Repurchase
Upon Contract In the event that a Construction Contract is terminated
Termination................ prior to delivery of the Rig, each Holder will have the
right to require the Issuers to purchase the Allocated
Principal Amount of such Holder's New Notes for such Rig at
a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of
purchase. See "Description of New Notes--Right to Require
Repurchase Upon Contract Termination." The Company expects
that its ability to repurchase the Notes in any such event
will be limited by the Bank Facility and the terms of any
other then existing contractual obligations of the Company
and, in addition, the Company may not have adequate
financial resources to effect such a repurchase. See "Risk
Factors--Possible Inability to Repurchase Notes Upon Certain
Events."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Event of Loss of a Rig....... Upon the occurrence of an Event of Loss of a Rig after the
delivery of such Rig, the Issuers will be required to apply
the insurance and other proceeds either to repay
indebtedness outstanding under the Bank Facility or other
secured debt (and permanently reduce the commitments
thereunder) or to acquire a Qualified Substitute Rig (as
defined), and to apply the balance to purchase the Allocated
Principal Amount of Notes tendered by Holders at a purchase
price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase. See
"Description of New
Notes--Certain Covenants."
Change of Control............ Upon a Change of Control, each Holder will have the right to
require the Issuers to purchase such Holder's Notes, in
whole or in part, at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest
to the date of purchase. See "Description of New
Notes--Change of Control." The Company expects that its
ability to repurchase the Notes in any such event will be
limited by the Bank Facility and the terms of any other then
existing contractual obligations of the Company and, in
addition, the Company may not have adequate financial
resources to effect such a repurchase. See "Risk
Factors--Possible Inability to Repurchase Notes Upon Certain
Events."
Ranking...................... The New Notes will be senior obligations of the Issuers,
will rank PARI PASSU with all existing and future senior
indebtedness of the Issuers and will be senior in right of
payment to all future subordinated indebtedness. Currently
the Company has no subordinated indebtedness outstanding.
Except as described herein with respect to the Escrowed
Property, the New Notes will be unsecured, and effectively
subordinated to the claims of secured creditors to the
extent of the collateral securing such claims. The Bank
Facility is secured by substantially all the assets of the
Company and its subsidiaries, including the Rigs, other than
the Escrowed Property. See "Description of New
Notes--Ranking."
Guarantees................... Payment of the principal of, premium, if any, and interest
on the New Notes will be guaranteed, jointly and severally,
and irrevocably, fully and unconditionally, on an unsecured
basis, by the Company's Restricted Subsidiaries (as
defined), which includes the Owners, which have also
guaranteed, jointly and severally, the Bank Facility on a
secured basis. The guarantees of the Company's Restricted
Subsidiaries will be irrevocable, full and unconditional,
but limited in amount to the extent required by laws
relating to fraudulent transfer or similar laws. See
"Description of New Notes--Subsidiary Guarantees."
Security..................... The New Notes will initially be secured by the Escrow
Accounts and all funds and investments contained therein,
the Escrow Agreement and all proceeds of the foregoing to
the extent provided in the Escrow Security Agreement. Upon
the release of the Escrowed Property, the New Notes will be
unsecured. See "Description of New Notes-- Escrow of
Proceeds."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Covenants.................... The Indenture will contain certain covenants that, among
other things, limit the ability of the Company and its
Restricted Subsidiaries to (i) incur any additional
indebtedness, (ii) pay dividends or make certain other
Restricted Payments, (iii) restrict distributions from
Restricted Subsidiaries, (iv) sell assets, (v) enter into
transactions with affiliates, (vi) sell or issue capital
stock of Restricted Subsidiaries, (vii) incur liens other
than permitted liens, (viii) enter into sale/leaseback
transactions, (ix) enter into certain mergers and
consolidations, (x) conduct certain business activities,
(xi) impair the security interest in the Collateral and
(xii) amend the Escrow Agreement or the Escrow Security
Agreement. The Indenture will also contain a covenant
requiring the Company to maintain certain levels of
insurance on the Rigs. In addition, the Indenture will limit
the business activities of Finance, including its ability to
incur indebtedness. See "Description of New Notes--Certain
Covenants."
</TABLE>
RISK FACTORS
Prospective investors in the New Notes should carefully consider the factors
discussed in detail elsewhere in this Prospectus under the caption "Risk
Factors." Such factors include the material dependence of the Company's business
and operations upon the oil and natural gas industry and the market volatility
associated therewith, the risk of nonperformance by AMFELS and the potential
consequences of delay or noncompletion of the Rigs, the Company's dependence
upon the operation of the Rigs for revenue and certain related marketing and
construction risks, and the Company's lack of operating history. In addition,
the Company is highly leveraged and there are risks associated with the
Company's ability to service its debt. The Company is also subject to numerous
other risks peculiar to the offshore contract drilling industry, including
marine perils and certain operational risks. See "Risk Factors."
10
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data are derived from the financial
statements of the Company as of and for the periods presented. The summary
financial data for the three-month period ended March 31, 1998 is derived from
financial statements that are unaudited but include all adjustments, consisting
of normal recurring accruals, that the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. The summary financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements (including the Notes thereto) included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 5, 1997)
TO DECEMBER 31, 1997
THREE MONTHS ENDED --------------------
MARCH 31, 1998
-------------------
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues........................................................ $ -- $ --
Operating expenses:
Contract drilling................................................... -- --
General and administrative.......................................... 82,290 376,089
Depreciation........................................................ 2,565 5,953
Operating loss........................................................ 84,855 382,042
Interest income....................................................... 363,086 72,930
Net income (loss)..................................................... 278,231 (309,112)
OTHER FINANCIAL DATA:
Capital expenditures.................................................. $ 9,878,354 $ 5,215,116
Cash provided by (used in) operating activities....................... (3,618,017) 3,571,349
Cash used in investing activities..................................... (9,878,354) (5,215,116)
Cash provided by financing activities................................. -- 33,984,884
Ratio of earnings to fixed charges (1)................................ 62.3 --
<CAPTION>
DECEMBER 31, 1997
--------------------
MARCH 31, 1998
-------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 18,769,174 $ 28,401,504
Rigs under construction and equipment, net............................ 44,895,880 35,020,091
Total assets.......................................................... 63,781,861 67,398,320
Members' equity....................................................... 63,699,826 63,421,595
</TABLE>
- ------------------------
(1) For the purpose of this calculation, "earnings" represents net income (loss)
plus fixed charges. Net income (loss) is representative of income (loss)
before income taxes as the Company is treated as a partnership for taxation
purposes. "Fixed charges" consists of an estimated portion of rentals
representing interest expense. As a result of the loss incurred in 1997,
earnings were not sufficient to cover fixed charges by $303,568.
11
<PAGE>
RISK FACTORS
HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH
BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH HEREIN, BEFORE DECIDING TO
TENDER OLD NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS THE NEW NOTES.
THIS PROSPECTUS CONTAINS STATEMENTS THAT CONSTITUTE FORWARD-LOOKING
STATEMENTS. THOSE STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES,
INCLUDING, WITHOUT LIMITATION, THE FACTORS SET FORTH BELOW, MANY OF WHICH ARE
BEYOND THE COMPANY'S CONTROL. SEE "DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
Old Notes 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
registration requirements of the Securities Act and applicable state securities
laws. The Company does not currently intend to register the Old Notes under the
Securities Act. Based on interpretations by the staff of the Commission, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of either of the Issuers or either of the Guarantors 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 Old Notes were acquired in the ordinary course of such Holders'
business and such Holders have no arrangement with any person to participate in
the distribution of such New Notes. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old 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 New Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes will be
adversely affected.
DEPENDENCE ON OIL AND NATURAL GAS INDUSTRY; INDUSTRY CONDITIONS; MARKET
VOLATILITY
The Company's business and operations are materially dependent upon the
condition of the oil and natural gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. Due to the Company's
initial focus on the Gulf of Mexico, the Company's business and operations will
be particularly dependent upon the condition of the oil and natural gas industry
in the Gulf of Mexico and on the exploration and production expenditures of oil
and gas companies there. Historically, the offshore contract drilling industry
has been highly competitive and cyclical, with periods of high demand, short rig
supply and high dayrates followed by periods of low demand, excess rig supply
and low dayrates. The offshore contract drilling business is influenced by a
number of factors, including the current and anticipated prices of oil and
natural gas, the expenditures by oil and gas companies for exploration and
production and the availability of drilling rigs. Throughout the 1980s and early
1990s, depressed oil and natural gas prices and an oversupply of rigs adversely
affected the offshore drilling market, particularly in the U.S. Gulf of Mexico,
where the prolonged weakness and uncertainty in the demand for and price of
natural gas resulted in a significant decline in exploration and production
activities and, accordingly, a decline in dayrates. The Company cannot predict
the future level of demand for its services or future conditions of the oil and
natural gas industry. Any decrease in exploratory and production expenditures by
oil and gas companies could have a material adverse effect on the Company's
business and results of operations.
12
<PAGE>
LIMITED LIABILITY OF AMFELS; CONSEQUENCES OF DELAY OR NONCOMPLETION OF RIGS;
NON-PERFORMANCE BY AMFELS
As with any major construction undertaking, completion of the Rigs could be
delayed or prevented, or cost overruns could be incurred, as a result of
numerous factors including shortages of materials, failure or delay of
LeTourneau, Inc. ("LeTourneau") or other third party providers, labor disputes,
weather interferences, difficulties in obtaining necessary permits or in meeting
permit conditions or unforeseen engineering problems. No representation or
assurance can be made that the Rigs will be successfully constructed or, if
constructed, completed on time. If the Rigs are not completed on time or are not
capable of operating according to their respective design specifications, in
certain circumstances, the applicable Scheduled Delivery Date may be extended
and, in certain other circumstances, termination of the applicable Construction
Contract may be the Company's sole remedy for such failure. The Company will
maintain insurance to protect against certain delays in delivery caused by
specified events, including physical loss or damage to the Rigs in the shipyard
during construction as a result of named perils, including labor disturbances,
delays in delivery of materials required for construction as a result of such
events and delays resulting from restricted access to the shipyard as a result
of such events. However, the coverage provided under such insurance is subject
to significant exceptions and would not provide protection against certain
delays in delivery. Such exceptions include exclusion of coverage for any loss,
damage or liability arising from operations in or with certain countries or from
activities prohibited by U.S. law and regulations; certain radiation hazards;
repair or alteration of design faults; certain losses, damages and liabilities
associated with collision liability; certain losses, damages and liabilities
arising with respect to cargo or property of others on board the Rigs; certain
losses, damages and liabilities arising as a result of strikers, terrorists and
war risks; certain punitive or exemplary damages; and certain losses arising out
of abandonment and/or non-commencement of construction. The "delay-in-delivery"
insurance procured by the Company provides for coverage limits of $30,000 per
day per Rig up to a maximum of 360 days for delays in excess of 30 days, up to a
total combined limit of $21.6 million for both Rigs.
If completion of one or both of the Rigs is delayed or prevented due to (i)
any act or omission of the Company, including failure to timely deliver to
AMFELS any equipment to be furnished by the Company, or (ii) delays caused by
the American Bureau of Shipping or any governmental agency, changes, any of a
wide variety of events of FORCE MAJEURE under the applicable Construction
Contract, or inability or failure of LeTourneau to perform its obligations under
the applicable LeTourneau Agreement (as defined), or if all subjects and
conditions under the applicable LeTourneau Agreements are not fully and timely
met by LeTourneau, the applicable Scheduled Delivery Date(s) will be extended by
the applicable period. In the event of the occurrence of any of the foregoing,
or if the Rigs cannot achieve operation in accordance with their respective
design specifications, AMFELS would not be obligated to pay liquidated damages.
AMFELS would be excused from performance and would not be in default under the
applicable Construction Contract. In addition, the date for achievement of
substantial completion and the Scheduled Delivery Date, as defined in the
respective Construction Contract, would be subject to adjustment as a result
thereof. See "Business--The Construction Contracts--Scheduled Delivery Dates."
If AMFELS does not achieve substantial completion by the Scheduled Delivery
Date, or if a Rig does not perform in accordance with its design specifications,
or if after achieving substantial completion a failure of a Rig to perform in
accordance with its design specifications causes a suspension or curtailment of
operations of such Rig after the applicable Scheduled Delivery Date, the
Company's ability to make payments of principal and interest on the Notes may be
materially adversely affected.
Under the Construction Contracts, the Company is responsible for a number of
matters in connection with the construction and completion of the Rigs. While
the Company believes that it has made adequate arrangements to assure timely
performance of such responsibilities, the Company is relying on the other
parties to certain contracts to enable it to perform its responsibilities under
the Construction Contracts and there can be no assurance that such other parties
will meet their obligations under such contracts.
13
<PAGE>
If completion of one or both of the Rigs is delayed or prevented due to the
failure by AMFELS to perform, or the breach by AMFELS of, any of its covenants,
agreements or undertakings under the applicable Construction Contract beyond the
applicable cure period, the Company's sole remedy may be to terminate the
related Construction Contract. Under the Construction Contracts, the Company may
terminate the Construction Contracts upon the occurrence of an event of default
by AMFELS, including such a failure by AMFELS to perform, or the breach by
AMFELS of, any of its covenants, agreements or undertakings under the applicable
Construction Contract, which AMFELS has failed to commence diligently to cure
within thirty (30) days or which remains uncured for ninety (90) days, in each
case, after notice thereof by the Company. In addition, each of the Construction
Contracts provides for its automatic termination if, prior to delivery, an
actual or constructive total loss occurs with respect to a Rig. See
"Business--The Construction Contracts." In the event of any such termination,
the Company's ability to make payments of principal and interest on the Notes
may be materially adversely affected.
COMPANY DEPENDENCE ON RIGS' PERFORMANCE FOR REVENUES; CONSTRUCTION AND MARKETING
RISKS
Until the first Rig to be delivered from the shipyard commences operation,
debt service on the Notes will be payable solely from the Escrowed Property (as
defined) in the Interest Escrow Account (as defined). Thus, in the event of a
prolonged delay beyond the Rigs' respective Scheduled Delivery Dates, no
assurance can be given that sufficient sources of funds will be available to
make payments of principal and interest on the Notes. See "--Limited Liability
of AMFELS; Consequences of Delay or Noncompletion of Rigs; Non-Performance by
AMFELS." Thereafter, payments pursuant to drilling contracts are expected to
provide substantially all of the Company's revenues. Any material failure by the
Rigs to maintain anticipated utilization levels and to receive anticipated
average dayrates would therefore have a material adverse effect on the Company's
revenues and the Company's ability to make payments of principal of and interest
on the Notes. Moreover, the recent improvement in the current results of
operations and prospects for the offshore contract drilling industry as a whole
may lead to increased rig construction and enhancement programs by the Company's
competitors. A significant increase in the supply of premium jackup rigs could
have an adverse effect on the average utilization and average dayrates for the
Rigs. In such case, the Company's results of operations would be adversely
affected. Profitability of the Company in the future will depend upon the
utilization and dayrates for the Rigs and the Company's ability to control
operating costs. There is no assurance that current utilization and dayrates
will not decline, or that current average operating costs will not escalate, or
that the Company will be able to meet its debt service obligations in the
future.
The Company at present is constructing only the two Rigs. If either of the
Rigs suffers an actual or total casualty loss or significant damage or suffers
mechanical or other difficulties, or if for any other reason such Rig is not
capable of normal operations for any extended period, the Company's results of
operations would be, and its ability to meet its debt service obligations could
be, materially and adversely affected.
The Rigs currently are under construction and the Company will not receive
any material revenues unless and until the Rigs achieve commercial operation.
The Company has not executed a drilling contract for either of the Rigs. In
addition, there is no assurance that any drilling contract that may be signed
will be a term contract, I.E., any such contract or contracts may be
"well-to-well," and the Company may market the Rigs on that basis at any time
and from time to time. Thus, there may be periods in the future when one or both
of the Rigs are not under contract and thus, not producing revenues. Moreover,
during any such period, the Company will continue incurring the expense of
maintaining the affected Rig in the "stacked" mode pending execution of a
contract. Finally, if a Rig is not working because of adverse demand conditions
in the local market, the Company may incur unreimbursed expenses to mobilize the
Rig from that market to another where demand conditions are more favorable.
14
<PAGE>
EARLY STAGE OF DEVELOPMENT; OPERATING LOSSES
The Company is at an early stage of development. The Company has no
significant operating history for periods prior to the Original Offering.
Finance and the Owners have no operating history or financial statements for any
periods prior to the Original Offering. Consequently, the Company has no
substantial commercial operating history for investors to evaluate in making an
investment decision.
The Company is subject to all of the risks inherent in the establishment of
a new business enterprise. Since its inception, the Company has recognized no
operating revenue, has incurred losses and has had a negative cash flow from
operations, exclusive of accounts payable. The Company reported a loss from
operations of approximately $0.08 million and $0.38 million for the three months
ended March 31, 1998 and for the period from inception to December 31, 1997,
respectively. There can be no assurance that the Company will generate
significant revenues or achieve or sustain profitability in the future. In
addition, there can be no assurance that the Company will successfully complete
the transition from a development stage company to successful operations. As a
result of the aforementioned factors and the related uncertainties, there can be
no assurance of the Company's future success.
The development of the Company's business, including construction of the
Rigs, will require significant capital expenditures, virtually all of which will
be incurred before the realization of revenue. The Company expects that the
expenditures required to complete construction of the Rigs, together with the
associated early operating expenses, will result in negative cash flow until at
least one of the Rigs has been deployed. There can be no assurance that the
Company's estimates of its future losses or of its expected negative cash flow
will be accurate or that the Company's need for additional capital to fund
operating losses or capital needs will not continue substantially longer than
expected.
ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN
The Company is currently pursuing a business strategy that includes
obtaining drilling contracts with oil and gas operators, employment of rig
personnel, obtaining additional financing to complete the construction of the
Rigs and fund the purchase of drilling equipment, and overseeing the
construction of the Rigs and installation of the drilling equipment. There are
no assurances that this business strategy will be achieved. While pursuing this
business strategy, the Company will experience cash flow deficits until the
Rigs' construction is completed and the Rigs are placed in operation. As a
result of the aforementioned factors and related uncertainties, the Company's
auditors have raised a substantial doubt as to the Company's ability, in their
audit report to the Members of Chiles Offshore LLC dated February 11, 1998, to
continue as a going concern. The Company's financial statements included
elsewhere herein do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
FINANCIAL FORECAST
The financial forecast set forth under "Certain Financial Forecast
Information" (the "Forecast") is based upon certain assumptions and estimates,
some of which may not materialize, and unanticipated events may occur that could
materially adversely affect the actual results achieved by the Company during
the forecast period. Consequently, the Company's actual results of operations
during the forecast period will vary from the Forecast and such variations may
be material. In addition, prospective investors should understand that the
degree of uncertainty increases with each successive period presented. The
Company's independent public accountants have not examined, compiled, reviewed,
or applied agreed-upon procedures to the Forecast, and consequently, assume no
responsibility for the Forecast. The Forecast has not been prepared in
compliance with the published guidelines of the American Institute of Certified
Public Accountants. The Forecast has been prepared by the Company as of March
31, 1998 and presents management's best estimate as of such date of the
Company's revenue, operating expenses and net income
15
<PAGE>
for each of the years in the three-year period ending December 31, 2001. The
Company does not intend to update or otherwise revise the Forecast to reflect
events or circumstances existing or arising after March 31, 1998 or to reflect
the occurrence of unanticipated events. Prospective investors should make their
own independent assessment of the ability of the Company to make principal and
interest payments on the Notes. The Forecast should not be relied upon for any
purpose following the consummation of the Original Offering. No assurance can be
given that the Company's cash flow from operations will be sufficient to pay,
when due, the principal of and interest on the Notes. See "Disclosure Regarding
Forward-Looking Statements."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged following consummation of the Original
Offering. Upon consummation of the Original Offering, the Company's outstanding
total long-term debt was comprised of $110.0 million of Notes. In addition, the
Company has $25.0 million of unused senior secured borrowing capacity under the
Bank Facility. The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations and
expansion plans; and (iii) the Company may be more vulnerable to a downturn in
general economic conditions or its business. The Company's borrowings under the
Bank Facility are at floating rates of interest, which could result in a higher
interest expense in the event of an increase in interest rates.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control and
to the ability of Chiles to access payments and advances from its subsidiaries
in amounts and at times sufficient to fund its debt obligations. Further, there
can be no assurance that the Company's operating results or Chiles's access to
payments and advances from its subsidiaries will be sufficient for payment of
the Company's indebtedness, including the Notes. See "--Effective Subordination
of the Notes; Dependence on Subsidiaries."
EFFECTIVE SUBORDINATION OF THE NOTES; DEPENDENCE ON SUBSIDIARIES
The Notes will be effectively subordinated to all current and future secured
indebtedness of the Company and of any future subsidiaries of Chiles, including
indebtedness under the Bank Facility, to the extent of any mortgaged or pledged
assets. The Company's obligations under the Bank Facility will be secured by
first priority mortgages on the Rigs and by a pledge of substantially all of the
Owners' other assets. Therefore, in the event of a bankruptcy, liquidation or
reorganization of the Company, the assets of the Company would be available to
pay obligations on the Notes only after all such indebtedness has been paid in
full, and in such event there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The indebtedness under
the Bank Facility will become due prior to the time the principal obligations
under the Notes become due. Upon consummation of the Original Offering, there
was (and upon consummation of the Exchange Offer, there will be) $25.0 million
of unused senior secured borrowing capacity under the Bank Facility.
In addition, the operations of the Company will be conducted primarily
through the Owners and any future Chiles subsidiaries. Therefore, the Company's
ability to make required principal and interest payments with respect to the
Notes will depend on the earnings of such subsidiaries and on its ability to
receive funds from such subsidiaries through dividends or other payments.
16
<PAGE>
RESTRICTIVE COVENANTS
Among other things, the covenants contained in the Indenture restrict,
condition or prohibit the Company from incurring additional indebtedness,
creating certain liens on its assets, making certain asset dispositions,
entering into transactions with affiliates, merging or consolidating with any
other person or selling, assigning, transferring, leasing, conveying or
otherwise disposing of substantially all the assets of the Company. In addition,
the Bank Facility contains certain financial and operating covenants and
prohibitions. There can be no assurance that the Company's leverage and such
restrictions will not materially and adversely affect the Company's ability to
finance its future operations or capital needs or to engage in other business
activities. Moreover, a failure to comply with the obligations contained in the
Indenture governing the Notes or any other agreements with respect to additional
financing (including the Bank Facility or any replacement facility) could result
in an event of default under such agreements, which could permit acceleration of
the related debt and acceleration of debt under future debt agreements that may
contain cross-acceleration or cross-default provisions. See "Description of Bank
Facility" and "Description of New Notes." The Bank Facility provides that if (a)
an event of default occurs and is continuing under the Indenture or (b) subject
to certain cure provisions, the Company or either of the Guarantors defaults in
the due and punctual observance or performance of any term, covenant or
agreement in the Indenture or in any instrument, document or other agreement
delivered in connection therewith or it becomes impossible or unlawful for the
Company or either of the Guarantors to fulfill any such term, covenant or
agreement, and, in each case, in the reasonable opinion of the Majority Lenders
(as defined in the Bank Facility), such default, impossibility and/or
unlawfulness could have a material adverse effect on the lenders' rights under
the Bank Facility, or (c) the Company or either of the Guarantors, or any
subsidiary or affiliate thereof, defaults in the payment when due (subject to
any applicable grace period) of any indebtedness in the outstanding principal
amount of $1.0 million or more (other than indebtedness of the Company that is
non-recourse to the Company, either Guarantor or either Rig), or such
indebtedness is being, or may be, because of such default, accelerated or any
party becomes entitled to and takes steps to enforce the security therefor
(unless such acceleration or enforcement is contested in good faith with
appropriate proceedings and reserves therefor), then any such event would
constitute an event of default under the Bank Facility. Because the Company's
obligations under the Bank Facility will be secured by first priority mortgages
on the Rigs and a pledge of substantially all of the Owners' other assets, if
the lenders under the Bank Facility accelerate the Company's indebtedness
thereunder following an event of default and seek to collect such indebtedness
through foreclosure on the Rigs and other collateral therefor, the assets of the
Company comprising the collateral for the Bank Facility would be available to
make payments on the Notes or satisfy the Company's obligations under the
Indenture only after the Company's obligations under the Bank Facility had been
paid in full. See "--Effective Subordination of the Notes; Dependence on
Subsidiaries" and "--Possible Inability to Repurchase Notes Upon Certain
Events."
DEPENDENCE ON KEY PERSONNEL
While the Company's senior management has worked together extensively in the
past, the complete management team has not yet been fully assembled. The
Company's success depends to a large extent upon the continued services of its
senior management including, in particular, William E. Chiles, the President and
Chief Executive Officer of the Company, and its ability to attract and retain
key operating personnel. The loss of the services of any such employee could
have a material adverse effect on the Company. The Company does not maintain
"key man" insurance with respect to any such individuals. While the success of
the Company depends in large part upon such personnel, the Company believes that
there are other qualified managers in the offshore drilling industry whom the
Company might retain to fill such positions, if needed. However, there can be no
assurance that the Company would be able to engage such qualified managers and,
if so, on what terms. See "Management."
17
<PAGE>
DEPENDENCE ON SKILLED LABOR
The Company's financial performance is affected by the availability of
qualified personnel and the cost of labor. In recent years, unemployment rates
in the offshore contract drilling industry have reached unusually low levels
leading to lower availability of skilled labor and increased labor costs. While
the Company does not believe that contraction of the labor market will have a
material adverse effect on its financial performance, there can be no assurance
that sufficient labor will be available in the future or that the cost of labor
will not rise, either of which could have an adverse effect on the Company.
COMPETITION
The contract drilling industry is highly competitive. Customers sometimes
award contracts on a competitive bid basis, and although a customer selecting a
rig may consider, among other things, a contractor's safety record, crew quality
and quality of service and equipment, price is the major factor in determining
the selection of a drilling contractor. The Company believes that competition
for drilling contracts will continue to be intense for the foreseeable future
because of the ability of contractors to move rigs from areas of low utilization
and dayrates to areas of greater activity and relatively higher dayrates. Such
movement or a decrease in drilling activity in any major market could depress
dayrates and could adversely affect utilization of the Company's Rigs. Most of
the Company's competitors are much larger and more established companies with
greater financial resources than the Company. See "Business-- Offshore Contract
Drilling Services."
In addition, the current favorable conditions in the premium jackup rig
market may lead to additional newbuildings of rigs of this class. A significant
increase in the supply of state-of-the-art, technologically advanced premium
jackup rigs capable of competing with the Rigs may have an adverse effect on the
average operating dayrates for the Rigs, and on their average utilization
levels. In such case, the Company's results of operations would be adversely
affected.
RISKS IN INTERNATIONAL OPERATIONS
All or a portion of the revenues from operation of the Rigs may be derived
from foreign operations and be subject, in varying degrees, to risks inherent in
doing business abroad. The Company's non-U.S. operations will be subject to
certain political, economic and other uncertainties not encountered in U.S.
operations, including risks of war and civil disturbances (or other risks that
may limit or disrupt markets), expropriation and the general hazards associated
with the assertion of national sovereignty over certain areas in which
operations are conducted. The Company's operations outside the United States may
face the additional risk of fluctuating currency values, hard currency
shortages, controls of currency exchange and repatriation of income or capital.
No prediction can be made as to what governmental regulations may be enacted in
the future that could adversely affect the international drilling industry.
OPERATIONAL RISKS; INDEMNIFICATION AND INSURANCE
The Company's operations will be subject to the many hazards inherent in the
offshore drilling business, including blowouts, craterings, fires, collisions
and groundings of drilling equipment, which could cause substantial damage to
the environment, and damage or loss from adverse weather and sea conditions.
These hazards could also cause personal injury and loss of life, suspend
drilling operations or seriously damage or destroy the property and equipment
involved and, in addition to environmental damage, could cause substantial
damage to producing formations and surrounding areas. The Company's offshore
drilling equipment will also be subject to hazards inherent in marine
operations, such as capsizing, grounding, collision, damage from weather or sea
conditions or unsound location. In addition, the Company may be subject to
liability for oil spills, reservoir damage and other accidents that could cause
substantial damages.
18
<PAGE>
The Company generally expects to be able to obtain contractual
indemnification pursuant to which the Company's customers would agree to protect
and indemnify the Company to some degree from liability for reservoir, pollution
and environmental damages, but there can be no assurance that the Company can
obtain such indemnities in all of its contracts, that the level of
indemnification that can be obtained will be meaningful, that such
indemnification agreements will be enforceable or that the customer will be
financially able to comply with its indemnity obligations. In addition, the
Company expects to maintain insurance coverage against loss of hire, property
damage, war risk (in the case of certain operations outside the U.S.), general
liability and environmental liabilities, including pollution caused by sudden
and accidental oil spills, but there can be no assurance that such insurance
will continue to be available or carried by the Company or if available and
carried will be adequate to cover the Company's loss or liability in many
circumstances. Moreover, any such insurance is expected to be subject to
substantial deductibles and to provide for premium adjustments based on claims.
ENVIRONMENTAL AND OTHER REGULATIONS
The Rigs and the operation of the Rigs must comply with extensive
environmental protection laws and regulations. Compliance with these laws and
regulations may entail significant expenses, including expenses for rig
modifications and changes in operating procedures. These laws and regulations
could have a material adverse effect on the business and the operations of the
Owners and the Company. Additional laws and regulations may be adopted in the
future which would have a material adverse effect on the business and the
operations of the Company. See "Business--Governmental Regulation."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CERTAIN EVENTS
Upon the occurrence of a Change of Control, Contract Termination or, under
certain circumstances, an Event of Loss (each as defined), each holder of the
Notes will have the right to require the Company to repurchase any or all of the
Notes owned by such holder at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest. However, the Company expects
that its ability to repurchase the Notes upon the occurrence of any such event
will be limited by the Bank Facility and by the terms of any other then existing
contractual obligations of the Company. In addition, the Company may not have
adequate financial resources to effect such a repurchase, and there can be no
assurance that the Company would be able to obtain such resources through a
refinancing of the Notes to be repurchased or otherwise. If the Company fails to
repurchase all of the Notes tendered for purchase upon the occurrence of any
such event, such failure will constitute an Event of Default (as defined) under
the Indenture. See "Description of New Notes--Change of Control," "--Right to
Require Repurchase Upon Contract Termination" and "--Certain
Covenants--Application of Event of Loss Proceeds."
With respect to the sale of assets referred to in the definition of "Change
of Control," the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a person and
therefore it may be unclear whether a Change of Control has occurred and whether
the Notes are subject to an offer to purchase.
Except as described under "Description of New Notes--Change of Control," the
Indenture does not contain provisions that permit the holders of the Notes to
require the Company to repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEES
The obligations of Chiles and Finance under the Notes will be guaranteed
(the "Subsidiary Guarantees"), jointly and severally, and irrevocably, fully and
unconditionally, on an unsecured basis, by the
19
<PAGE>
Owners. Various fraudulent conveyance laws have been enacted for the protection
of creditors and may be utilized by a court of competent jurisdiction to
subordinate or avoid the Subsidiary Guarantees issued by the Owners. It is also
possible that under certain circumstances a court could hold that the direct
obligations of the Owners could be superior to the obligations under the
Subsidiary Guarantees.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by an Owner with the intent to hinder, delay or defraud any present or
future creditor or that such Owner contemplated insolvency with a design to
favor one or more creditors to the exclusion in whole or in part of others or
(y) an Owner did not receive fair consideration or reasonably equivalent value
for issuing its Subsidiary Guarantee and at the time it issued such Subsidiary
Guarantee, such Owner (i) was insolvent by reason of the issuance of the
Subsidiary Guarantee, (ii) was engaged or about to engage in a business or
transaction for which the remaining assets of such Owner constituted
unreasonably small capital or (iii) 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 the Subsidiary Guarantee in favor of the Owner's
other creditors. Among other things, a legal challenge of the Subsidiary
Guarantee issued by an Owner on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Owner as a result of the issuance by Chiles
and Finance of the Notes. To the extent a Subsidiary Guarantee is avoided as a
fraudulent conveyance or held unenforceable for any other reason, the holders of
the Notes would cease to have any claim in respect of such Owner and would be
creditors solely of Chiles and Finance and the other Owner, assuming its
Subsidiary Guarantee was not also avoided or held unenforceable.
On the basis of financial information and other information currently
available to it, the Company believes that the Old Notes and the Subsidiary
Guarantees issued concurrently with the issuance of the Old Notes were incurred
for proper purposes and in good faith and that, after giving effect to
indebtedness incurred in connection with the issuance of the Old Notes and the
issuance of the Subsidiary Guarantees, the Company (including each Owner) was
and is solvent and will continue to be solvent, will have sufficient capital for
carrying on their respective business and will be able to pay their debts as
such debts become absolute and mature. There can be no assurance, however, that
a court passing on such questions would reach the same conclusions.
ABSENCE OF PUBLIC MARKET
The New Notes will constitute a new issue of securities for which there is
no established trading market. The Company does not intend to list the New Notes
on any national securities exchange or to seek the admission of the New Notes
for quotation through the National Association of Securities Dealers Automated
Quotation System. Although the Initial Purchasers have advised the Company that
they currently intend to make a market in the New Notes, they are not obligated
to do so and may discontinue such market making activity at any time without
notice. In addition, 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 and the pendency of any shelf registration statement.
Although the Old Notes have been designated for trading in the PORTAL market,
there can be no assurance as to the development or liquidity of any market for
the New Notes, the ability of the Holders of the New Notes to sell their New
Notes or the price at which the Holders would be able to sell their New Notes.
Future trading prices of the New Notes will depend on many factors, including,
among other things, prevailing interest rates, the Company's operating results
and the market for similar securities.
20
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Old Notes
pursuant to the Exchange Offer.
The net proceeds from the sale of the Old Notes in the Original Offering
were approximately $106.3 million, which the Company expects to use to (a)
partially fund the construction of the Rigs, (b) pay interest on the Notes
through the first two semi-annual interest payment dates and (c) provide working
capital. Pursuant to the Escrow Agreement, the Company deposited with the Escrow
Agent an amount in cash equal to the net proceeds of the Original Offering,
together with approximately $0.2 million for additional Notes issuance costs, as
follows: (i) into the Interest Escrow Account, approximately $11.1 million,
representing the amount sufficient to provide for payment in full of the first
two scheduled semi-annual interest payments on the Notes and (ii) into the
Construction Escrow Account (as defined), the balance of approximately $95.4
million. See "Description of New Notes--Escrow of Proceeds."
As of May 31, 1998, the Company had no outstanding indebtedness under the
Bank Facility and had $25.0 million of undrawn availability thereunder. See
"Description of Bank Facility."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of March 31, 1998, and as adjusted to give effect to consummation of the
Original Offering, and the application of the proceeds therefrom. The
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Debt:
Bank Facility........................................................................... $ -- $ --
Notes................................................................................... -- 110,000
--------- -----------
Total debt............................................................................ $ -- $ 110,000
--------- -----------
Members' equity:
Total Members' equity................................................................. $ 63,670 $ 63,670
--------- -----------
Total capitalization................................................................ $ 63,670 $ 173,670
--------- -----------
--------- -----------
</TABLE>
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial
statements of the Company as of and for the periods presented. The selected
financial data for the three-month period ended March 31, 1998 is derived from
financial statements that are unaudited but include all adjustments, consisting
of normal recurring accruals, that the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements (including the Notes thereto) included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (AUGUST 5, 1997)
MARCH 31, 1998 TO DECEMBER 31, 1997
------------------- --------------------
<S> <C> <C>
(UNAUDITED)
INCOME STATEMENT DATA:
Total revenues........................................................ $ -- $ --
Operating expenses:
Contract drilling................................................... -- --
General and administrative.......................................... 82,290 376,089
Depreciation........................................................ 2,565 5,953
Operating loss........................................................ 84,855 382,042
Interest income....................................................... 363,086 72,930
Net income (loss)..................................................... 278,231 (309,112)
OTHER FINANCIAL DATA:
Capital expenditures.................................................. $ 9,878,354 $ 5,215,116
Cash provided by (used in) operating activities....................... (3,618,017) 3,571,349
Cash used in investing activities..................................... (9,878,354) (5,215,116)
Cash provided by financing activities................................. -- 33,984,884
Ratio of earnings to fixed charges (1)................................ 62.3 --
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
------------------- --------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 18,769,174 $ 28,401,504
Rigs under construction and equipment, net............................ 44,895,880 35,020,091
Total assets.......................................................... 63,781,861 67,398,320
Members' equity....................................................... 63,699,826 63,421,595
</TABLE>
- ------------------------
(1) For the purpose of this calculation, "earnings" represents net income (loss)
plus fixed charges. Net income (loss) is representative of income (loss)
before income taxes as the Company is treated as a partnership for taxation
purposes. "Fixed charges" consists of an estimated portion of rentals
representing interest expense. As a result of the loss incurred in 1997,
earnings were not sufficient to cover fixed charges by $303,568.
22
<PAGE>
CERTAIN FINANCIAL FORECAST INFORMATION
GENERAL
The Forecast represents the Company's best assumptions and estimates as of
March 31, 1998, of its anticipated results of operations for each of the years
in the three-year period ended December 31, 2001. The Forecast was not prepared
with a view toward compliance with published guidelines of the American
Institute of Certified Public Accounts or generally accepted accounting
principles ("GAAP"). In addition, Arthur Andersen LLP, independent accountants
for the Company, have not examined, reviewed, compiled or applied agreed-upon
procedures to the Forecast and, accordingly, assume no responsibility for and
disclaim any association with such Forecast, and no other independent expert has
reviewed the Forecast. The Forecast should be read together with the information
contained in "Disclosure Regarding Forward-Looking Statements," "Risk Factors,"
"Use of Proceeds," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
The Company will not update or otherwise revise the Forecast, including any
revisions to reflect circumstances existing after March 31, 1998, or to reflect
the occurrence of unanticipated events, even if any or all of the underlying
assumptions do not materialize. Furthermore, the Company will not update or
revise the Forecast to reflect changes in general economic or industry
conditions. The Forecast should not be relied upon for any purpose following
consummation of the Original Offering.
For additional assumptions on which the Forecast information is based, see
"--Summary of Significant Assumptions for the Financial Forecast Information."
All assumptions and the Company's current and future businesses and operations
are subject to a number of uncertainties. See "Risk Factors."
LIMITATIONS OF FORECAST INFORMATION
The Forecast is based upon a number of estimates and assumptions that, while
presented with numerical specificity and, as of March 31, 1998, considered
reasonable by management of the Company, are inherently subject to significant
business, economic, competitive, regulatory and other uncertainties and
contingencies, all of which are difficult to predict and many of which are
beyond the control of the Company. The assumptions disclosed herein are those
that the Company believes are significant to the Forecast and reflect
management's judgment as of March 31, 1998. The Forecast is necessarily
speculative in nature, and it is usually the case that one or more of the
assumptions do not materialize. Not all assumptions used in the preparation of
the Forecast have been set forth herein.
The actual results achieved during the forecasted periods will vary from
those set forth in the Forecast, and those variations may be material. As
disclosed elsewhere in this Prospectus under "Risk Factors," the business and
operations of the Company are subject to substantial risks that increase the
uncertainty inherent in the Forecast. Many of the factors disclosed under "Risk
Factors" in this Prospectus could cause actual results to differ materially from
those expressed in the Forecast. The Forecast assumes the successful
implementation of the Company's business strategy, including the completion of
the construction of the Rigs on their respective Scheduled Delivery Dates with
the proceeds from the Original Offering and cash on hand. No assurance can be
given that the Company's strategy will be effective, that such construction will
be completed at the assumed construction costs or at the Rigs' respective
Scheduled Delivery Dates or at all, or that the anticipated income from the Rigs
or benefits from the Company's strategy will be realized in the period from
which the Forecast has been prepared, if ever.
THE INCLUSION OF THE FORECAST HEREIN SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE FORECAST WILL BE
ACHIEVED. PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORECAST AND SHOULD MAKE THEIR OWN INDEPENDENT ASSESSMENT OF THE COMPANY'S
FUTURE RESULTS OF OPERATIONS, CASH FLOWS AND FINANCIAL CONDITION.
The Forecast in general also assumes that, among other things, the Company
will not be negatively or positively affected by legal proceedings (see
"Business--Legal Proceedings"); the Company will not be
23
<PAGE>
negatively affected by any material proceedings with respect to compliance with
environmental laws and rules; there will be no material changes in the United
States, foreign state or local tax, environmental or regulatory laws, rules or
interpretations thereof that would materially affect the Company, including, but
not limited to, those with respect to OPA '90 (as defined) (in each case, see
"Risk Factors--Environmental and Other Regulations" and "Business--Governmental
Regulations"); there will be no material change in any of the Construction
Contracts or other material contracts of the Company, and the parties thereto
will perform their obligations thereunder; there will be adequate trained
personnel available to man the Rigs at costs commensurate with the costs paid by
the Company's competitors, and no labor or industrial disputes, political unrest
or other disturbances that would materially affect the operations or revenues of
the Company, nor any disputes affecting the Company's suppliers or customers,
will occur; the Company will not make any material acquisitions or dispositions;
the Company will be able to employ the Rigs at the dayrates and at the
utilization levels assumed in the Forecast and that the Rigs can be operated at
the level of expense assumed in the Forecast; the Company will collect its
accounts receivable in a timely manner; key members of management will continue
to be employed by the Company (see "Management" and "Certain Relationships and
Related Transactions"); the Company will be able to comply with covenants under
agreements under which it will have indebtedness outstanding (see "Risk
Factors--Substantial Leverage; Ability to Service Debt"); the Company's business
will not be subject to materially adverse changes in the oil and gas industry
and the market for oil and gas production, or other macroeconomic trends; and
there will be no developments having a material adverse impact on the Company's
business.
PROJECTED FINANCIAL AND OPERATING DATA
The Forecast set forth in the table below is derived from the forecasted
results of the Rigs, which are expected to be completed in substantial part with
the proceeds of the Original Offering. The Forecast has been developed by the
Company for the years 1999 through 2001 with the CHILES COLUMBUS assumed to
begin operations in May 1999 and the CHILES MAGELLAN assumed to begin operations
in October 1999. The Forecast has been prepared by the Company as of March 31,
1998 and represents the Company's best estimate as of such date of the Company's
projected revenues, operating expenses, net income and certain operating data
for each of the years in the three-year period ending December 31, 2001.
The Forecast was prepared by the Company solely for use in connection with
the private placement of the Old Notes and not for publication or with a view to
complying with the published guidelines of the Commission regarding projections
or with the guidelines established by the American Institute of Certified Public
Accountants and is included in this Prospectus only because it was furnished to
purchasers of Old Notes. The inclusion of this information should not be
regarded as an indication that the Company or anyone who received this
information considered it a reliable predictor of future events, and this
information should not be relied on as such. This information has not been
updated subsequent to consummation of the Original Offering and will not be
updated in this Prospectus, in any supplement or amendment hereto or otherwise
in any manner.
24
<PAGE>
RECENT DEVELOPMENTS
Although the information contained in the Forecast has not been updated
subsequent to consummation of the Original Offering and will not be updated in
this Prospectus, in any supplement or amendment hereto or otherwise in any
manner, Holders should be aware that with respect to the contract drilling
revenues assumed in the Forecast, which represented the Company's estimate as of
March 31, 1998 of expected average dayrates over the period covered by the
Forecast, average dayrates have declined significantly since such date. This
decline would adversely affect projected contract drilling revenues, income from
Rig operations, net income and EBITDA (as defined below) over the period covered
by the Forecast. Recent contract fixings of which the Company is aware for
similar rigs have featured dayrates ranging from approximately $35,000 to
$60,000.
<TABLE>
<CAPTION>
FORECAST FOR YEARS ENDED
DECEMBER 31,
-------------------------------
1999 2000 2001
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS EXCEPT RATIOS AND
OPERATING DATA)
INCOME STATEMENT DATA:
Revenues:
Contract drilling revenues................................................... $ 24,592 $ 53,655 53,655
Operating expenses:
Rig operating expense........................................................ 5,682 12,688 13,069
Drydocking and maintenance expense........................................... 231 517 532
Depreciation and amortization expense........................................ 5,085 7,987 7,987
General and administrative expenses.......................................... 663 1,478 1,523
--------- --------- ---------
Total operating expenses................................................... 11,661 22,670 23,111
--------- --------- ---------
--------- --------- ---------
Income from Rig operations................................................. $ 12,931 $ 30,985 $ 30,544
Other income (expense)
Interest income.............................................................. 909 249 1,540
Interest expense............................................................. (3,187 (1) (11,286) (11,125)
--------- --------- ---------
--------- --------- ---------
Net income (2)............................................................. $ 10,653 $ 19,948 20,959
OTHER FINANCIAL DATA:
Total debt outstanding (end of period) (3)..................................... $ 119,768 $ 110,000 $ 110,000
Notes outstanding (end of period).............................................. 110,000 110,000 110,000
Bank Facility borrowings (end of period)....................................... 9,768 -- --
Total Members' equity.......................................................... 76,317 96,265 117,224
Total capitalization (4)....................................................... 196,085 206,265 227,224
Total debt as a percentage of total capitalization............................. 61.1% 53.3% 48.4%
Capital expenditures........................................................... -- -- --
EBITDA (5)..................................................................... 18,016 38,972 38,531
Ratio of EBITDA to interest expense............................................ 5.7x 3.5x 3.5x
Ratio of total debt to EBITDA.................................................. 6.6x 2.8x 2.9x
OPERATING DATA:
Revenues per Rig per day....................................................... $ 75,000 $ 75,000 $ 75,000
Operating expenses per Rig per day............................................. 17,150 17,381 17,903
Average utilization............................................................ 98% 98% 98%
</TABLE>
- ------------------------
(1) Interest is capitalized through April 1999 for the CHILES COLUMBUS and
through September 1999 for the CHILES MAGELLAN.
(2) The Company is not subject of U.S. corporate income taxes because as a
limited liability company, it is treated as a partnership for tax purposes,
and such taxes are liabilities of the individual equity members. The Company
is permitted under the Indenture to make Permitted Quarterly Tax
Distributions (as defined) to its Members. The Company estimates that,
during the period covered by the Forecast, it will not be required to make
any significant Permitted Quarterly Tax Distributions. Thereafter, the
Company may be required to make such Permitted Quarterly Tax Distributions
pursuant to, and subject to the terms of, the Operating Agreement (as
defined).
(3) Total debt is assumed to include only the Notes and borrowings under the
Bank Facility.
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<PAGE>
(4) Total debt plus total Members' equity.
(5) EBITDA consists of income prior to deductions for net interest expense,
income taxes, depreciation, amortization and noncash items. However, the
Company is not subject to U.S. corporate income taxes because as a limited
liability company, it is treated as a partnership for tax purposes, and such
taxes are liabilities of the individual equity members. EBITDA is not
intended to represent cash flows from operations, as defined by GAAP, and
should not be considered as an alternative to net income as an indicator of
the Company's operating performance or to cash flows from operations as a
measure of liquidity. EBITDA is included in this Prospectus as it is one
basis on which the Company assesses and will assess its financial
performance.
SUMMARY OF SIGNIFICANT ASSUMPTIONS FOR THE FINANCIAL FORECAST INFORMATION
CONTRACT DRILLING REVENUES. Contract drilling revenues are calculated based
on both Rigs operating under daywork contracts at dayrates of $75,000 per day,
which is not escalated over the period covered by the Forecast. Such assumption
represents the Company's estimate as of March 31, 1998 of expected average
dayrates over the period covered by the Forecast based on recent contract
fixings for comparable rigs of which the Company was aware as of March 31, 1998.
RIG OPERATING EXPENSES. The Forecast assumes daily drilling operating
expenses of $17,150 per Rig. Such expenses include, among other things, amounts
payable for crew costs, maintenance, insurance, inventory, medical costs and
catering. Such expenses are comparable to expenses for rigs that are similar to
the Rigs and operating in similar conditions. In the Forecast, costs are assumed
to escalate at a rate of 3% per year but revenues are assumed to remain flat.
The Forecast assumes that the Rigs will operate in the Gulf of Mexico during the
period covered thereby.
GENERAL AND ADMINISTRATIVE EXPENSE. The Forecast includes general and
administrative expenses of approximately $2,000 per Rig per day, which
represents the Company's estimate of likely general and administrative expenses
based on its management's past experience in the offshore contract drilling
industry. In the Forecast, costs are assumed to escalate at a rate of 3% per
year but revenues are assumed to remain flat. This amount includes expected
payments under the Services Agreement with SEACOR based on expected utilization
of SEACOR services and employees and incorporates the Company's estimate of
expenses associated with the issuance of publicly traded securities and related
securities laws reporting obligations.
UTILIZATION The Forecast assumes that the utilization rate for the Rigs
during the period covered by the Forecast will equal 98%. Over the past ten
years, the average utilization rate for comparable premium jackup rigs equalled
93% and as of March 31, 1998 it exceeded 96%. The Company's assumption of a 98%
utilization rate during the period covered by the Forecast is based on such
historical utilization rates and the Company's belief that the Rigs will be the
newest, most productive and versatile units available during such period in the
premium jackup rig segment.
WORKING CAPITAL ASSUMPTIONS. The Forecast assumes that the Company will be
required to carry unpaid contract drilling accounts payable for an average of 45
days, resulting in an average working capital requirement during the period
covered by the Forecast of $6.1 million when both Rigs are operational.
DEPRECIATION AND AMORTIZATION. Under the Forecast, the assumed construction
and outfitting cost for the Rigs of $171.3 million has been depreciated on a
straight line basis over 25 years. Depreciation is recorded based on the month
the Rig is assumed to be placed in service. As of March 31, 1998, the Company
anticipated no significant capital expenditures during the period covered by the
Forecast, which, if incurred, would increase depreciation expense and therefore
reduce operating income.
INTEREST INCOME. The Forecast assumes interest income of $0.91 million in
1999, substantially all of which is attributable to interest accruing on the
Construction Escrow Account at an assumed rate of 5% per annum. Thereafter, the
Forecast assumes interest income of $0.25 million in 2000 and $1.5 million in
2001, consisting of interest earned on cash balances maintained by the Company,
accruing in each case at an annual rate of 5%.
26
<PAGE>
INTEREST EXPENSE. The Forecast assumes that the entire aggregate original
principal amount of the Old Notes will remain issued and outstanding throughout
the periods presented and that during such time the Notes will accrue interest
at a rate of 10% per annum, payable semi-annually on May 1 and November 1 of
each year. In addition, the Forecast anticipates that an initial borrowing under
the Bank Facility of $6.1 million will occur during the second quarter of 1999
and that a subsequent borrowing of $4.6 million will occur during the third
quarter of 1999. At year-end 1999, the Forecast assumes total borrowings
outstanding under the Bank Facility of $9.8 million, declining to $0.18 million
by the end of the first quarter of 2000 and fully retired during the second
quarter of 2000. All borrowings under the Bank Facility are projected to bear
interest at an annual rate of 6.95%.
At maximum expected usage of the Bank Facility, the Company anticipates that
it would have unused borrowing capacity of at least half of the committed amount
thereunder. The Company's projected interest expense includes commitment fees
payable under the Bank Facility on the undrawn portion of the commitment
thereunder, which fees are payable quarterly in arrears on such undrawn amount,
at a rate of 0.25% per annum until delivery by AMFELS of the first Rig and at a
rate of 0.50% per annum thereafter.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company was formed in August 1997 for the purpose of constructing,
owning and operating a fleet of state-of-the-art premium jackup offshore
drilling rigs. At formation, SEACOR contributed $8.85 million in cash to the
capital of the Company (which amount was paid directly to third parties on
behalf of the Company) and COI, LLC (an entity formed by William E. Chiles
(30%), Donald B. Gregg (7.5%), Bassoe Rig Partners Ltd. ("Bassoe") (37.5%) and
Richard and Shannon Fairbanks (25%)) ("COI") contributed $0.36 million in cash
to the capital of the Company, together with the Construction Contracts,
construction in progress, certain office equipment and other rights, properties
and liabilities with an agreed-upon value of $8.49 million. The historic cost of
such assets contributed by COI was $2.26 million. The difference between the
$8.49 million agreed-upon value and the historic cost of COI's contributed
assets, $6.23 million, has been recorded in the accompanying balance sheet as
rigs under construction and equipment. COI and a predecessor (formed in March
1997) had been organized by Mr. Chiles and its other owners for the purpose of
entering into the Construction Contracts, engaging in related rig design,
engineering, procurement and financing activities and preparing for commencement
of business operations. Pursuant to the final phase of the Equity Financing,
SEACOR contributed an additional $12.15 million in cash to the Company and $14.0
million in cash advances previously made to the Company by SEACOR, and the
Company accepted cash subscriptions for the purchase of equity interests from
institutional and individual accredited investors aggregating $20.0 million. At
March 31, 1998, the Company had cash on hand of approximately $18.8 million and
no indebtedness for borrowed money.
Finance has been recently formed by the Company as a Delaware corporation
for the sole purpose of acting as co-issuer of the Notes. Finance has nominal
assets, no liabilities and does not conduct any operations. Finance will not
receive any proceeds of the Notes as such proceeds are distributed from time to
time from the Construction Escrow Account. Each Owner has been recently formed
as a Delaware limited liability company for the purpose of owning and operating
one of the Rigs. As of the date of this Prospectus, neither Finance nor either
of the Owners has any operating history. Prior to the date of the Original
Offering, the Owners and Finance each had nominal capitalization.
The Company previously succeeded to all rights and obligations of COI under
the Construction Contracts and Chiles has assigned to each Owner the
Construction Contract for such Owner's Rig. In addition, the Company entered
into the Services Agreement with SEACOR. See "Certain Relationships and Related
Transactions--Services Agreement."
RESULTS OF OPERATIONS
Since inception, the Company has engaged in no operations other than
managing construction of the Rigs and related matters. To date, the Company has
not generated any operating revenues. The Company had a net loss of
approximately $0.31 million in 1997 as a result of general and administrative
expenses and depreciation in excess of interest income. For the three months
ended March 31, 1998, the Company had net income of approximately $0.28 million
as a result of interest income in excess of general and administrative expenses.
Owing to the Company's lack of significant operating history, the Company's
historical financial data may not be meaningful or indicative of future results.
The Company's results of operations in the future will depend on the earnings
from the Rigs and its level of operating expenses.
28
<PAGE>
DEVELOPMENT STAGE COMPANY
The Company has operated as a development stage company since inception by
devoting substantially all of its efforts to designing, engineering and
contracting with shipyards and vendors for the Rigs, raising capital and
securing contracts for the Rigs. The Company has not generated revenues, nor is
there any assurance that the Company will generate significant revenues in the
future. In addition, there can be no assurance that the Company will
successfully complete the transition from a development stage company to
successful operations. Additional risk factors associated with the Company's
operations include, but are not limited to, oil and gas prices, capital
expenditure plans of oil and gas operators, access to capital, completion of
construction of the Rigs and competition. As a result of the aforementioned
factors and the related uncertainties, there can be no assurance of the
Company's future success. See "Risk Factors."
The Company has a loss from operations of $0.08 million and $0.38 million
for the three months ended March 31, 1998 and for the period from inception to
December 31, 1997, respectively. The Company's management is currently pursuing
a business strategy that includes obtaining drilling contracts with oil and gas
operators, employment of rig personnel, obtaining additional financing to
complete the construction of the Rigs and fund the purchase of drilling
equipment, and overseeing the construction of the Rigs and installation of the
drilling equipment. There can be no assurances that this business strategy will
be achieved. While pursuing this business strategy, the Company will experience
cash flow deficits until construction is completed and the Rigs are placed in
operation. As a result of the aforementioned factors and related uncertainties,
there is substantial doubt as to the Company's ability to continue as a going
concern. The Company's financial statements included elsewhere herein do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should be the Company be unable to continue as a going concern.
CAPITAL RESOURCES AND LIQUIDITY
Exclusive of increases in accounts payable, the Company has had negative
operating cash flow since inception, and has financed its operations with a
combination of Member advances, the sale of equity interests in the Company and
accounts payable.
From January 1, 1998 through the April 1999 Scheduled Delivery Date of the
CHILES COLUMBUS, the Company expects to incur approximately $73.0 million in
aggregate costs to complete construction and outfitting this Rig, including
internal construction costs and excluding net capitalized interest. From January
1, 1998 through the September 1999 Scheduled Delivery Date of the CHILES
MAGELLAN, the Company expects to incur approximately $73.5 million in aggregate
costs to complete construction and outfitting of this Rig, including internal
construction costs and excluding net capitalized interest. The related
Construction Contracts are fixed-price contracts and approximately 95% of the
aggregate OFE cost is fixed under firm delivery contracts with the various
vendors. The Company expects to finance these costs with the net cash proceeds
of the Equity Financing and with the net proceeds of the Original Offering and
the Bank Facility. Although availability under the Bank Facility will commence
only upon the first delivery of a Rig, the Company expects that with the net
cash proceeds of the Equity Financing, the net proceeds of the Original Offering
and the Bank Facility, it will be able to finance the construction and
outfitting costs required to mobilize the Rigs. At March 31, 1998, the Company
had cash on hand of approximately $18.8 million and no indebtedness for borrowed
money. Additionally, upon delivery of the first Rig under construction, cash
flow from operations generated by this Rig and borrowings under the Bank
Facility would be available to cover remaining construction, outfitting and
overhead costs associated with the second Rig. See "Description of Bank
Facility."
As of June 19, 1998, the balance of funds in the Construction Escrow Account
was $84.4 million.
Because the Rigs are newbuildings, the Company does not expect to incur
material additional capital expenditures associated with the Rigs for the
foreseeable future. The Company has budgeted $0.23 million, $0.52 million and
$0.53 million for the three years ended December 31, 1999, 2000 and 2001,
respectively,
29
<PAGE>
for routine inspection and maintenance requirements for its Rigs, and expects to
fund these expenditures with cash flow from operations. Additionally, the
Company has not budgeted for any mobilization of either Rig from the Gulf of
Mexico to another market, which if it occurs could materially increase rig
operating expense levels, and reduce revenues while the Rig is in transit and
not working. Any unanticipated capital expenditure or Rig mobilization could
adversely affect cash flow from operations and operating income in the period
incurred, although the Company believes that borrowings under the Bank Facility
would be adequate to address any short-term capital or liquidity needs created
as a result of any such event.
In addition to capital requirements associated with Rig construction, the
Company has significant debt service obligations, principally with respect to
the Notes. As the Notes bear interest at a rate of 10% per annum, the Company
will require $11.0 million per year to cover interest on the Notes as long as
all of the Notes are outstanding. Interest on the Notes through the first two
semi-annual interest payment dates will be paid from amounts on deposit in the
Interest Escrow Account. Thereafter, the Company expects to finance debt service
on the Notes and on borrowings outstanding under the Bank Facility from cash
flow from operations and, if necessary, additional borrowings under the Bank
Facility. At the September 1999 Scheduled Delivery Date of the CHILES MAGELLAN,
the Company anticipates that it will have undrawn committed availability under
the Bank Facility of at least half of the $25.0 million commitment thereunder.
The Company projects a borrowing of approximately $6.1 million under the
Bank Facility in connection with the delivery of the CHILES COLUMBUS, scheduled
for April 1999. Proceeds of this borrowing together with a portion of the
proceeds of the Original Offering and cash flow from operations would be used to
cover start-up working capital needs in connection with commencement of
operations of this Rig. Although the Bank Facility is a committed facility, no
amounts may be borrowed thereunder until and upon the delivery of the first of
the two Rigs by AMFELS and the acceptance thereof by the Company. The entire
committed facility amount of $25.0 million would be available at delivery by
AMFELS of the first Rig, subject to satisfaction of certain other conditions
precedent provided for under the Bank Facility. See "Description of Bank
Facility."
The Company believes that cash flow from operations will be sufficient to
retire all indebtedness under the Bank Facility by the second quarter of 2000,
assuming that the Rigs are delivered at their respective Scheduled Delivery
Dates and promptly commence working at expected dayrate and operating expense
levels. The Company expects to finance start-up working capital needs associated
with commencement of operations of the second Rig to be delivered out of cash
flow from operations and, if necessary, additional borrowings under the Bank
Facility.
RECENT DEVELOPMENTS
The Original Offering was consummated on April 29, 1998. See "Prospectus
Summary--The Financing" and "Use of Proceeds." In addition, the Company entered
into the Bank Facility on the Issue Date. See "Description of Bank Facility."
On July 24, 1998, the Company entered into a letter of intent with a group
of affiliated equity funds for a potential equity investment in the Company in
excess of $60 million. The non-binding letter of intent does not contain, and
the parties have not fully negotiated, the material terms of the investment
including, among other things, rights with respect to governance,
representations and warranties, and closing conditions. Consequently, the
potential investment is subject to negotiation of such terms, the preparation,
execution and delivery of mutually acceptable definitive documentation
reflecting such terms and the satisfaction of any and all conditions precedent
to be contained in such definitive documentation. There can be no assurance that
the parties will reach agreement on the material terms of the potential
investment, that they will enter into definitive documentation reflecting such
terms or, if such definitive documentation is executed and delivered, that the
conditions precedent contained therein will be satisfied and the investment
consummated.
The Construction Options were not exercised and expired on July 31, 1998 in
accordance with their terms. See "Business--The Construction Options." The
Company is exploring other possible arrangements with one or more shipyards for
the construction of one or more additional premium jackup rigs.
30
<PAGE>
BUSINESS
THE COMPANY
The Company was formed in 1997 for the purpose of constructing, owning and
operating a fleet of state-of-the-art premium jackup offshore rigs. In 1997, the
Company commenced construction of the first two such rigs at the AMFELS shipyard
in Brownsville, Texas under fixed-price contracts. The first Rig, the CHILES
COLUMBUS, is a LeTourneau Enhanced 116-C design and the second, the CHILES
MAGELLAN, is a LeTourneau Super 116 design. The Company expects that it will
pay, net of capitalized interest, $83.5 million and $87.8 million, respectively,
in total construction and outfitting costs for the Rigs. The Company and AMFELS
have scheduled the Rigs for delivery in April and September 1999, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Overview." Chiles also holds three sequential Construction Options to
construct additional LeTourneau Super 116 design jackup rigs at a total cost of
approximately $100.0 million per rig. See "--The Construction Options."
SEACOR, operator of the second largest fleet of offshore service vessels in
the world, has invested $35.0 million for approximately 55.4% of the outstanding
equity interests in the Company. SEACOR is a Delaware corporation whose common
stock is listed for trading on the New York Stock Exchange under the symbol
"CKH." The remaining equity interests in the Company are held by private
investors, including the original founders and senior management. See "Principal
Members" and "Certain Relationships and Related Transactions--Brokerage Fee."
The Company's management team has extensive experience in the offshore
contract drilling industry. William E. Chiles, the President and CEO of the
Company, has over 25 years of experience in the industry. During his career Mr.
Chiles founded or co-founded three offshore contract drilling companies and
supervised the construction of four jackup rigs at the Brownsville, Texas
shipyard facility where the two Rigs are being constructed. The Company's
operating and engineering personnel have substantial experience operating,
marketing, building, refurbishing and upgrading premium jackup rigs, including
the LeTourneau 116-C design.
For a more detailed description of the Company's organization and the
capital contributions of the Company's founders, see "Notes to Financial
Statements--Note 1, Organization and Business."
THE RIGS
Jackup rigs are the largest category of mobile offshore drilling units,
representing approximately 60% of such units. A mobile offshore drilling unit
consists of a drilling package mounted on a hull, which is maintained at a
specific location during drilling operations. The drilling package typically
consists of a power plant, hoisting equipment, a rotary system, tubulars and
systems for mud treating and pumping, well control and the handling of bulk
materials. The specifications of the drilling package determine the capability
of the rig to drill to various depths and penetrate certain sub-surface
environments. The drilling unit also includes the living quarters, heliport,
cranes and tensioning and compensation systems of the drilling package. The
design of the particular drilling unit determines the marine environment in
which it can operate.
Several factors determine the type of rig most suitable for a particular
project, the more significant of which are the marine environment, water depth
and seabed conditions at the proposed drilling location, whether the drilling is
being done over a platform or other structure, the intended well depth and
variable deck load and well control requirements. Considerable variation in
utilization and dayrates often exists for different types of rigs, primarily as
a function of their capabilities and location.
Jackup rigs are mobile, self-elevating drilling platforms equipped with legs
that are lowered to the ocean floor until a foundation is established to support
the drilling platform. A jackup rig consists of the hull, jacking system,
drilling equipment, crew quarters, loading and unloading facilities, storage
areas,
31
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heliport and other related equipment. Oil and gas exploration companies use
jackup rigs extensively for offshore drilling in water depths from 20 feet to
350 feet. A jackup rig is towed to the drillsite with its hull riding in the sea
and its legs retracted. At the drillsite, the legs are jacked down to the ocean
floor until the hull has been elevated a sufficient distance above the water to
allow storm waves to pass beneath. After completion of drilling operations, the
hull is lowered until it rests in the water and then the legs are retracted for
relocation to another drillsite.
The nature of the seabed at a particular drilling location dictates the
appropriate rig-leg configuration of the jackup rig to be used. Some jackup rigs
have a lower hull (mat) attached to the bottom of the rig legs, while others
have independent legs. A mat-supported rig provides a stable foundation in flat
soft-bottom areas, while independent-leg rigs are better suited for harder or
uneven seabed conditions.
Jackup rigs can be generally characterized as either slot jackup rigs or
cantilevered jackup rigs. Slot-design rigs are configured for drilling
operations to take place through a slot in the hull. A slot design is
appropriate for drilling exploratory wells in the absence of any existing
permanent structure, such as a production platform, although some slot design
rigs are capable of drilling over certain production platforms. A cantilevered
jackup rig can extend its drill floor and derrick over an existing, fixed
structure, thereby permitting the rig to drill or work over a well located on
such a structure.
Jackup rigs vary a great deal in size and capability. The Company defines
premium jackup rigs as cantilevered jackup rigs capable of operating in water
depths of 300 feet or greater, excluding (due to their substantially higher
construction cost) the class of jackup rigs built for service in "harsh
environments," such as the North Sea and Eastern Canada.
WORLDWIDE JACKUP RIG UTILIZATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
0-200'C 0-200'S 250'-299'C 250-299'S 300'+C
<S> <C> <C> <C> <C> <C>
Mar-89 52.7% 52.9% 76.2% 59.5% 88.3%
Apr-89 53.8% 52.9% 76.2% 59.5% 91.7%
May-89 56.0% 54.5% 69.8% 64.3% 90.0%
Jun-89 61.5% 62.5% 74.6% 57.1% 90.0%
Jul-89 62.6% 64.5% 79.4% 64.3% 92.4%
Aug-89 62.6% 70.0% 84.1% 59.5% 95.8%
Sep-89 61.8% 72.4% 84.1% 57.1% 94.1%
Oct-89 60.7% 69.0% 90.5% 52.4% 89.9%
Nov-89 66.3% 67.9% 91.9% 76.2% 93.3%
Dec-89 65.2% 64.3% 95.2% 78.6% 91.6%
Jan-90 65.2% 64.3% 98.4% 76.2% 94.1%
Feb-90 62.9% 64.3% 98.4% 66.7% 96.6%
Mar-90 64.0% 60.7% 95.2% 73.8% 96.7%
Apr-90 64.0% 64.3% 88.7% 71.4% 96.7%
May-90 65.2% 74.1% 98.4% 66.7% 94.3%
Jun-90 67.4% 69.2% 98.3% 67.4% 96.0%
Jul-90 66.3% 69.2% 95.1% 67.4% 96.7%
Aug-90 62.9% 69.2% 93.4% 67.4% 95.9%
Sep-90 62.9% 65.4% 98.4% 69.8% 95.9%
Oct-90 69.2% 64.0% 95.1% 59.1% 94.3%
Nov-90 70.0% 64.0% 96.7% 63.6% 96.0%
Dec-90 72.2% 72.0% 98.4% 68.2% 95.9%
Jan-91 68.9% 68.0% 95.2% 65.9% 95.9%
Feb-91 63.3% 68.0% 95.2% 61.4% 92.7%
Mar-91 64.0% 63.0% 92.3% 62.8% 93.4%
Apr-91 69.7% 65.4% 92.2% 65.1% 95.0%
May-91 67.4% 65.4% 93.7% 60.5% 97.5%
Jun-91 64.0% 65.4% 92.2% 69.8% 95.1%
Jul-91 66.7% 69.2% 92.2% 70.5% 92.6%
Aug-91 59.1% 68.0% 85.9% 63.6% 91.7%
Sep-91 62.5% 68.0% 85.9% 63.6% 93.4%
Oct-91 64.4% 69.6% 90.6% 63.6% 92.6%
Nov-91 65.1% 70.8% 92.3% 59.1% 92.6%
Dec-91 71.3% 66.7% 89.2% 61.4% 95.0%
Jan-92 69.4% 62.5% 89.2% 56.8% 91.6%
Feb-92 61.2% 66.7% 81.5% 47.7% 89.1%
Mar-92 63.5% 68.2% 84.6% 40.5% 86.7%
Apr-92 62.7% 68.2% 86.2% 40.5% 89.3%
May-92 56.0% 63.6% 84.4% 38.1% 90.9%
Jun-92 59.5% 63.6% 79.7% 39.5% 90.9%
Jul-92 58.3% 63.6% 84.4% 39.5% 87.6%
Aug-92 63.5% 66.7% 81.3% 41.9% 85.1%
Sep-92 68.2% 66.7% 89.1% 44.2% 84.4%
Oct-92 71.8% 66.7% 95.3% 52.4% 86.9%
Nov-92 77.6% 61.9% 95.3% 64.3% 91.0%
Dec-92 76.5% 66.7% 96.9% 64.3% 92.6%
Jan-93 79.5% 65.2% 96.8% 68.3% 88.6%
Feb-93 78.6% 65.0% 93.8% 68.3% 88.6%
Mar-93 78.6% 60.0% 93.8% 65.0% 87.0%
Apr-93 77.4% 70.0% 92.2% 72.5% 88.7%
May-93 77.4% 70.0% 96.9% 72.5% 91.1%
Jun-93 78.6% 70.0% 96.9% 72.5% 93.5%
Jul-93 76.2% 70.0% 93.8% 76.7% 92.7%
Aug-93 76.7% 64.7% 90.8% 74.4% 91.1%
Sep-93 76.7% 64.7% 90.8% 76.7% 90.4%
Oct-93 75.3% 70.6% 95.4% 74.4% 92.8%
Nov-93 77.6% 70.6% 96.9% 74.4% 90.4%
Dec-93 77.6% 64.7% 95.4% 73.8% 93.6%
Jan-94 76.2% 61.1% 92.1% 65.0% 91.2%
Feb-94 76.2% 55.6% 92.1% 50.0% 92.0%
Mar-94 77.4% 50.0% 92.1% 62.5% 90.4%
Apr-94 77.4% 55.6% 86.9% 67.5% 88.1%
May-94 81.0% 55.6% 90.2% 70.0% 84.9%
Jun-94 81.2% 61.1% 90.2% 75.0% 85.7%
Jul-94 81.2% 55.6% 88.5% 72.5% 84.9%
Aug-94 76.5% 58.8% 82.0% 70.0% 86.5%
Sep-94 76.5% 58.8% 88.7% 65.0% 89.7%
Oct-94 80.0% 58.8% 85.5% 67.5% 91.3%
Nov-94 75.3% 64.7% 87.1% 72.5% 87.3%
Dec-94 72.9% 64.7% 88.7% 75.0% 89.7%
Jan-95 69.4% 64.7% 88.7% 67.5% 89.5%
Feb-95 65.9% 58.8% 93.5% 70.0% 89.5%
Mar-95 61.9% 58.8% 93.5% 62.5% 89.8%
Apr-95 69.0% 58.8% 92.1% 55.0% 91.3%
May-95 72.6% 62.5% 95.2% 52.5% 93.7%
Jun-95 76.2% 64.3% 95.2% 67.5% 95.3%
Jul-95 74.7% 64.3% 93.7% 67.5% 96.1%
Aug-95 75.9% 64.3% 95.2% 68.3% 96.1%
Sep-95 75.9% 64.3% 96.8% 70.0% 98.4%
Oct-95 71.4% 64.3% 96.8% 72.5% 98.4%
Nov-95 73.5% 64.3% 96.8% 70.7% 98.4%
Dec-95 74.7% 64.3% 96.8% 72.5% 96.9%
Jan-96 76.5% 64.3% 96.8% 63.4% 96.9%
Feb-96 80.0% 66.7% 93.4% 69.6% 96.9%
Mar-96 81.3% 66.7% 93.4% 71.7% 96.9%
Apr-96 82.5% 66.7% 93.4% 78.3% 98.4%
May-96 87.5% 66.7% 95.1% 80.4% 97.6%
Jun-96 87.5% 66.7% 95.1% 82.6% 97.6%
Jul-96 87.5% 66.7% 95.1% 82.6% 99.2%
Aug-96 90.0% 66.7% 96.8% 80.4% 96.9%
Sep-96 91.1% 66.7% 96.8% 86.4% 95.4%
Oct-96 92.4% 73.3% 96.8% 85.4% 96.2%
Nov-96 91.1% 73.3% 96.8% 90.2% 97.7%
Dec-96 92.3% 80.0% 96.8% 90.0% 96.9%
Jan-97 88.5% 80.0% 98.3% 87.5% 95.5%
Feb-97 90.9% 80.0% 98.4% 92.5% 95.5%
Mar-97 92.3% 80.0% 98.4% 94.9% 97.0%
Apr-97 93.6% 80.0% 98.4% 97.4% 97.7%
May-97 92.3% 86.7% 98.4% 97.4% 97.7%
Jun-97 93.6% 86.7% 98.4% 95.0% 97.7%
Jul-97 93.6% 86.7% 98.4% 95.0% 97.0%
Aug-97 94.8% 86.7% 98.4% 95.0% 97.7%
Sep-97 94.8% 86.7% 98.4% 92.5% 97.0%
Oct-97 96.1% 86.7% 98.4% 92.5% 97.7%
Nov-97 96.1% 86.7% 98.4% 95.0% 97.0%
Dec-97 96.2% 93.3% 96.8% 95.1% 97.7%
Jan-98 94.9% 93.3% 95.2% 97.5% 97.0%
Feb-98 96.2% 93.8% 96.8% 97.4% 97.0%
Mar-98 94.9% 100.0% 98.5% 97.5% 96.3%
</TABLE>
SOURCE: Offshore Data Services.
The Rigs to be constructed by the Company consist of one LeTourneau Enhanced
116-C jackup rig and one LeTourneau Super 116 jackup rig, both of which are
improved versions of the most versatile and popular design in the worldwide
jackup rig fleet (the LeTourneau 116-C). The hulls, machinery and outfitting are
identical on the two Rigs and are based on the larger LeTourneau Super 116
design. The only difference is that the LeTourneau Super 116 design has a leg
that has been designed to a higher specification while the LeTourneau Enhanced
116-C design is based on a LeTourneau 116-C design that has subsequently been
strengthened to carry the larger LeTourneau Super 116 hull and longer legs. The
Rigs will have capabilities that substantially exceed those of typical existing
premium jackup rigs, including increased engine horsepower, increased hydraulic
horsepower and an enlarged mud handling and solids control system. The Rigs will
also incorporate such features as digital drilling controls, dual pipe handling,
32
<PAGE>
pipe handling robotics, and a drillpipe identification and tracking system. The
Rigs will further differentiate themselves by their increased productivity, due
mainly to their superior engine and hydraulic horsepower.
It is anticipated that the Rigs will fly the Panamanian flag, with an
"A1--Self Elevating Drilling Unit" certification from the American Bureau of
Shipping.
RIG PRODUCTIVITY ENHANCEMENTS
The Rigs contain numerous productivity-enhancing features that the Company
believes make their capabilities superior to those of existing premium jackup
rigs. A hydraulic horsepower of two times the typical premium jackup rig (6,600
hp vs. 3,200 hp) increases drilling performance. The higher horsepower increases
pressure at the drill bit, leading to faster drilling. The larger mud pump
system capacity (three mud pumps versus a standard of two) coupled with
increased solids control capacity allows for faster circulation of cuttings and
a quicker cleaning of mud resulting in more productive drilling. The extended
cantilevering capability permits the drilling package to extend up to 70 feet
from the hull without moving the Rig.
The Company expects that the technological sophistication of the systems
available on the Rigs will result in improved performance. Fiber optics wiring
and an internet connection will provide customers timely information about Rig,
well and equipment performance, and also enable equipment vendors and other
service providers to diagnose equipment problems remotely. The drillpipe
identification and tracking system tracks the number of feet drilled by each
section of drillpipe and identifies the joints that require inspection rather
than the entire drillstring, thus decreasing the cost and frequency of mandatory
inspections of drillpipe. The "Iron Roughneck" robot performs the work of three
people in connecting and disconnecting new joints of drillpipe, increasing the
speed of drilling and improving safety. Powerslips replace the need for crew to
manually set slips to hold the drillstem in place. The dual pipehandling system
allows for the assemblage of the 90-foot "stands" of drillpipe (made up of three
individual 30-foot joints) that are required for the Rigs' top-drive drilling
systems as drilling is taking place. When moving to a new drilling location,
higher capacity water pumps fill the hull with water faster to settle the legs
into the sea bottom, expediting the preparation for the drilling process. The
new design of the blowout preventers, which must be installed three or four
times for a typical Gulf of Mexico well, reduces their installation time from
approximately 10 to 12 hours to three to four hours.
The Company believes that its focus on construction utilizing the proven
LeTourneau 116-C design, but with the addition of an enhanced equipment package
compared to existing rigs of this design, should provide the Company with a
competitive advantage, particularly in bidding for horizontal and extended reach
drilling projects. The Company expects that the increased drilling efficiencies
attributable to these enhancements may enable the Company to bid more
aggressively on incentive-based contracts, as opposed to standard dayrate
contracts, where profit potential may be greater.
MARKET OVERVIEW
The demand for offshore drilling services is substantially dependent upon
the continued exploration for and development of hydrocarbons in geological
formations offshore. In the early 1980s, in the aftermath of the second oil
price shock, it was anticipated that oil prices would rise substantially. This
was the basis for the dramatic newbuilding activity that followed, which
resulted in the construction of 236 rigs between 1980 and 1983. Oversupply of
rigs caused worldwide rig utilization to decline rapidly thereafter and
substantially depressed the offshore contract drilling market until the
beginning of the 1990s. During the last two to three years, global demand for
offshore drilling equipment has increased to the point of finally absorbing the
excess capacity created out of the substantial newbuilding activity of the early
1980s.
33
<PAGE>
WORLDWIDE JACKUP RIG SUPPLY AND DEMAND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Competitive Supply Demand
<S> <C> <C>
Jan-84 449 364
Feb-84 448 361
Mar-84 450 364
Apr-84 450 361
May-84 451 368
Jun-84 451 368
Jul-84 451 382
Aug-84 451 380
Sep-84 451 389
Oct-84 449 398
Nov-84 449 395
Dec-84 450 396
Jan-85 451 402
Feb-85 451 386
Mar-85 453 369
Apr-85 454 362
May-85 455 363
Jun-85 455 369
Jul-85 456 367
Aug-85 455 353
Sep-85 454 352
Oct-85 455 361
Nov-85 456 367
Dec-85 454 376
Jan-86 454 357
Feb-86 455 342
Mar-86 451 305
Apr-86 451 279
May-86 452 258
Jun-86 452 248
Jul-86 449 237
Aug-86 450 235
Sep-86 450 231
Oct-86 450 237
Nov-86 448 249
Dec-86 447 264
Jan-87 446 265
Feb-87 446 243
Mar-87 446 237
Apr-87 445 238
May-87 446 237
Jun-87 446 246
Jul-87 447 259
Aug-87 446 272
Sep-87 445 287
Oct-87 445 295
Nov-87 442 304
Dec-87 440 312
Jan-88 438 316
Feb-88 436 318
Mar-88 436 308
Apr-88 435 310
May-88 435 310
Jun-88 435 305
Jul-88 435 319
Aug-88 434 314
Sep-88 434 307
Oct-88 436 318
Nov-88 436 325
Dec-88 435 328
Jan-89 435 315
Feb-89 433 290
Mar-89 428 296
Apr-89 428 306
May-89 427 302
Jun-89 426 309
Jul-89 424 320
Aug-89 421 324
Sep-89 418 318
Oct-89 418 315
Nov-89 417 340
Dec-89 417 342
Jan-90 416 344
Feb-90 416 336
Mar-90 416 338
Apr-90 416 331
May-90 415 338
Jun-90 416 342
Jul-90 415 339
Aug-90 415 337
Sep-90 414 341
Oct-90 415 339
Nov-90 415 344
Dec-90 415 352
Jan-91 415 344
Feb-91 416 328
Mar-91 415 330
Apr-91 414 332
May-91 414 335
Jun-91 414 333
Jul-91 410 332
Aug-91 410 316
Sep-91 411 319
Oct-91 408 321
Nov-91 408 321
Dec-91 405 323
Jan-92 405 320
Feb-92 405 301
Mar-92 401 292
Apr-92 399 294
May-92 399 288
Jun-92 399 291
Jul-92 399 290
Aug-92 398 291
Sep-92 398 298
Oct-92 397 312
Nov-92 397 327
Dec-92 397 332
Jan-93 396 329
Feb-93 395 327
Mar-93 394 321
Apr-93 395 327
May-93 395 335
Jun-93 394 339
Jul-93 395 338
Aug-93 393 327
Sep-93 394 330
Oct-93 393 337
Nov-93 393 337
Dec-93 392 337
Jan-94 391 324
Feb-94 391 317
Mar-94 391 325
Apr-94 391 323
May-94 391 324
Jun-94 392 325
Jul-94 392 322
Aug-94 391 315
Sep-94 392 320
Oct-94 392 326
Nov-94 392 322
Dec-94 392 324
Jan-95 391 314
Feb-95 391 312
Mar-95 390 306
Apr-95 390 312
May-95 389 320
Jun-95 387 333
Jul-95 386 331
Aug-95 386 333
Sep-95 385 338
Oct-95 387 337
Nov-95 387 337
Dec-95 386 337
Jan-96 385 333
Feb-96 384 333
Mar-96 384 335
Apr-96 384 342
May-96 384 348
Jun-96 384 349
Jul-96 383 350
Aug-96 383 350
Sep-96 382 353
Oct-96 380 354
Nov-96 380 357
Dec-96 379 356
Jan-97 378 350
Feb-97 378 355
Mar-97 378 360
Apr-97 378 363
May-97 378 363
Jun-97 379 364
Jul-97 379 364
Aug-97 378 365
Sep-97 378 363
Oct-97 378 365
Nov-97 378 364
Dec-97 379 367
Jan-98 379 365
Feb-98 381 369
Mar-98 380 369
</TABLE>
(1) Competitive supply is composed of jackup rigs that are actively marketed and
in a condition to accept work and begin operations.
SOURCE: Offshore Data Services.
Based on published industry data, the Company estimates that, as of March
31, 1998, the average dayrate for premium jackup rigs worldwide was $73,000 and
that it averaged $62,000 in 1997 and $39,000 in 1996. (1997 and 1996 dayrate
data include a small number of "harsh environment" jackup rigs, which increases
slightly the average historical dayrate information for premium jackup rigs.)
Based on published industry data, the Company estimates that premium jackup rig
utilization levels have averaged 93% over the last ten years and that, as of
March 31, 1998, average utilization exceeded 96%. The major factors underlying
these improvements are an increase in demand, due to greater offshore
exploration and development expenditures by the world's oil and gas companies,
and a reduction in rig supply, due to the advancing age of the existing fleet
and the small number of newbuildings. Growth in offshore expenditures by oil and
gas companies has been due in part to substantial technological advances in
exploration and production (including 3-D seismic, horizontal drilling and
subsea completion procedures), which have reduced the overall cost of finding
and producing oil and gas. In addition, the offshore drilling industry has
experienced a worldwide consolidation during the last ten years which has
substantially reduced the number of drilling contractors. See "Risk
Factors--Dependence on Oil and Natural Gas Industry; Industry Conditions; Market
Volatility."
The world's offshore drilling rig fleet has declined in size to the point at
which current demand yields high utilization, and consequently high dayrates,
which creates the conditions necessary to support a demand-driven renewal of the
fleet. In addition, structural changes in the worldwide exploration and
production industry have brought the offshore contract drilling market to the
beginning of a cycle that the Company believes justifies the economics of
building new premium jackup rigs to serve the industry into the next century.
The world's jackup rig fleet currently consists of 380 rigs, which vary
significantly in terms of technological advancement, water depth capability and
age. A total of 117 are premium jackup rigs and as of March 1998, 29 such rigs
were employed in the Gulf of Mexico, the largest single market for jackup rigs.
The current average age of the world's jackup rig fleet is 17.5 years with
premium jackup rigs having an average age of 16.4 years, which compares to an
expected original useful life for such units of approximately 25 years. In
addition to the Company's Rigs, seven other jackup rig newbuildings are on order
with shipyards around the world (collectively representing 2.4% of the existing
fleet), of which six are jackup rigs designed for work in "harsh environment"
areas.
34
<PAGE>
WORLDWIDE JACKUP RIG FLEET
<TABLE>
<CAPTION>
WATER NO. OF AVERAGE NEWBUILDINGS
DEPTH UNITS (%) AGE ON ORDER
------------------ ----------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
"Harsh Environment" Jackup Rigs............. 300' and greater 18 4.7% 11.3 yrs 6
Premium Jackup Rigs (IC).................... 300' and greater 117 30.8% 16.4 yrs 3
Jackup Rigs (IS)............................ 300' and greater 25 6.6% 19.7 yrs 0
Jackup Rigs (IC)............................ 250'-299' 64 16.8% 17.3 yrs 0
Jackup Rigs (IS)............................ 250'-299' 40 10.5% 20.8 yrs 0
Jackup Rigs................................. 0-249' 116 30.6% 18.9 yrs 0
-
--- --------- ---------
Total....................................... 380 100.0% 17.5 yrs 9
<CAPTION>
PERCENT OF
EXISTING
FLEET
-----------
<S> <C>
"Harsh Environment" Jackup Rigs............. 33.3%
Premium Jackup Rigs (IC).................... 2.6%
Jackup Rigs (IS)............................ 0.0%
Jackup Rigs (IC)............................ 0.0%
Jackup Rigs (IS)............................ 0.0%
Jackup Rigs................................. 0.0%
-----------
Total....................................... 2.4%
</TABLE>
- ------------------------
Attributes:
(IC)=independent-leg cantilevered rig.
(IS)=independent-leg slot rig.
BUSINESS STRATEGY
The Company intends to become a leading provider of state-of-the-art premium
jackup rigs and to maximize dayrates and rig utilization by offering its
customers the most productive premium jackup rigs available. The Company will
focus on establishing a reputation for customer service, higher productivity and
safety of operation in the offshore contract drilling market. The key elements
of the Company's strategy are as follows:
- FOCUS ON PREMIUM JACKUP RIG MARKET. The Company will focus on premium
jackup rigs, which the Company believes enjoy strong and growing worldwide
demand, have the versatility to work in a variety of different markets,
represent a relatively low investment compared to new semisubmersibles,
drillships and "harsh environment" jackup rigs, possess a favorable
relationship between potential revenues and operating costs, and are
familiar to the management of the Company through prior operations and
newbuildings.
- OWN AND OPERATE HIGH QUALITY ASSETS. The Rigs will represent a new
generation of premium jackup rigs with significantly enhanced capabilities
incorporating the latest technologies. Such capabilities will assist the
Company in offering its customers equipment with superior productivity and
safety features.
- BUILD TO MEET STRONG DEMAND GROWTH. The Company intends to be among the
first offshore drilling contractors to provide new generation premium
jackup rigs to the industry. The Company believes that this is the early
stage of a period of strong growth in the demand for, and utilization of,
premium jackup rigs. The Company believes that it has been able to secure
favorable contract terms by placing orders during this early stage, at a
time when relatively few new premium jackup rigs are being built.
- EXPAND RIG FLEET. The Company expects to expand its rig fleet prudently
over time. The Company may achieve this growth through the exercise of
three Construction Options that the Company holds to construct additional
LeTourneau Super 116 design premium jackup rigs at a total delivered cost
of approximately $100.0 million per rig.
- FOCUS ON THE GULF OF MEXICO. The Company will focus its operations
initially on the Gulf of Mexico market, which is the largest single market
for jackup rigs in the world. Furthermore, the presence of an established
pipeline and production infrastructure makes the Gulf of Mexico an
economically attractive market for continued exploration and production
activity.
35
<PAGE>
- UTILIZE SEACOR EXPERTISE. SEACOR will directly advise the Company
concerning strategic, financial and marketing matters through
representation on the Company's Management Committee (I.E., its board of
directors). Additionally, pursuant to the Services Agreement, SEACOR has
made available its Vice President, Finance to serve as the Company's
Senior Vice President and Chief Financial Officer. The Company believes
that SEACOR's marketing expertise and its extensive oil and gas company
client base will greatly assist the Company in the marketing of the Rigs.
- EMPLOY, RETAIN AND MOTIVATE EXPERIENCED AND INCENTIVIZED MANAGEMENT. The
Company will seek to employ, retain and motivate experienced senior
management and key employees through the implementation of an equity
participation and performance incentive program.
THE CONSTRUCTION CONTRACTS
SHIPYARD. The AMFELS shipyard, originally built and operated by Marathon
LeTourneau, Inc., has a long-term commitment to the offshore drilling industry
and many of the key personnel who designed and built LeTourneau jackup rigs in
the past are currently working there. The shipyard's newbuilding construction
experience includes 24 jackup rigs and two semisubmersibles. AMFELS is 100%
owned by Keppel FELS, Ltd., an established international shipyard and
engineering group based in Singapore.
SCHEDULED DELIVERY DATES. The Scheduled Delivery Dates of the Rigs will be
staggered. The Scheduled Delivery Date of the CHILES COLUMBUS is April 30, 1999
and the Scheduled Delivery Date of the CHILES MAGELLAN is September 10, 1999;
PROVIDED, HOWEVER, that the Scheduled Delivery Date will be extended by the
applicable period in the event of any delay caused by act or omission of the
Company, including failure to timely deliver to AMFELS any equipment to be
furnished by the Company, delays caused by the American Bureau of Shipping or
any governmental agency, changes, events of FORCE MAJEURE under the applicable
Construction Contract, or inability or failure of LeTourneau to perform its
obligations under the applicable (i) License Agreement or (ii) Kit Construction
Agreement, in each case between AMFELS and LeTourneau and dated April 30, 1997
(with respect to the CHILES COLUMBUS) and August 1, 1997 (with respect to the
CHILES MAGELLAN) (collectively, the "LeTourneau Agreements"), or if all subjects
and conditions under the applicable LeTourneau Agreements are not fully and
timely met. In addition, the Company has procured "delay-in-delivery" insurance
that provides for coverage of $30,000 per day per Rig up to a maximum of 360
days for delays in excess of 30 days up to a total combined limit of $21.6
million for both Rigs. Generally, such insurance provides coverage in the event
of delays resulting from certain events, including physical loss or damage to
the Rigs or the AMFELS shipyard during construction as a result of named perils,
including labor disturbances; delays in delivery of materials required for
construction as a result of such events; and delays resulting from restricted
access to the shipyard as a result of such events. However, the coverage
provided under such insurance is subject to significant exceptions and would not
provide protection against certain delays in delivery.
PURCHASE PRICE. The construction costs for the CHILES COLUMBUS are expected
to be approximately $83.5 million and the construction costs for the CHILES
MAGELLAN are expected to be approximately $87.8 million, in each case net of
capitalized interest.
TERMINATION OF THE CONSTRUCTION CONTRACTS. The Company may terminate a
Construction Contract upon the occurrence of certain events of default by
AMFELS. The events of default include the failure by AMFELS to perform, or the
breach by AMFELS of, any of its covenants, agreements or undertakings under the
applicable Construction Contract which AMFELS has failed to commence diligently
to cure within thirty (30) days or which remains uncured for ninety (90) days,
in each case after notice thereof by the Company to AMFELS, including such a
failure to deliver the respective Rig by its Scheduled Delivery Date.
In addition, a Construction Contract will be automatically terminated if,
prior to delivery of the related Rig, an actual or constructive total loss
occurs with respect to such Rig.
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<PAGE>
WARRANTY OF QUALITY. For a period of 12 months following the date of
delivery of a Rig, AMFELS warrants to the Company that (i) AMFELS's workmanship
and materials shall be free from material defects, (ii) that systems designed,
supplied and installed by AMFELS will perform the functions intended by the
applicable Construction Contract and the specifications thereunder, and (iii)
that the components of the equipment manufactured by LeTourneau shall be free
from material defects in LeTourneau's workmanship and material and shall perform
in accordance with the applicable LeTourneau Agreement and the related
specifications (the "Warranty"). The Warranty commences on the date of delivery
of the applicable Rig to the Company and expires 12 months thereafter (provided,
however, that if any of the equipment of the Rig is put into service prior to
such delivery, the Warranty period begins with the commencement of such service
or operation insofar as such equipment is concerned) and is subject to certain
limitations set forth in the applicable Construction Contract.
The Warranty does not apply to any part of a Rig which has been misused, or
structurally repaired or altered by anyone other than AMFELS or its duly
authorized representative, or has been damaged because of its use, or the use of
any other materials or equipment, after the Company (or any other person or firm
operating the Rig or its equipment) has knowledge of such defect. Except for
certain components of the equipment manufactured by LeTourneau, equipment or
other components of the Rig sold to the Company pursuant to the Construction
Contract but not manufactured by AMFELS are not warranted to any extent by
AMFELS.
Pursuant to the Assignment, Assumption, Acknowledgement and Consent
Agreement, dated as of April 23, 1998, among the Company, the Owners and AMFELS,
the Company assigned to each Owner the Construction Contract for such Owner's
Rig.
THE CONSTRUCTION OPTIONS
The Company holds three sequential Construction Options for the following
rigs (collectively, the "Option Rigs") pursuant to an agreement, dated December
18, 1997 (the "Option Agreement"), with AMFELS: (i) a LeTourneau Super 116
("Option Rig No. 1"), which option will expire on July 31, 1998; (ii) contingent
upon the Company's entering into a construction contract for Option Rig No. 1,
one sister rig ("Option Rig No. 2"), which option must be exercised prior to
December 15, 1998; and (iii) contingent upon the Company's entering into a
construction contract for Option Rig No. 2, one sister rig, which option must be
exercised prior to March 31, 1999.
In the Option Agreement, AMFELS and the Company agreed to enter into an
amendment of the Construction Contract for the CHILES MAGELLAN to reflect the
terms of the Option Agreement to, among other things, provide for the ability to
provide a construction lender with a first preferred security interest in the
Option Rigs during the construction period.
In the Option Agreement, the Company agreed that as long as any Construction
Option remains outstanding and in effect, the Company will not order any similar
premium jackup rigs at a competing shipyard without first having received
AMFELS's approval in writing and that AMFELS will supply the requirements of the
Company for LeTourneau premium jackup rigs as contemplated by the Option
Agreement.
The Company estimates that it would incur total average costs of
approximately $100.0 million to construct and outfit each rig pursuant to the
exercise of any Construction Option, which includes construction costs payable
to AMFELS, the expected price of the required LeTourneau "Kit," costs of related
OFE, construction overhead and capitalized interest.
COMPETITION
The contract drilling industry is highly competitive. Customers sometimes
award contracts on a competitive bid basis, and although a customer selecting a
rig may consider, among other things, a
37
<PAGE>
contractor's safety record, crew quality and quality of service and equipment,
price is the major factor in determining the selection of a drilling contractor.
The Company believes that competition for drilling contracts will continue to be
intense for the foreseeable future because of the ability of contractors to move
rigs from areas of low utilization and dayrates to areas of greater activity and
relatively higher dayrates. Such movement or a decrease in drilling activity in
any major market could depress dayrates and could adversely affect utilization
of the Company's Rigs. See "--Offshore Contract Drilling Services."
There are currently 33 offshore drilling contractors registered with the
International Association of Drilling Contractors worldwide, 13 of which are
U.S. companies. Ten such contractors currently operate premium jackup rigs. Most
of the Company's competitors are much larger and more established companies with
greater financial resources than the Company.
OFFSHORE CONTRACT DRILLING SERVICES
The Company's contracts to provide offshore drilling services are expected
to vary in their terms and provisions. The Company expects that it may obtain
contracts through competitive bidding, although the Company may also be awarded
drilling contracts without competitive bidding. Drilling contracts generally
provide for a basic drilling rate on a fixed dayrate basis regardless of whether
such drilling results in a successful well. Drilling contracts may also provide
for lower rates during periods when the rig is being moved or when drilling
operations are interrupted or restricted by equipment breakdowns, adverse
weather or water conditions or other conditions beyond the control of the
Company. Under dayrate contracts, the Company would generally expect to pay the
operating expenses of the rig, including wages and the cost of incidental
supplies. Revenues from dayrate contracts are expected to account for a
substantial portion of the Company's revenues. In addition, the Company may work
a Rig under dayrate contracts pursuant to which the customer also agrees to pay
the Company an incentive bonus based upon performance.
A dayrate drilling contract generally extends over a period of time covering
either the drilling of a single well, a group of wells (a "well-to-well
contract") or a stated term (a "term contract") and may be terminated by the
customer in the event the drilling unit is destroyed or lost or if drilling
operations are suspended for a specified period of time as a result of a
breakdown of major equipment or in some cases due to other events beyond the
control of either party. In addition, it is expected that certain of the
Company's contracts may permit the customer to terminate the contract early by
giving notice and in some circumstances may require the payment of an early
termination fee by the customer. The contract term in many instances may be
extended by the customer exercising options for the drilling of additional wells
at fixed or mutually agreed terms, including dayrates.
The duration of offshore drilling contracts is generally determined by
market demand and the respective management strategy of the offshore drilling
contractor and its customers. In periods of rising demand for offshore rigs,
contractors typically prefer well-to-well contracts that give contractors the
flexibility to profit from increasing dayrates. In contrast, during these
periods customers with reasonably definite drilling programs typically prefer
longer term contracts to maintain drilling prices at the lowest level possible.
Conversely, in periods of decreasing demand for offshore rigs, contractors
generally prefer longer term contracts to preserve dayrates at existing levels
and ensure utilization, while the customers prefer well-to-well contracts that
allow them to obtain the benefit of lower dayrates. In general, the Company
expects to seek to have a reasonable balance of single well, well-to-well and
term contracts to minimize the downside impact of a decline in the market while
still participating in the benefit of increasing dayrates in a rising market.
QUALITY
The Company expects to maintain a program to continuously improve quality
and safety on the Rigs and to foster a commitment to quality of service, safety
and the environment. It is expected that the
38
<PAGE>
Company's quality system will provide for formal procedures to assist in
continuous improvement in the Company's efforts to exceed customer expectations
in safety, environmental concerns, equipment maintenance, rig enhancements,
material handling and personnel training and performance.
GOVERNMENTAL REGULATION
The Company's operations will be subject to numerous federal, state and
local environmental laws and regulations that relate directly or indirectly to
its operations, including certain regulations controlling the discharge of
materials into the environment, requiring removal and clean-up under certain
circumstances, or otherwise relating to the protection of the environment. For
example, the Company may be liable for damages and costs incurred in connection
with oil spills for which it is held responsible. Laws and regulations
protecting the environment have become increasingly stringent in recent years
and may in certain circumstances impose "strict liability" and render a company
liable for environmental damage without regard to negligence or fault on the
part of such company. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company that were in compliance with all applicable laws at the time such acts
were performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on the Company.
The United States Oil Pollution Act of 1990 ("OPA '90") and similar
legislation enacted in Texas, Louisiana and other coastal states address oil
spill prevention and control and significantly expand liability exposure across
all segments of the oil and gas industry. OPA '90, such similar legislation and
related regulations impose a variety of obligations on the Company related to
the prevention of oil spills and liability for damages resulting from such
spills. OPA '90 imposes strict, and with limited exceptions, joint and several
liability upon each responsible party for oil removal costs and a variety of
public and private damages. OPA '90 also imposes ongoing financial
responsibility requirements on a responsible party. A failure to comply with
such ongoing requirements or inadequate cooperation in a spill may subject a
responsible party, including in some cases the Company, to civil or criminal
enforcement action. OPA '90 also requires the U.S. Minerals Management Service
to promulgate regulations to implement the financial responsibility requirements
for offshore facilities. If implemented as written, the financial responsibility
requirements of OPA '90 could have the effect of significantly increasing the
amount of financial responsibility that oil and gas operators must demonstrate
to comply with OPA '90. While industry groups and marine insurance carriers are
seeking modification of these requirements, implementation of these requirements
in their current form could adversely affect the ability of some of the
Company's prospective customers to operate in U.S. waters, which could have a
material adverse effect on the Company.
The Federal Water Pollution Control Act of 1972, commonly referred to as the
Clean Water Act ("CWA"), prohibits the discharge of certain substances into the
navigable waters of the U.S. without a permit. The regulations implementing the
CWA require permits to be obtained by an operator before certain exploration or
drilling activities occur. Violations of monitoring, reporting and permitting
requirements can result in the imposition of civil and criminal penalties. The
provisions of the CWA can also be enforced by citizens' groups. Many states have
similar laws and regulations.
The Outer Continental Shelf Lands Act authorizes regulations relating to
safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violation of lease terms relating to environmental
matters or regulations issued pursuant to the Outer Continental Shelf Lands Act
can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), currently exempts crude oil, and the Resource
Conservation and Recovery Act, as amended ("RCRA"), currently exempts certain
drilling materials, such as drilling fluids and production waters, from
39
<PAGE>
the definitions of hazardous substances and hazardous wastes. However, the
Company's operations may involve the use or handling of other materials, such as
fracturing fluids or acids, that may be classified as environmentally hazardous
substances or wastes. There can be no assurance that such exemption will be
preserved in future amendments of such acts, if any, or that more stringent laws
and regulations protecting the environment will not be adopted. CERCLA assigns
strict liability to each responsible party, as defined, for all response and
remediation costs, as well as natural resource damages. Few defenses exist to
the liability imposed by CERCLA.
The Company's operations may involve the generation, use or handling of
materials, such as unused fracturing fluids or acids, that may be classified as
hazardous waste, and that are subject to RCRA and comparable state statutes. The
Environmental Protection Agency ("EPA") and various state agencies have limited
the disposal options for certain hazardous and nonhazardous wastes and are
considering the adoption of stricter handling and disposal standards for
nonhazardous wastes. RCRA currently exempts certain drilling materials, such as
drilling fluids and production waters, from the definitions of hazardous wastes.
There can be no assurance that such exemption will be preserved in future
amendments of such acts, if any, or that more stringent laws and regulations
protecting the environment will not be adopted.
The operations of the Company are subject to the Clean Air Act, as amended,
and comparable state statutes. Traditional air quality programs relating to the
prevention of significant deterioration of air quality in areas with
unacceptable pollution levels ("nonattainment areas") restrict drilling in
affected areas. Amendments to the Clean Air Act were adopted in 1990 and contain
provisions that may result in the imposition over the next decade of certain
requirements with respect to air emissions, which requirements may require
capital expenditures by the Company. The EPA is currently developing regulations
to implement these requirements. Pursuant to a mandate of the Clean Air Act, the
EPA, together with other agencies of the federal government, is conducting a
study of the effects of emissions from drilling activities in nonattainment
areas on the Outer Continental Shelf. Upon completion of the study, these
agencies will determine whether additional regulatory requirements are necessary
for these nonattainment areas. Any greater degree of regulation in nonattainment
areas would increase the cost associated with operation in those areas.
INDEMNIFICATION AND INSURANCE
The Company generally expects to be able to obtain contractual
indemnification pursuant to which the Company's customers would agree to protect
and indemnify the Company to some degree from liability for reservoir, pollution
and environmental damages, but there can be no assurance that the Company can
obtain such indemnities in all of its contracts, that the level of
indemnification that can be obtained will be meaningful, that such
indemnification agreements will be enforceable or that the customer will be
financially able to comply with its indemnity obligations. In addition, the
Company expects to maintain insurance coverage against "loss-of-hire," property
damage, war risk (in the case of certain operations outside the U.S.), general
liability and environmental liabilities, including pollution caused by sudden
and accidental oil spills, but there can be no assurance that such insurance
will continue to be available or carried by the Company or if available and
carried will be adequate to cover the Company's loss or liability in many
circumstances. Moreover, any such insurance is expected to be subject to
substantial deductibles and to provide for premium adjustments based on claims.
PROPERTY
The Company leases approximately 4,500 square feet of office space located
at 11200 Westheimer, Suite 410, Houston, Texas 77042-3227, where its telephone
number is (713) 339-3777.
40
<PAGE>
EMPLOYEES
As of March 31, 1998, the Company had 11 employees. The Company believes
that its employee relations are good.
LEGAL PROCEEDINGS
The Company is not a party to any litigation as of the date of this
Prospectus.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company are elected by its Management
Committee (as defined) to serve until their successors are duly elected and
qualified, or until their earlier death, resignation, disqualification or
removal from office. Information with respect to the current executive officers
of the Company is set forth below.
<TABLE>
<CAPTION>
AGE AS OF
NAME MARCH 1, 1998 POSITION
- ------------------------------------ ------------------- ------------------------------------------------------------
<S> <C> <C>
William E. Chiles................... 49 President and Chief Executive Officer
Dick H. Fagerstal................... 37 Senior Vice President, Chief Financial Officer and Secretary
Donald B. Gregg..................... 59 Senior Vice President--Operations and Engineering
William H. Hopkins.................. 56 Vice President--Human Resources
William A. Thorogood................ 53 Vice President--Controller and Assistant Secretary
</TABLE>
WILLIAM E. CHILES is the President and Chief Executive Officer and a Manager
of the Company. In March 1997, Mr. Chiles and Donald B. Gregg led the formation
of COI. Mr. Chiles has extensive management experience in offshore drilling
operations and until March 1997, was Senior Vice President-- Drilling Operations
of Cliffs Drilling Company, responsible for the operation of its worldwide
fleet, and President and CEO of Southwestern Offshore Corporation, its wholly
owned subsidiary. From 1992 to May 1996, Mr. Chiles was President and Chief
Executive Officer of Southwestern Offshore Corporation, a company he founded in
1992 and which was acquired by Cliffs Drilling Company in 1996. Mr. Chiles co-
founded Chiles Offshore Corporation in 1987 and in 1977 he co-founded Chiles
Drilling Company, each of which was an offshore contract drilling company.
DICK H. FAGERSTAL is the Senior Vice President, Chief Financial Officer and
Secretary and a Manager of the Company. Mr. Fagerstal also serves as Vice
President, Finance of SEACOR but devotes a substantial portion of his time to
the financial affairs of the Company. Until the end of July 1997 and for the
previous 12 years, Mr. Fagerstal worked as a bank officer with Den norske Bank
ASA, New York Branch (and its predecessor Den norske Creditbank AS), which is
one of the world's largest lenders to companies involved in the offshore service
industry. During the last seven years in such position, Mr. Fagerstal had
primary responsibility for offshore and shipping client relationships in the
North American market covering many of the offshore drilling rig and offshore
supply vessel companies.
DONALD B. GREGG is the Senior Vice President--Operations and Engineering the
Company. He joined with Mr. Chiles in the formation of COI in March 1997. In
1994, Mr. Gregg formed and served as the President of International Renovators,
Inc., a company which provided technical assistance, engineering and regulatory
consulting services to the offshore drilling industry, until March 1997. Until
May 1994, Mr. Gregg was employed in various positions at Chiles Drilling Company
and its successors, including Vice President Engineering, Vice President
Operations and Vice President Marketing.
WILLIAM H. HOPKINS is the Vice President--Human Resources of the Company.
Mr. Hopkins joined the Company in 1997 after serving three years as an area
executive and senior consultant for Right Management Consultants, an
international human resources management consulting firm providing services to
the contract drilling and other oilfield service industries. From 1992 to 1995,
Mr. Hopkins was Director of Safety, Training and Environmental Management of
Tidewater, Inc., a major oilfield service company.
WILLIAM A. THOROGOOD is the Vice President and Controller the Company. From
1993 until May 1996, Mr. Thorogood served as Vice President--Finance of
Southwestern Offshore Corporation and thereafter until March 1997, served as
Vice President--Finance of Southwestern Offshore Corporation, which became a
subsidiary of Cliffs Drilling Company in May 1996. Mr. Thorogood is a certified
public accountant.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table shows for the fiscal year ended December 31, 1997 the
cash compensation paid by the Company, and a summary of certain other
compensation paid or accrued for such year, to its Chief Executive Officer (the
"Named Executive Officer") for service in all capacities with the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(2)
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY COMPENSATION(3)
- ----------------------------------------------------------------------- ----------------------- -------------------
<S> <C> <C>
William E. Chiles...................................................... $ 97,984 $ 639
President and Chief Executive Officer
</TABLE>
- ------------------------
(1) Pursuant to Instruction 1 to Item 402(a)(3) of Regulation S-K, no disclosure
is provided for any other executive officer of the Company because no other
executive officer of the Company had total annual salary and bonus in excess
of $100,000 for the fiscal year ended December 31, 1997.
(2) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary reported for the Named Executive Officer.
(3) The amount shown was paid for life insurance.
Effective May 1, 1998, the Company adopted a defined contribution plan (the
"Retirement Plan"), designed to qualify under Section 401(k) of the Code,
covering substantially all of its employees. Pursuant to the Retirement Plan,
the Company will match employees' contributions to the Retirement Plan in an
amount equal to 50% of such contributions, up to 6% of the participant's
eligible compensation.
EMPLOYMENT AGREEMENT
William E. Chiles is presently serving as President and Chief Executive
Officer of the Company under an Employment Agreement, effective as of November
1, 1997, between Mr. Chiles and the Company (the "Employment Agreement"),
pursuant to which Mr. Chiles will continue to serve in such capacity until
November 2000 at his current base salary of $200,000 per annum. The Employment
Agreement also provides Mr. Chiles with severance benefits, disability and
health insurance, approximately $1.2 million in term life insurance,
reimbursement for various expenses and such other compensation, including
bonuses, that may be agreed to by the Management Committee of Chiles, in its
sole discretion. The Employment Agreement provides that if Mr. Chiles's
employment is terminated by the Company without Cause (as therein defined),
including any termination that is deemed to constitute a constructive
termination without Cause thereunder, the Company will be obligated, subject to
certain early termination provisions, to pay Mr. Chiles (i) two times the
Average Compensation (as therein defined) (which amount shall be payable in 24
equal monthly payments) and (ii) any unpaid incentive bonuses and benefits
awarded or accrued up to the date of termination (which amount shall be payable
within 30 days after the date of termination). If the Company so terminates Mr.
Chiles's employment without Cause within nine months before or after a Change of
Control (as therein defined) of the Company, the Employment Agreement provides
that the amount due to Mr. Chiles pursuant to clause (i) of the preceding
sentence shall be increased to three times the Average Compensation (which
amount shall be payable in 36 equal monthly payments). Under the Employment
Agreement, Mr. Chiles's salary will be reviewed for adjustment annually in
accordance with industry standards, taking into account his performance, the
Company's scope of operations, industry conditions and the overall performance
of the Company relative to its peers.
MEMBERSHIP INTEREST OPTION PLAN
The Company recently adopted the Chiles Offshore LLC 1998 Equity Option Plan
(the "Option Plan"). The objectives of the Option Plan are (i) to attract and
retain management personnel with the training, experience and ability to enable
them to make a substantial contribution to the success of the Company's
business, (ii) to motivate management personnel by means of growth-related
incentives to achieve long range goals and (iii) to further the alignment of
interests of participants with those of the Company's equity holders through
opportunities for increased equity or equity-based ownership in the Company.
43
<PAGE>
The Option Plan authorizes the issuance of options to acquire up to 5.0% of
the then outstanding Membership Interests on a fully diluted basis, without
triggering pre-emptive rights under the Operating Agreement, so long as such
options are exercisable at a price that is not less than the price per
percentage Membership Interest paid in the Equity Financing. The Option Plan is
administered by an Option Committee of the Management Committee of Chiles (the
"Option Committee"). Pursuant to the Option Plan, the Company may grant to key
employees and consultants of the Company or any of the Company's subsidiaries
options to acquire Group D Membership Interests. Such options are not considered
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). The terms of any such grant will be determined by the
Option Committee and set forth in a separate grant agreement except for such
options that were granted to employees under an Initial Grant (as defined in the
Option Plan). The Option Plan sets forth the exercise price and maximum amount
of the Initial Grant. Other than the Initial Grant, the exercise price will be
at least equal to 100% of the fair market value of the Membership Interests on
the date of grant.
The Option Committee may provide that an optionee may pay for shares upon
exercise of an option: (i) in cash; (ii) by certified bank check; (iii) by
immediately available federal funds delivered to an account designated by the
Company; or (iv) by personal check of the optionee, provided that such check
will not be deemed to have been received until the Company shall have collected
thereon. The options expire ten years after the date of grant. No options
granted under the Option Plan may be transferred except under limited exceptions
to family members or trusts for the benefit of family members. See "Certain
Relationships and Related Transactions--Option Repurchase Obligation."
The following table sets forth the options to acquire Membership Interests
in the Company that were outstanding as of March 31, 1998, all of which
constitute Initial Grants under the Option Plan:
<TABLE>
<CAPTION>
OPTION GRANTS
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF UNITS PERCENT OF TOTAL
UNDERLYING OPTIONS AVAILABLE
OPTIONS FOR GRANT EXERCISE PRICE EXPIRATION
NAME GRANTED(1) TO EMPLOYEES(2) ($/UNIT)(3) DATE(4)
- ------------------------------------------ ----------------- ----------------- --------------- -------------------
William E. Chiles......................... 630 12.60% $ 650 March 31, 2008
George Bruce Brumley...................... 440 8.80% $ 650 March 31, 2008
Dick H. Fagerstal......................... 630 12.60% $ 650 March 31, 2008
Donald B. Gregg........................... 630 12.60% $ 650 March 31, 2008
William H. Hopkins........................ 440 8.80% $ 650 March 31, 2008
Gabriel Padilla........................... 440 8.80% $ 650 March 31, 2008
Adonis A. Rials........................... 113 2.26% $ 650 March 31, 2008
William A. Thorogood...................... 440 8.80% $ 650 March 31, 2008
Lester G. Tingle.......................... 190 3.80% $ 650 March 31, 2008
----- -----
Total..................................... 3,953 79.06%
</TABLE>
- ------------------------
(1) One "unit" is equivalent to a .001 Membership Interest in the Company on a
fully diluted basis. The Option Plan authorizes the issuance of options to
acquire up to 5,000 such "units" which, in the aggregate, are equivalent to
5.0% of the Membership Interests in the Company on a fully diluted basis. As
of March 31, 1998, options for 947 "units" were reserved for future Rig
supervisors and options for 100 "units" were reserved for other future
personnel.
(2) The percentage is based on the total of 5,000 "units" for which options may
be granted under the Option Plan. As of March 31, 1998, the options for 947
"units" reserved for issuance to future Rig supervisors constitute 18.94% of
such total number of "units" and the options for 100 "units" reserved for
issuance to other future personnel constitute 2.00% of such total number of
"units"
(3) The exercise price is approximately equivalent to the price per "unit" paid
by investors on December 16, 1997 in connection with the final phase of the
Equity Financing.
44
<PAGE>
(4) The options vest at a rate of 1/3 of the "units" granted per year, beginning
on the first anniversary of the date of grant. No option may be exercised
unless and until both of the Rigs are delivered by AMFELS and accepted by
the Company.
MANAGEMENT COMMITTEE
The Management Committee of Chiles presently consists of seven Managers.
Other than Messrs. Chiles and Fagerstal, none of the Managers is an officer or
employee of the Company. Up to four Managers may be designated by a majority in
interest of the Group A Members (at the date hereof, SEACOR), up to two Managers
may be designated by a majority in interest of the Group B Members and up to one
Manager may be designated by a majority in interest of the Group C Members. See
"Principal Members" and "Certain Relationships and Related
Transactions--Operating Agreement--Governance." Managers are elected by the
respective Group A, B or C Members to serve until their successors are duly
elected and qualified, or until their earlier death, resignation,
disqualification or removal from office. Information with respect to the current
Managers of Chiles is set forth below. For biographical information concerning
Messrs. Chiles and Fagerstal, see "--Executive Officers."
<TABLE>
<CAPTION>
AGE AS OF
NAME MARCH 1, 1998 POSITION
- ------------------------------------ ------------------- ------------------------------------------------------------
<S> <C> <C>
Charles Fabrikant................... 53 Chairman of the Management Committee
Randall Blank....................... 47 Manager
Timothy J. McKeand.................. 48 Manager
Dick H. Fagerstal................... 37 Manager, Senior Vice President, Chief Financial Officer and
Secretary
William E. Chiles................... 49 Manager, President and Chief Executive Officer
Robert Pierot, Jr................... 39 Manager
Jonathan B. Fairbanks............... 31 Manager
</TABLE>
CHARLES FABRIKANT has been Chairman of the Board and Chief Executive Officer
of SEACOR since December 1989, and has served as a director of SEACOR's
subsidiaries since December 1989. He has been President of SEACOR since October
1992. For more than the past five years, Mr. Fabrikant has been the Chairman of
the Board and Chief Executive Officer of SCF Corporation and President of
Fabrikant International Corporation, each a privately owned corporation engaged
in marine operations and investments. Since January 1992, Mr. Fabrikant has been
Chairman of the Board and Chief Executive Officer of National Response
Corporation, which, since March 1995, has been a wholly-owned subsidiary of
SEACOR. Mr. Fabrikant is a licensed attorney admitted to practice in the State
of New York and in the District of Columbia.
RANDALL BLANK has been a Manager of Chiles since August 1997 and serves as
Vice President, Treasurer of the Company. Mr. Blank has been Executive Vice
President and Chief Financial Officer of SEACOR since December 1989 and has been
its Secretary since October 1992. From December 1989 to October 1992, Mr. Blank
was Treasurer of SEACOR. In addition, Mr. Blank has been a director of certain
of SEACOR's subsidiaries since January 1990. Mr. Blank has served as Vice
President of SEACOR Rigs (as defined) since August 1997.
TIMOTHY J. MCKEAND has been Vice President-Marketing of SEACOR since 1989
and has been Vice President of certain of SEACOR's subsidiaries that are active
in domestic operations.
ROBERT PIEROT, JR. has been a Manager of Chiles since December 1997. Mr.
Pierot is a director of Jacq. Pierot Jr. & Sons, Inc., a private corporation
engaged in marine brokerage and marine appraisals. Mr. Pierot also serves as
President of Pierot Enterprises, Inc., a closely held corporation engaged in
marine and other investments.
JONATHAN B. FAIRBANKS has been a Manager of Chiles since December 1997. Mr.
Fairbanks has been a partner in Bassoe Offshore A/S, a brokerage firm serving
the offshore drilling and service industry, since 1990.
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MANAGER COMPENSATION
Managers of the Company currently are not paid any fees or additional
compensation for service as members of the Management Committee or any committee
thereof, irrespective of whether or not they are employees of the Company or any
of its subsidiaries or of SEACOR or any other affiliated companies. Each Manager
of the Company who is not an employee of the Company or any of its subsidiaries
is paid the reasonable costs and expenses incurred by such Manager in relation
to his services as such.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's fiscal year ended December 31, 1997, the Company had no
compensation committee, although the Management Committee performed certain
similar functions with respect to the compensation of the Company's Chief
Executive Officer. Decisions concerning compensation of executive officers were
made during such fiscal year by persons who were members of the Company's
Management Committee, including William E. Chiles and Dick H. Fagerstal, who
were executive officers of the Company at such time.
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PRINCIPAL MEMBERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information with respect to each
beneficial owner, directly or indirectly, of more than five percent of the
outstanding equity interests of the Company as of the date of this Prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP
- -------------------------------------------------------------------------------- ---------------------------------
<S> <C>
SEACOR Offshore Rigs Inc.(1).................................................... 55.38%
1370 Avenue of the Americas
25th Floor
New York, NY 10019-4602
COI, LLC........................................................................ 13.85%
11200 Westheimer
Suite 410
Houston, TX 77042-3227
</TABLE>
- ------------------------
(1) SEACOR Offshore Rigs Inc. is a wholly owned subsidiary of SEACOR.
SECURITY OWNERSHIP OF MANAGEMENT AND MANAGERS
The following table shows the amount and nature of beneficial ownership of
the equity interests of the Company beneficially owned by each Manager of the
Company, each Named Executive Officer of the Company and all Managers and
executive officers of the Company as a group, as of the date of this Prospectus.
Except as otherwise noted, the named beneficial owner has sole voting power and
sole investment power, except to the extent that authority is shared by a spouse
under applicable law, with respect to the equity interests shown below.
<TABLE>
<CAPTION>
PERCENTAGE OF BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP
- --------------------------------------------------------------------------------- ---------------------------------
<S> <C>
William E. Chiles................................................................ -- (1)
Dick H. Fagerstal................................................................ --
Charles Fabrikant................................................................ *
Randall Blank.................................................................... *
Timothy J. McKeand............................................................... *
Jonathan B. Fairbanks............................................................ 1.54%(2)
Robert Pierot, Jr................................................................ 4.62%(3)
All Managers and Executive Officers as a Group................................... 7.08%
</TABLE>
- ------------------------
* Less than one percent.
(1) Mr. Chiles owns 22.5% of the equity interests of COI, which owns 13.85% of
the equity interests of the Company.
(2) All of such interest is held by Bassoe Rig Partners Ltd., an entity with
respect to which control is shared by Mr. Fairbanks.
(3) All of such interest is held by Pierot Enterprises, Inc., an entity
controlled by Mr. Pierot.
OPERATING AGREEMENT
Chiles is managed pursuant to an Amended and Restated Operating Agreement
among its Members. See "Certain Relationships and Related
Transactions--Operating Agreement."
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THE EQUITY FINANCING
The Company was formed in August 1997 for the purpose of constructing,
owning and operating a fleet of state-of-the-art premium jackup offshore
drilling rigs. At formation, SEACOR contributed $8.85 million in cash to the
capital of the Company (which amount was paid directly to third parties on
behalf of the Company) and COI contributed $0.36 million in cash to the capital
of the Company, together with the Construction Contracts, construction in
progress, certain office equipment and other rights, properties and liabilities
with an agreed-upon value of $8.49 million. The historic cost of such assets
contributed by COI was $2.26 million. The difference between the $8.49 million
agreed-upon value and the historic cost of COI's contributed assets, $6.23
million, has been recorded in the accompanying balance sheet as rigs under
construction and equipment. COI and a predecessor (formed in March 1997) had
been organized by Mr. Chiles and its other owners for the purpose of entering
into the Construction Contracts, engaging in related rig design, engineering,
procurement and financing activities and preparing for commencement of business
operations. Pursuant to the final phase of the Equity Financing, SEACOR
contributed an additional $12.15 million in cash to the Company and $14.0
million in cash advances previously made to the Company by SEACOR, and the
Company accepted cash subscriptions for the purchase of equity interests from
institutional and individual accredited investors aggregating $20.0 million. At
March 31, 1998, the Company had cash on hand of approximately $18.8 million and
no indebtedness for borrowed money.
CONTROLLING MEMBER
As of March 31, 1998, SEACOR Offshore Rigs Inc., a Delaware corporation
("SEACOR Rigs") and a wholly-owned subsidiary of SEACOR, beneficially owns
55.38% of the Membership Interests in Chiles. By virtue of its ownership of a
majority of the Membership Interests in Chiles, SEACOR Rigs, which is controlled
by SEACOR, will be in a position to control actions that require consent of a
Majority in Interest (as defined in the Operating Agreement) of the Members of
Chiles, and, by virtue of the terms of the Operating Agreement, SEACOR Rigs has
the right to designate the Group A Managers, and thus a majority of the members
of the Management Committee of Chiles. In addition, certain officers, directors
or employees of SEACOR serve on the Management Committee of Chiles. See
"Management--Management Committee" and "--Executive Officers."
SEACOR is a major provider of offshore marine services to the oil and gas
exploration and production industry and is one of the leading providers of oil
spill response services to owners of tank vessels and oil storage, processing
and handling facilities. As of December 31, 1997, SEACOR operated a diversified
fleet of 306 vessels primarily dedicated to servicing offshore oil and gas
exploration and production facilities in the U.S. Gulf of Mexico, the North Sea,
offshore West Africa, Mexico, the Far East, Latin America and the Mediterranean.
SEACOR's offshore service vessels deliver cargo and personnel to offshore
installments, handle anchors for drilling rigs and other marine equipment,
support offshore construction and maintenance work and provide standby support.
SEACOR also furnishes vessels for special projects such as well stimulation,
seismic data gathering, freight hauling and line handling. In connection with
its offshore marine services, SEACOR, through Energy Logistics, Inc., a joint
venture with Baker Energy, a unit of the Michael Baker Corporation, a U.S.
public company, also offers logistics services for the offshore industry,
including the coordination and provision of marine, air and land transportation,
materials handling and storage, inventory control and "just-in-time"
procurement. In 1997, the consolidated revenues of SEACOR were approximately
$347.0 million. The principal executive offices of SEACOR are located at 11200
Westheimer, Suite 850, Houston, Texas 77042, where its telephone number is (713)
782-5990.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Senior Vice President and Chief Financial Officer of the Company, Dick
H. Fagerstal, serves as Vice President, Finance of SEACOR. Mr. Fagerstal has
extensive experience in arranging and structuring financing for companies in the
offshore industry. Mr. Fagerstal will be primarily responsible for managing
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the capitalization of the Company and the Company will pay SEACOR a management
fee for the value of Mr. Fagerstal's services (together with reimbursement of
all related out-of-pocket expenses) based on a formula which will, among other
things, take into account the typical compensation for this position and the
percentage of Mr. Fagerstal's time which is allocated to activities related to
the Company.
Charles Fabrikant, the Chairman and CEO of SEACOR, serves as the Chairman of
the Management Committee of the Company. Randall Blank, Executive Vice President
and Chief Financial Officer of SEACOR, is a member of the Management Committee
of the Company.
In addition to the management fee to be paid as described above with respect
to the services of Mr. Fagerstal, in the event SEACOR or any of its consolidated
subsidiaries, including SEACOR Rigs, provides management, administrative,
financial or investment banking-type services to the Company or services in
connection with any future rig transactions, such SEACOR entities shall be
entitled to receive reasonable fees and reimbursement of expenses not in excess
of fees charged by unrelated third parties for comparable services.
SERVICES AGREEMENT
The Company and SEACOR have entered into a Management and Administrative
Services Agreement, dated as of February 27, 1998 (the "Services Agreement"),
pursuant to which SEACOR agreed to continue to provide the services of Dick H.
Fagerstal to assist in the management of the Company and SEACOR agreed to
perform certain administrative and technical services on behalf of the Company.
Such services include general management and financial services, including
periodic advice and consultation in connection with corporate, legal, finance,
accounting, tax, marketing, operations and other matters that may be required
for the Company's day-to-day operations. Under the Services Agreement, the
Company agreed to pay a fee to SEACOR for Mr. Fagerstal's services not to exceed
$15,000 per month and such other fees for services of others not to exceed the
reasonable value thereof and to reimburse SEACOR for all out-of-pocket expenses
related to the provision of such services. The Services Agreement may be
terminated at either party's option upon 60 days' notice to the other party. In
addition, the Company has agreed to indemnify and hold harmless SEACOR for all
claims and damages arising from the provision of services by SEACOR under the
Services Agreement, unless due to the gross negligence or willful misconduct of
SEACOR.
OPERATING AGREEMENT
SEACOR Rigs, COI and the investors pursuant to the Equity Financing
(together with SEACOR Rigs and COI, herein referred to collectively as the
"Members" and individually as a "Member") have entered into an Amended and
Restated Operating Agreement, dated as of December 16, 1997 (as amended by
Amendment No. 1 thereto, dated effective as of April 28, 1998, the "Operating
Agreement"), providing for the management of the Company and certain limitations
on the transferability of the membership interests in the Company held by them
(the "Membership Interests"). The following is a description of certain material
terms of the Operating Agreement of the Company, which sets forth matters
related to the conduct of the Company's business and the purpose and powers of
the Company, its Management Committee and officers and the rights, privileges
and preferences of its Members.
ORGANIZATION AND DURATION. The Company was organized as a limited liability
company under the Delaware Limited Liability Company Act (the "Delaware Act") on
August 5, 1997. The term of the Company will continue until the close of
business on August 1, 2032 or until an earlier dissolution pursuant to the
Operating Agreement. The existence of the Company as a separate legal entity
will continue until cancellation of the Certificate of Formation of the Company
in the manner required by the Delaware Act.
PURPOSE. The purposes of the Company, and the nature of the business to be
conducted and promoted by the Company, are (a) to manage and supervise either
directly or through one or more other entities owned and controlled directly or
indirectly by the Company, all aspects of the construction of premium jackup
rigs, and, upon their completion, manage all aspects of their operation and
receive
49
<PAGE>
therefor certain construction supervision fees and management fees, (b) to form
and act as managing general partner of any such entity that is a partnership,
(c) to engage in any other lawful act or activity for which limited liability
companies may be formed under the Delaware Act and (d) to engage in any and all
activities necessary, advisable, convenient or incidental to the foregoing.
RESTRICTIONS ON TRANSFERABILITY. Generally, the Members may not sell,
transfer, hypothecate or pledge any of their Membership Interests.
Notwithstanding the foregoing, a Member that is a natural person may freely
transfer its Membership Interest to certain immediate family members and a
Member that is not a natural person may freely transfer its Membership Interests
to certain affiliates. Members may also transfer Membership Interests pursuant
to the Right of First Offer, Tag-Along Rights and Drag-Along Rights described
below.
RIGHT OF FIRST OFFER. In the event a Member proposes to transfer its
Membership Interest to a proposed purchaser, in whole or part, each other Member
will have the option to purchase a portion of such Membership Interest on a pro
rata basis at the same price and on the same terms as such proposed purchaser
(provided that the current Members, taken as a whole, purchase the entire
interest offered for sale).
TAG-ALONG RIGHTS. Generally, no Member or group of Members may sell, in one
transaction or a series of related transactions, 20% or more of all the
Membership Interests, unless the terms of such sale require that the proposed
purchaser offer to each other Member the right to participate in the sale on a
pro rata basis.
DRAG-ALONG RIGHTS. Generally, any Member or group of Members selling all of
their holdings aggregating more than a majority of all the Membership Interests
may require all of the other Members to sell all their Membership Interests to
the proposed purchaser on the same terms and conditions.
PRE-EMPTIVE RIGHTS. Generally, each Member will have a right to purchase
all or a portion of its pro rata share of additional Membership Interests to be
sold by the Company. Members have no pre-emptive rights with respect to
Membership Interests granted pursuant to the Option Plan.
"PIGGYBACK" REGISTRATION RIGHTS. Generally, if the Company seeks to
register any class of its equity securities in a primary public offering under
the Securities Act pursuant to an effective registration statement, each Member
will have the right to "piggy back" or sell its Membership Interest, or shares
received in exchange therefor, as part of the registered offering.
GOVERNANCE. The Company will be managed by a Management Committee comprised
of up to seven Managers. SEACOR Rigs (together with its permitted successors or
assigns, the "Group A Members") shall designate up to four Managers and COI
(together with its permitted successors or assigns, the "Group B Members") shall
designate up to two Managers, of which one will be William E. Chiles so long as
he is President and Chief Executive Officer of the Company. In addition, the new
investors pursuant to the Equity Financing (together with their respective
permitted successors or assigns, the "Group C Members"), by vote of the holders
of a majority of Membership Interests held by such investors, will have the
right to designate one Manager. The Managers initially designated by SEACOR Rigs
were Charles Fabrikant, Randall Blank, Timothy J. McKeand and Dick H. Fagerstal.
The Managers initially designated by COI were William E. Chiles and Jonathan B.
Fairbanks. The initial designee of the new investors was Robert Pierot, Jr. The
Management Committee acts by majority vote. A quorum for taking action at any
meeting of the Management Committee requires the presence of at least four
Managers. Charles Fabrikant, Chairman and CEO of SEACOR, serves as the Chairman
of the Management Committee of the Company.
OFFICERS. The Management Committee has the authority to appoint the
officers of the Company. The Management Committee may appoint such officers as
it deems appropriate, which may include a President and Chief Executive Officer,
Senior Vice President, Vice President, Chief Operating Officer, Chief Financial
Officer, Treasurer, Controller or Secretary.
50
<PAGE>
MEMBERSHIP INTEREST OPTION PLAN. The Company may issue up to five (5%)
percent, on a fully-diluted basis, of additional Membership Interests in the
Company in the form of options to employees, directors, advisors or consultants
to the Company or its subsidiaries, without triggering pre-emptive rights under
the Operating Agreement, so long as such options are exercisable at a price that
is not less than the price per percentage Membership Interest paid in the Equity
Financing. The Option Committee will control the granting and vesting terms of
any such options. See "Management--Membership Interest Option Plan" and
"--Option Repurchase Obligation."
LIMITED LIABILITY. Generally, the debts, obligations and liabilities of a
Delaware limited liability company, whether arising in contract, tort or
otherwise, are solely the debts, obligations and liabilities of the limited
liability company, and no owner of an equity interest therein is obligated
personally for any such debt, obligation or liability of the limited liability
company solely by reason of being an owner thereof.
INDEMNIFICATION. The Operating Agreement provides that the Company will
indemnify the Members, members of the Management Committee and the officers of
the Company, and certain other persons, from liabilities arising in the course
of such persons' service to the Company, provided that (i) the indemnitee acted
in good faith and in a manner which such indemnitee believed to be in or not
opposed to the interests of the Company and, with respect to any criminal
proceeding, had no reasonable cause to believe such indemnitee's conduct was
unlawful and (ii) the indemnitee's conduct did not constitute actual fraud,
gross negligence or willful or wanton misconduct. Such liabilities include all
losses, claims, demands, costs, damages, liabilities, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which an indemnitee may be involved, or threatened to be involved, as a party
or otherwise, arising out of or incidental to the business of the Company,
including, without limitation, liabilities under the Federal and state
securities laws.
BROKERAGE FEE
Bassoe will be paid a brokerage fee of $505,000 upon delivery of each Rig
presently under construction at AMFELS. Such brokerage fees and commissions will
be included in the cost of the Rigs paid to AMFELS. Bassoe also has an exclusive
right to broker future sale, purchase and charter transactions with respect to
the Rigs, provided that its rates are not in excess of rates charged by
unrelated third parties in similar transactions.
OPTION REPURCHASE OBLIGATION
Pursuant to the Option Plan, the Company has agreed to repurchase any
options granted under the Option Plan that have vested and are exercisable at
their expiration if there has been no initial public offering of the Company's
Membership Interests prior to such time. The value attributed to such options
under such repurchase shall be determined by reference to the last sale price of
the Membership Interests on such date on a national securities exchange or
inter-dealer quotation system, or, if no such Membership Interests are so listed
or traded, then by reference to the fair market value of such Membership
Interests. The determination of fair market value by the Option Committee shall
be conclusive. For a description of other terms of the Option Plan, see
"Management--Membership Interest Option Plan."
GUARANTEE OF OFFICE LEASE
On October 1, 1997, SEACOR Marine, Inc. ("SEACOR Marine"), a subsidiary of
SEACOR, agreed to guarantee the Company's lease (the "Lease Guarantee") of its
principal office space. The Lease Guarantee obligates SEACOR Marine as if it
were the lessee of the office space, but it also allows the Company and the
lessor to modify, extend or amend such lease without notice to SEACOR Marine.
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DESCRIPTION OF BANK FACILITY
The following description of certain material provisions of certain
indebtedness of the Company does not purport to be complete, and is subject to,
and is qualified in its entirety by reference to, the forms of such instruments,
copies of which may be obtained as described under "Available Information."
The Company entered into the Bank Facility, which was arranged by
Nederlandse Scheepshypotheek Bank N.V. and MeesPierson Capital Corp., effective
as of the closing date of the Original Offering. The Bank Facility provides for
a $25.0 million revolving credit facility maturing December 31, 2004. Borrowings
under the Bank Facility may be repaid and reborrowed during the term thereof and
will bear interest at a per annum rate equal to LIBOR plus a margin of 1.25%.
Subject to satisfaction of customary conditions precedent, including that there
shall have occurred no material adverse change with respect to the Company or
its business, assets, properties or prospects since the date of execution of the
Bank Facility, availability under the Bank Facility will commence upon the first
delivery of a Rig. Until the commencement of availability, the Company will be
required to pay quarterly in arrears a commitment fee equal to 0.25% per annum
on the undrawn amount of the facility, thereafter increased to 0.50% per annum.
The Bank Facility is guaranteed by the Owners and such guarantees are
secured by first priority mortgages on the Rigs, assignments of earnings of the
Rigs (which may continue to be collected by the Company unless there occurs an
event of default) and assignments of insurance proceeds.
The Bank Facility contains customary affirmative covenants, representations
and warranties and is cross-defaulted to the Notes; PROVIDED, HOWEVER, should
there occur an event of default under the Bank Facility (other than arising from
enforcement actions undertaken by a holder of other indebtedness of the Company,
enforcement actions arising from IN REM claims against either of the Rigs or
bankruptcy events with respect to the Company or an Owner), the lenders under
the Bank Facility have agreed on a one-time basis not to enforce remedies for a
period of 60 days during which the Noteholders or the Company may cure such
event of default or prepay all of the indebtedness outstanding under the
facility. The Bank Facility also contains certain negative covenants applicable
to the Company and the Guarantors, including prohibitions against the following:
certain liens on the collateral under the Bank Facility; material changes in the
nature of their business; sale or pledge of any Guarantor's membership
interests; sale or disposition of any Rig or other substantial assets; certain
changes in office locations; consolidations or mergers; certain Restricted
Payments (as defined in the Bank Facility), including distributions on the
Company's Membership Interests; the exercise of a right to call the Notes; or
any material amendment or modification of the Indenture. The Bank Facility
further requires the Company to prevent the Guarantors from making certain loans
and advances, except in their normal course of business or to certain
affiliates; assuming, guaranteeing or (except in their ordinary course of
business) otherwise becoming liable in connection with any obligations other
than guaranties for the benefit of the lenders under the Bank Facility,
guaranties in favor of the Noteholders or pre-existing guaranties; paying out
any funds, except in their ordinary course of business for the business of the
Company or service of certain indebtedness permitted under the Bank Facility;
and issuing or disposing of any of their own membership interests (except to the
Company). In addition, the Bank Facility requires that the fair market value of
the Rigs, as determined by appraisers appointed by the lenders thereunder, at
all times equals or exceeds an amount equal to 130% of outstanding indebtedness
under the facility.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Issuers on April 29, 1998 in a private
placement. In connection with that placement, the Issuers entered into the
Registration Rights Agreement, which requires that the Issuers file a
registration statement under the Securities Act with respect to the New Notes
and, upon the effectiveness of that registration statement, offer to the Holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and may be reoffered and resold by the Holder without registration under the
Securities Act. The Registration Rights Agreement further provides that the
Issuers must use their reasonable best efforts to cause the Registration
Statement with respect to the Exchange Offer to be declared effective on or
before August 27, 1998 and that the Issuers shall keep such Registration
Statement effective for not less than 30 days (or longer, if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
Holders. Except as provided below, upon the completion of the Exchange Offer,
the Issuers' obligations with respect to the registration of the Old Notes and
the New Notes will terminate. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part and although the Issuers believe that the summary herein of certain
provisions thereof describes all material elements of the Registration Rights
Agreement, such summary does not purport to be complete and is subject thereto,
and is qualified in its entirety by reference thereto. As a result of the filing
and the effectiveness of the Registration Statement, certain additional interest
provided for in the Registration Rights Agreement will not become payable by the
Company. Following the completion of the Exchange Offer (except as set forth in
the paragraph immediately below), holders of Old Notes not tendered will not
have any further registration rights and those Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, any liquidity of the
market for the Old Notes could be adversely affected upon completion of the
Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Issuers, among other things, that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving the New Notes, whether or not such person is the Holder of the
Old Notes, (ii) neither the Holder nor any such other person is engaging in or
intends to engage in a distribution of the New Notes, (iii) neither the Holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of the New Notes and (iv) neither the Holder nor
any such other person is an "affiliate," as defined under Rule 405 promulgated
under the Securities Act, of either of the Issuers or either of the Guarantors.
In the event that (i) because of any change of law or in applicable
interpretations of the staff of the Commission, the Issuers are not permitted to
effect the Exchange Offer, or (ii) if for any other reason the Exchange Offer is
not consummated within 150 days of the date of the Original Offering, or (iii)
if any Initial Purchaser in the Original Offering so requests with respect to
Old Notes not eligible to be exchanged for New Notes in the Exchange Offer and
held by it following consummation of the Exchange Offer, or (iv) if any Holder
of Old Notes (other than a broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (a "Participating Broker-Dealer")) is not eligible to participate in
the Exchange Offer or any such Holder (other than a Participating Broker-Dealer)
does not receive freely tradeable New Notes in the Exchange Offer, the Issuers
are required, pursuant to the Registration Rights Agreement, to file a "shelf"
registration statement for a continuous offering pursuant to Rule 415 under the
Securities Act in respect of the Old Notes (and use their reasonable best
efforts to cause such shelf registration statement to be declared effective by
the Commission and keep it continuously effective, supplemented and amended for
prescribed periods). See "--Procedures for Tenders."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Issuers, the Issuers believe
that, with the exceptions set forth below, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such New Notes, whether or not
such person is the Holder
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(other than any such holder or such other person that is an "affiliate" of
either of the Issuers or either of the Guarantors 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 the New
Notes are acquired in the ordinary course of business of the Holder or such
other person and neither the Holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any Holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each Participating Broker-Dealer must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer, (except as set forth in the
second paragraph under "--Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, any
liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the Exchange Offer if the holder does not participate in the
Exchange Offer.
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 Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes will have been registered
under the Securities Act and will not bear legends restricting their transfer.
The New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture pursuant to which
the Old Notes were issued. Interest on the New Notes shall accrue from the date
of issuance of the Old Notes
As of May 31, 1998, Old Notes representing $110,000,000 aggregate principal
amount were outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to each registered Holder and to others believed to
have beneficial interests in the Old Notes. Holders of Old Notes do not have any
appraisal or dissenters' rights under the General Corporation Law of the State
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
promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to U.S.
Bank Trust National Association, the Exchange Agent. The Exchange Agent will act
as agent for the tendering Holders for the purpose of receiving the New Notes
from the Company. If any tendered Old Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old 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 Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and
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<PAGE>
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "The Exchange Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September , 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent and each registered
Holder of any extension by oral or written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth under "The Exchange Offer--Conditions to Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent,
or (ii) to amend the terms of the Exchange Offer in any manner.
PROCEDURES FOR TENDERS
Only a Holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer--Book Entry Transfer," to tender
in the Exchange Offer a Holder must complete, sign and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or a copy thereof to the Exchange Agent prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth under "The Exchange Offer-- Exchange Agent" prior to
the Expiration Date.
The tender by a Holder that is not withdrawn before the Expiration Date will
constitute an agreement between that 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 OLD NOTES, 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 OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old 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 the registered Holder
to tender on the beneficial owner's behalf. If the beneficial owner wishes to
tender on the owner's own behalf, the owner must, prior to completing and
executing the Letter of Transmittal and delivering the owner's Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in the
beneficial owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined) unless Old
Notes tendered pursuant thereto are
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<PAGE>
tendered (i) by a registered Holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be made by any eligible guarantor institution that is a member of
or participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, 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 Old Notes listed therein, the Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered Holder
as that registered Holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old 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 evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old 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 Old Notes
not properly tendered or any Old 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 Old 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 Old 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 Old
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered or 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 otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer-- Conditions to the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each Holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, (ii) neither the Holder nor any
such other person is engaging in or intends to engage in a distribution of such
New Notes, (iii) neither the Holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such New
Notes and (iv) neither the Holder nor any such other person is an "affiliate" as
defined under Rule 405 of the Securities Act, of the Company, Finance or either
Guarantor.
In the event that (i) because of any change of law or in applicable
interpretations of the staff of the Commission, the Issuers are not permitted to
effect the Exchange Offer, or (ii) if for any other reason the Exchange Offer is
not consummated within 150 days of the date of the Original Offering, or (iii)
if any Initial Purchaser in the Original Offering so requests with respect to
Old Notes not eligible to be exchanged for New Notes in the Exchange Offer and
held by it following consummation of the Exchange Offer, or (iv) if any Holder
of Old Notes (other than a Participting Broker-Dealer)) is not eligible to
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<PAGE>
participate in the Exchange Offer or any such Holder (other than a Participating
Broker-Dealer) does not receive freely tradeable New Notes in the Exchange
Offer, the Issuers are required, pursuant to the Registration Rights Agreement,
to file a "shelf" registration statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of the Old Notes (and use their
reasonable best efforts to cause such shelf registration statement to be
declared effective by the Commission and keep it continuously effective,
supplemented and amended for prescribed periods).
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering Holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal) and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old 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 meeting the requirements of the Securities Act
in connection with any resale of such New Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or a copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible
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<PAGE>
Institution, (ii) prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a copy thereof) and Notice of Guaranteed Delivery, substantially
in the form provided by the Company (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or (for
DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth in this 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 Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, 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
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason 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 Old Notes may be retendered by following one
of the procedures under "The Exchange Offer--Procedures for Tendering" at any
time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in
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effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). In any such event
the Company is required to use every reasonable commercial effort to obtain the
withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. U.S. Bank Trust National Association has been appointed as Exchange Agent
for the Exchange Offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
U.S. BANK TRUST NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY FACSIMILE TRANSMISSION BY HAND, MAIL OR OVERNIGHT DELIVERY:
(FOR ELIGIBLE INSTITUTIONS ONLY): U.S. Bank Trust National Association
(612) 244-1537 100 Wall Street
FOR INFORMATION OR New York, New York 10041
CONFIRMATION BY TELEPHONE: or
(612) 180 East Fifth Street
St. Paul, MN 55101
Attn: Specialized Finance Department
</TABLE>
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $ , which includes fees and expenses of the Trustee,
accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection with the Exchange Offer except that Holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering Holder will be responsible for the
payment of any applicable transfer tax thereon.
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DESCRIPTION OF NEW NOTES
GENERAL
The Notes will be issued under the Indenture, dated as of April 29, 1998
(the "Indenture"), among the Company, Finance, the Subsidiary Guarantors and
U.S. Bank Trust National Association, as Trustee (the "Trustee"). Upon the
issuance of the New Notes, the Indenture will be subject to and governed by the
Trust Indenture Act. The New Notes are subject to all such terms, and Holders of
New Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Indenture
and the New Notes does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture
and the Notes, including the definitions of certain terms therein and those
terms made a part thereof by the Trust Indenture Act. As used in this
"Description of New Notes" section, references to the "Company" include only
Chiles Offshore LLC and not its Subsidiaries.
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office or
agency of the Issuers in the Borough of Manhattan, The City of New York, which
initially shall be the corporate trust office of the Trustee's agent, at 100
Wall Street, New York, New York 10041, except that, at the option of the
Issuers, payment of interest may be made by check mailed to the address of the
Holders as such address appears in the Note register; PROVIDED that all payments
with respect to Global Notes and certificated Notes the Holders of which have
given wire transfer instructions to the Company and its paying agent prior to
the applicable record date for such payment will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. See "--Book
Entry, Delivery and Form." No service charge shall be made for any registration
or exchange of the Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
TERMS OF THE NOTES
The New Notes will be joint and several senior obligations of the Issuers,
and will be unsecured except with respect to the Escrowed Property. See
"--Escrow of Proceeds." The Indenture provides for the issuance of the $110.0
million principal amount of Old Notes pursuant to the Original Offering and, in
exchange therefor, a like principal amount of New Notes being offered hereby and
additional Notes, subject to compliance with the covenant described below under
the caption "--Certain Covenants-- Limitation on Indebtedness"; PROVIDED,
HOWEVER, that no Default or Event of Default exists under the Indenture at the
time of issuance or would result therefrom and that the aggregate principal
amount of Notes issued under the Indenture does not exceed $250.0 million. All
New Notes will be substantially identical in all material respects other than
issuance dates. The Notes will mature on May 1, 2008. The Notes will bear
interest at the rate per annum shown on the cover page hereof from April 29,
1998, or from the most recent date to which interest has been paid or provided
for, payable semiannually to Holders of record at the close of business on the
April 15 or October 15 immediately preceding the interest payment date on May 1
and November 1 of each year, commencing November 1, 1998. The Issuers will pay
interest on overdue principal at 1.0% per annum in excess of such rate and, to
the extent permitted by applicable law, on overdue installments of interest at
such higher rate. Interest on the Notes will be computed on the basis of a
360-day year of twelve 30-day months.
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ESCROW OF PROCEEDS
Concurrently with the closing of the Original Offering, the Company entered
into an escrow agreement (the "Escrow Agreement") with U.S. Bank Trust National
Association, as Escrow Agent, pursuant to which the Company initially deposited
with the Escrow Agent an aggregate amount equal to the net cash proceeds of the
Original Offering, together with approximately $0.2 million for additional Notes
issuance costs, as follows: (i) into the Interest Escrow Account, approximately
$11.1 million in cash, being the amount as will be sufficient to provide for
payment in full of the first two scheduled interest payments on the Notes and
(ii) into the Construction Escrow Account, approximately $95.4 million in cash,
representing the balance. The Interest Escrow Account and the Construction
Escrow Account are sometimes referred to herein together as the "Escrow
Accounts," and the cash and Temporary Cash Investments deposited therein,
together with the interest, dividends and distributions thereon are sometimes
referred to herein as the "Escrowed Property." Pursuant to a related escrow
security agreement (the "Escrow Security Agreement") with U.S. Bank Trust
National Association, as Collateral Agent, the Company granted a security
interest in the Escrow Accounts and all funds and investments contained therein,
the Escrow Agreement and all proceeds of the foregoing (the "Collateral") to the
Collateral Agent for the benefit of the Holders pursuant to the Indenture.
The Escrow Agent will make payments from the Interest Escrow Account as
follows: (i) on each of the first two Interest Payment Dates, an amount equal to
the installment then due, to be remitted to the Paying Agent for the Notes, and
(ii) in the event the Company is required to repurchase Notes pursuant to the
Indenture, on the repurchase date, an amount equal to the aggregate amount of
accrued interest paid to the Holders whose Notes were repurchased. A failure to
pay interest on the Notes in a timely manner through the first two scheduled
Interest Payment Dates will constitute an immediate Event of Default under the
Indenture, with no grace or cure period. The Escrowed Property in the Interest
Escrow Account also will secure the repayment of the principal amount of, and
premium, if any, on, the Notes.
The Escrow Agent will make payments from the Construction Escrow Account as
follows: On the first Business Day of each calendar month beginning after the
date that the Company shall have paid to the Builder an aggregate of at least
$50.0 million in installment payments to AMFELS of the Purchase Price of the
Rigs and payments for OFE and Construction Overhead (each as defined in the
Escrow Agreement) (or, in the case of the first calendar month in which the
Company shall have so paid such amount, on any Business Day thereafter during
such calendar month), an amount equal to the sum of (i) each installment payment
of the Purchase Price of the Rigs required to be paid on each Rig Purchase
Installment Date in such calendar month pursuant to the Construction Contracts,
as adjusted for any change orders provided pursuant to the Construction
Contracts, (ii) the aggregate amount estimated in good faith by the Company to
be required in such calendar month to pay for the purchase price of OFE and
Construction Overhead, up to an aggregate amount not to exceed $55.0 million and
(iii) with respect to any calendar month beginning on or after the Delivery Date
of the first Rig to be completed (the "First Completed Rig") and prior to the
Delivery Date of the second Rig to be completed, an aggregate amount estimated
by the Company to be required to fund the working capital in such calendar month
for the operation of the First Completed Rig, up to an aggregate amount not to
exceed $10.0 million; PROVIDED, HOWEVER, that at least three Business Days prior
thereto, the Company shall have delivered to the Trustee and the Escrow Agent an
Officers' Certificate setting forth in reasonable detail (i) the amount,
category and purpose of each requested payment, (ii) in the case of any payments
other than installment payments of the Purchase Prices of the Rigs, the amount
available for payment, after giving effect to all previous payments, and (iii) a
reconciliation of payments made from the Construction Escrow Account to actual
expenditures, which reconciliation shall be made on a cumulative basis through
the end of the second calendar month preceding the month in which such Officers'
Certificate is delivered. Notwithstanding the foregoing, in the event the
Company is required to repurchase Notes upon a Contract Termination, the Escrow
Agent will make a payment on the repurchase date, in an amount equal to the
Allocated Portion of the remaining funds in the Construction Escrow Account, to
be deposited with the Paying Agent for application to pay
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the purchase price of Notes accepted for repurchase. See "--Right to Require
Repurchase Upon Contract Termination." Pending application of the Escrowed
Property so released from the Construction Escrow Account pursuant to the Escrow
Agreement, such Escrowed Property shall be invested in Temporary Cash
Investments.
Upon receipt by the Escrow Agent of an Officers' Certificate of the Company
that the Company has made the first two scheduled interest payments on the
Notes, the Escrowed Property in the Interest Escrow Account shall be released
from the Interest Escrow Account. Upon receipt by the Escrow Agent of an
Officers' Certificate of the Company that the Company has made the final
installment of the Purchase Price for each of the Rigs in accordance with the
related Construction Contracts, the Escrowed Property in the Construction Escrow
Account will be released from the Construction Escrow Account. Upon release of
all the Escrowed Property from the Escrow Accounts, the Notes will be unsecured.
REDEMPTION
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Issuers prior to May 1, 2003. Thereafter, the
Notes will be redeemable, at the Issuers' option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on May
1 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- -------------------------------------------------------------------------------- -----------------
<S> <C>
2003............................................................................ 105.00%
2004............................................................................ 103.33%
2005............................................................................ 101.67%
2006 and thereafter............................................................. 100.00%
</TABLE>
In addition, at any time and from time to time prior to May 1, 2001, the
Issuers may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings, at a
redemption price (expressed as a percentage of principal amount) of 110% plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); PROVIDED, HOWEVER, that at least $71.5 million aggregate
principal amount of the Notes must remain outstanding after each such redemption
and, PROVIDED FURTHER, that such redemption shall occur within 90 days following
the closing of such Public Equity Offering.
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RIGHT TO REQUIRE REPURCHASE UPON CONTRACT TERMINATION
In the event a Construction Contract is terminated (a "Contract
Termination") prior to the Delivery Date of the related Rig, each Holder shall
have the right to require that the Issuers repurchase the Allocated Principal
Amount of such Holder's Notes at a purchase price equal to 101% of the principal
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<PAGE>
amount thereof, plus accrued and unpaid interest to and including the date of
repurchase (subject to the right of a Holder of record on the relevant record
date to receive interest due on the relevant Interest Payment Date), on a
payment date no later than 90 days after the termination of such Construction
Contract(s).
Within 30 days following any Contract Termination, unless notice of
redemption of the Notes has been given pursuant to the provisions of the
Indenture described under "--Optional Redemption" above, the Company shall mail
a notice to the Trustee and to each Holder stating: (1) that a Contract
Termination has occurred and that such Holder has the right to require the
Issuers to repurchase such Holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant Interest Payment Date);
(2) the circumstances and relevant facts regarding such Contract Termination;
(3) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (4) the instructions
determined by the Company, consistent with the covenant described hereunder,
that a Holder must follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
SUBSIDIARY GUARANTEES
Each of the Company's Restricted Subsidiaries that is organized and existing
under the laws of any State of the United States or the District of Columbia and
that is an obligor or guarantor with respect to the Bank Facility will
irrevocably, fully and unconditionally Guarantee, as a primary obligor and not
merely as a surety, on an unsecured senior basis the performance and punctual
payment when due, whether at Stated Maturity, by acceleration or otherwise, of
all obligations of the Company under the Indenture and the Notes, whether for
payment of principal of or interest on the Notes, expenses, indemnification or
otherwise (all such obligations guaranteed by the Subsidiary Guarantors being
herein called the "Guaranteed Obligations"). The Subsidiary Guarantors will
agree to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or the
Holders in enforcing any rights under the Subsidiary Guarantees. Each Subsidiary
Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be Guaranteed by the applicable Subsidiary Guarantor without
rendering such Subsidiary Guarantee voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. After the Issue Date, the Company will cause each
Restricted Subsidiary that is organized and existing under the laws of any State
of the United States or the District of Columbia and that becomes an obligor or
guarantor with respect to any of the obligations under the Bank Facility to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary will Guarantee on an unsecured senior basis the
payment of the Notes. See "Certain Covenants--Future Subsidiary Guarantors"
below.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) inure to the benefit of
and be enforceable by the Trustee, the Holders and the respective successors,
transferees and assigns thereof.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a Person other than the Company or another
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Subsidiary Guarantor (whether or not affiliated with the Guarantor). Upon the
sale or disposition (by merger or otherwise) of a Subsidiary Guarantor (or all
or substantially all of its assets) to a Person (whether or not an Affiliate of
the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale
or disposition is otherwise in compliance with the Indenture (including the
covenant described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock"), such Subsidiary Guarantor shall be deemed released from all
its obligations under the Indenture and its Subsidiary Guarantee and such
Subsidiary Guarantee shall terminate; PROVIDED, HOWEVER, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under the Bank Facility and all of its Guarantees of, and
under all of its pledges of assets or other security interests which secure, any
other Indebtedness of the Company shall also terminate upon such release, sale
or transfer.
RANKING
The indebtedness evidenced by the New Notes and the Subsidiary Guarantees
will be senior obligations of the Company and the Subsidiary Guarantors,
respectively, will be unsecured (except with respect to the Escrowed Property)
and will rank PARI PASSU with the Old Notes, if any, and all other senior
unsecured Indebtedness of the Company and the Subsidiary Guarantors,
respectively, and senior to all Subordinated Obligations. Except with respect to
the Escrowed Property, the Notes and the Subsidiary Guarantees will also be
effectively subordinated to all Secured Indebtedness of the Company and the
Subsidiary Guarantors, respectively, to the extent of the value of the assets
securing such Secured Indebtedness and to all Indebtedness and other obligations
(including trade payables) of the Company's Subsidiaries other than the
Subsidiary Guarantors. The Indebtedness under the Company's Bank Facility will
be secured by substantially all the assets of the Company and its subsidiaries,
including the Rigs, other than the Escrowed Property.
As of March 31, 1998, after giving pro forma effect to the Original Offering
and the application of the net proceeds therefrom, as if they had occurred on
such date, the Company and the Subsidiary Guarantors would have had no
outstanding Secured Indebtedness. However, the Bank Facility provides for
borrowing availability of $25.0 million of Secured Indebtedness of the Company
guaranteed on a secured basis by the Subsidiary Guarantors. Although the
Indenture contains limitations on the amount of additional Indebtedness that the
Company and its Restricted Subsidiaries may incur, under certain circumstances
the amount of such Indebtedness could be substantial and, under such
circumstances, such Indebtedness may be Secured Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness."
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will be issued in the form of a Global Note. The Global Note
will be deposited with, or on behalf of, the Depository and registered in the
name of the Depository or its nominee. Except as set forth below, the Global
Note may be transferred, in whole and not in part, only to the Depository or
another nominee of the Depository. Investors may hold their beneficial interests
in the Global Note directly through the Depository if they have an account with
the Depository or indirectly through organizations that have accounts with the
Depository.
New Notes that are issued as described below under "Certificated Notes" will
be issued in definitive certificated form. Upon the transfer of a New Note in
definitive certificated form, such New Note will, unless the Global Note has
previously been exchanged for Notes in definitive certificated form, be
exchanged for an interest in the Global Note representing the principal amount
of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to
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facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers (which may include the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the New
Notes represented by such Global Note to the accounts of participants. The
accounts to be credited initially shall be designated by or on behalf of the
Initial Purchasers. Ownership of beneficial interests in the Global Note will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in the Global
Note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered Holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related New Notes for
all purposes of such New Notes and the Indenture. Except as set forth below,
owners of beneficial interests in the Global Note will not be entitled to have
the New Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated New Notes in
definitive form and will not be considered to be the owners or holders of any
New Notes under the Global Note. The Company understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Note desires to take any action that the Depository, as the holder of the Global
Note, is entitled to take, the Depository would authorize the participants to
take such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on 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 the Depository 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 practices and will be the responsibility of such participants. The
Company will not 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 for any New Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or
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continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Trustee nor the Company will have any responsibility for
the performance by the Depository or its participants or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes in
denominations of $1,000 and integral multiples thereof if (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Global Note or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act or (ii) the Company in its discretion
at any time determines not to have all of the New Notes represented by the
Global Note. Any New Note that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated New Notes issuable in authorized
denominations and registered in such names as the Depository shall direct.
Subject to the foregoing, the Global Note is not exchangeable, except for a
Global Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee.
Neither the Company nor the Trustee will be liable for any delay by the
Depository or its nominee in indemnifying the beneficial owners of the Notes,
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the Depository or its nominee for all purposes.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
The Issuers and the Subsidiary Guarantors have agreed pursuant to a
registration rights agreement (the "Registration Rights Agreement") with the
Initial Purchasers, for the benefit of the Holders of the Notes, that the
Issuers would, at their cost, (i) within 60 days after the Issue Date, file the
registration statement of which this Prospectus is a part (the "Exchange Offer
Registration Statement") with the SEC with respect to the Exchange Offer; and
(ii) use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 120 days
after the Issue Date. The Issuers have agreed to keep the Exchange Offer open
for not less than 30 days (or longer if required by applicable law) after the
date notice of the Exchange Offer was mailed to the Holders of the Old Notes.
For each Old Note surrendered to the Issuers pursuant to the Exchange Offer, the
Holder of such Old Note will receive a New Note having a principal amount equal
to that of the surrendered Old Note. Interest on each New Note will accrue from
the Issue Date. Under existing SEC interpretations, the New Notes would be
freely transferable by Holders other than affiliates of the Issuer after the
Exchange Offer without further registration under the Securities Act if the
Holder of the New Notes represents that it is acquiring the New Notes in the
ordinary course of its business, that it has no arrangement or understanding
with any person to participate in the distribution of the New Notes and that it
is not an affiliate of the Issuer, as such terms are interpreted by the SEC;
PROVIDED, HOWEVER, that broker-dealers ("Participating Broker-Dealers")
receiving New Notes in the Registered Exchange Offer will have a prospectus
delivery requirement with respect to resales of such New Notes. The SEC has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to New Notes (other than a resale
of an unsold allotment from the original sale of the Old Notes) with this
Prospectus. Under the Registration Rights Agreement, the Issuers are required to
allow Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such New Notes.
A Holder of Old Notes who wishes to exchange such Old Notes for New Notes in
the Exchange Offer will be required to represent (i) that any New Notes to be
received by it will be acquired in the ordinary course of its business; (ii)
that at the time of the commencement of the Exchange Offer it had no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes; (iii) that it is not an
"affiliate" of the Issuers, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery
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requirements of the Securities Act to the extent applicable; (iv) if such Holder
is not a broker-dealer, that it is not engaged in, and does not intend to engage
in, the distribution of the New Notes; and (v) if such Holder is a
broker-dealer, that it will receive New Notes for its own account in exchange
for Old Notes that were acquired as a result of market-making activities or
other trading activities and that it will be required to acknowledge that it
will deliver a Prospectus in connection with any resale of such New Notes.
In the event that because of any change in law or in applicable
interpretations thereof by the staff of the Commission, the Issuers are not
permitted to effect the Exchange Offer, or the Exchange Offer is not consummated
within 150 days of the Issue Date, or if the Initial Purchasers so request with
respect to Old Notes not eligible to be exchanged for New Notes in the Exchange
Offer, or if any Initial Purchaser so requests with respect to the Old Notes not
eligible to be exchanged for New Notes and held by it following consummation of
the Exchange Offer, or if any Holder of Old Notes (other than a Participating
Broker-Dealer) is not eligible to participate in the Exchange Offer or does not
receive freely tradeable New Notes in the Exchange Offer, the Issuers will, at
their cost, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Old Notes or the New Notes, as the case may be (a "Shelf
Registration Statement"), (b) use their reasonable best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
and (c) use their reasonable best efforts to keep the Shelf Registration
Statement continuously effective for a period of two years or such shorter
period that will terminate when all Notes covered by the Shelf Registration
Statement have been sold pursuant thereto or are no longer restricted securities
(as defined in Rule 144 under the Securities Act, or any successor rule
thereof). In the event a Shelf Registration Statement is filed, the Issuers
will, among other things, provide to each Holder for whom such Shelf
Registration Statement was filed copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes. A Holder selling such
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such Holder (including certain indemnification obligations).
If after either the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of Old Notes or New Notes in accordance with and during
the periods specified in the Registration Rights Agreement (a "Registration
Default"), additional interest will accrue on the Notes at the rate of 0.50% per
annum from and including the date on which any such Registration Default shall
occur to but excluding the date on which all Registration Defaults have been
cured. Such interest is payable in addition to, and at the same times as, any
other interest payable from time to time with respect to the Notes.
The Issuers are entitled to close the Exchange Offer 30 days after the
commencement thereof; PROVIDED, HOWEVER, that they have accepted all Old Notes
theretofore validly tendered in accordance with the terms of the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available as set forth under "Available
Information."
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Issuers
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant Interest Payment Date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that for purposes of this clause (i) such person shall be deemed
to have "beneficial ownership" of all shares that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 45% of the total
voting power of the then outstanding Voting Stock of the Company; PROVIDED,
HOWEVER, that the Permitted Holders beneficially own (as defined above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company than such other person and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors (for
the purposes of this clause (i), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person is the beneficial owner (as defined
in this clause (i)), directly or indirectly, of more than 45% of the voting
power of the Voting Stock of such parent corporation and the Permitted
Holders beneficially own (as defined above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for elect on a majority
of the board of directors of such parent corporation);
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders (or members, as applicable) of
the Company was approved by a vote of 66 2/3% of the directors of the
Company (or the Company's managers, as applicable) then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company to another Person (in
each case other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation or a parent corporation that owns all of the capital
stock of such corporation that represent immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation or such parent corporation, as the case may be.
The definition of Change of Control includes a phrase relating to the sale
of "all or substantially all" of the assets of the Company. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale of less than all of the assets of
the Company to another Person or group may be uncertain.
Within 30 days following any Change of Control, unless notice of redemption
of the Notes has been given pursuant to the provisions of the Indenture
described under "--Optional Redemption" above, the
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Company shall mail a notice to the Trustee and to each Holder stating: (1) that
a Change of Control has occurred and that such Holder has the right to require
the Company to purchase such Holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant Interest Payment Date);
(2) the circumstances and relevant facts regarding such Change of Control; (3)
the repurchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed); and (4) the instructions determined
by the Company, consistent with the covenant described hereunder, that a Holder
must follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company and its Restricted Subsidiaries to incur additional
Indebtedness are contained in the covenant described under "--Certain
Covenants--Limitation on Indebtedness." Such restrictions can only be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture does not contain any covenants or provisions that may
afford Holders protection in the event of a highly leveraged transaction.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be delivered by Holders seeking to accept the Change of
Control offer. The failure of the Company to make or consummate the Change of
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "--Defaults."
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Bank Facility contains, and future indebtedness of the Company may
contain, prohibitions on the occurrence of certain events that would constitute
a Change of Control or require such indebtedness to be repaid or repurchased
upon a Change of Control. Moreover, the exercise by the Holders of their right
to require the Company to repurchase the Notes will cause a default under the
Bank Facility, and could cause a default under such other indebtedness, even if
the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
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LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, after giving effect to such Incurrence, the Consolidated Coverage Ratio
would exceed 2.0 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness (including reimbursement obligations in respect of
letters of credit outstanding under the Bank Facility that are Indebtedness)
of the Company Incurred pursuant to the Bank Facility or any other credit or
loan agreement (and any Guarantees in respect thereof by Restricted
Subsidiaries that are Subsidiary Guarantors in accordance with the
Indenture) in an aggregate principal amount which, when taken together with
the principal amount of all other Indebtedness Incurred pursuant to this
clause (1) and then outstanding, does not exceed $25.0 million;
(2) Indebtedness of the Company or any Restricted Subsidiary owed to and
held by the Company or any Wholly Owned Restricted Subsidiary; PROVIDED,
HOWEVER, that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to another Wholly Owned Restricted Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the Company or such Restricted Subsidiary;
(3) the Notes and the Subsidiary Guarantees;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (4) or this clause
(5);
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to the Indenture;
(7) Indebtedness of the Company or any Restricted Subsidiary consisting
of obligations in respect of purchase price adjustments in connection with
the acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under the Indenture; and
(8) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (7) above or paragraph (a)), does not
exceed $10.0 million at any one time outstanding.
(c) Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
Notes or the Subsidiary Guarantees, as applicable, to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the covenant entitled
"--Limitation on Indebtedness," (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
above, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
above.
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien upon any of its property or assets, now owned or hereafter acquired,
securing any obligation unless concurrently with the creation of such Lien
effective
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provision is made to secure the Notes and the Subsidiary Guarantees equally and
ratably with such obligation for so long as such obligation is so secured;
PROVIDED, HOWEVER, that, if such obligation is a Subordinated Obligation, the
Lien securing such obligation shall be subordinated and junior to the Lien
securing the Notes and the Subsidiary Guarantees with the same or lesser
relative priority as such Subordinated Obligation shall have been with respect
to the Notes and the Subsidiary Guarantees. The preceding restriction shall not
require the Company or any Restricted Subsidiary to secure the Notes or the
Subsidiary Guarantees if the Lien consists of the following:
(a) Liens created by the Indenture and the Escrow Security Agreement;
(b) Liens under the Bank Facility;
(c) Liens existing as of the Issue Date;
(d) Permitted Liens;
(e) Liens to secure Indebtedness issued by the Company or a Restricted
Subsidiary for the purpose of financing all or a part of the purchase price
of assets or property acquired or constructed in the ordinary course of
business after the Issue Date; PROVIDED, HOWEVER, that (i) the aggregate
principal amount (or accreted value in the case of Indebtedness issued at a
discount) of Indebtedness so issued shall not exceed the lesser of the cost
or fair market value, as determined in good faith by the Board of Directors
of the Company, of the assets or property so acquired or constructed, (ii)
the Indebtedness secured by such Liens shall have been permitted to be
Incurred under the "--Limitation on Indebtedness" covenant and (iii) such
Liens shall not encumber any other assets or property of the Company or any
of its Restricted Subsidiaries other than such assets or property or any
improvement on such assets or property and shall attach to such assets or
property within 90 days of the construction or acquisition of such assets or
property;
(f) Liens on the assets or property of a Restricted Subsidiary existing
at the time such Restricted Subsidiary becomes a Restricted Subsidiary and
not issued as a result of (or in connection with or in anticipation of) such
Restricted Subsidiary becoming a Restricted Subsidiary; PROVIDED, HOWEVER,
that such Liens do not extend to or cover any other property or assets of
the Company or any of its other Restricted Subsidiaries; or
(g) Liens securing Indebtedness issued to Refinance Indebtedness which
has been secured by a Lien permitted under the Indenture and is permitted to
be Refinanced under the Indenture; PROVIDED, HOWEVER, that such Liens do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be (A) in compliance with the covenants described
under "--Limitation on Indebtedness" immediately after giving effect to such
Sale/Leaseback Transaction and (B) entitled to create a Lien on such property
securing the Attributable Debt with respect to such Sale/ Leaseback Transaction
without securing the Notes pursuant to the covenant described under
"--Limitation on Liens," (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair market value (as determined by the Board of Directors of
the Company) of such property and (iii) the Company or such Restricted
Subsidiary applies the proceeds of such transaction in compliance with the
covenant described under "--Limitation on Sales of Assets and Subsidiary Stock."
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes, and
after giving effect to, the proposed Restricted Payment: (i) a Default shall
have occurred and be continuing (or would result therefrom); (ii) the Company or
such Restricted
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Subsidiary, as applicable, is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or (iii) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of: (A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Old Notes were
originally issued to the end of the most recently ended fiscal quarter for which
financial statements are available at the time of such Restricted Payment (or,
in case such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); (B) the aggregate Net Cash Proceeds received by the Company from
capital contributions or the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale
to a Subsidiary of the Company); (C) the amount by which Indebtedness of the
Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date, of any Indebtedness of the Company or a Restricted Subsidiary for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the Company upon
such conversion or exchange), whether pursuant to the terms of such Indebtedness
or pursuant to an agreement with a creditor to engage in an equity for debt
exchange; and (D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from the receipt of
dividends, repayments of loans or advances or other transfers of assets or
proceeds from the disposition of Capital Stock or other distributions or
payments, in each case to the Company or any Restricted Subsidiary from, or with
respect to, interests in Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED,
HOWEVER, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary subsequent to the Issue Date.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than (A) Disqualified
Stock or (B) Capital Stock issued or sold to a Subsidiary of the Company) or out
of the proceeds of a substantially concurrent capital contribution to the
Company; PROVIDED, HOWEVER, that (x) such purchase, capital contribution or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (y) the Net Cash Proceeds from such sale of Capital Stock or
capital contribution shall be excluded from clause (iii)(B) of paragraph (a)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments; (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; PROVIDED, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (iv) for so
long as the Company is a partnership or substantially similar pass-through
entity for Federal income tax purposes, the making of Permitted Quarterly Tax
Distributions in compliance with this covenant; PROVIDED, HOWEVER, that such
distributions shall be excluded in the calculation of the amount of Restricted
Payments; and (v) the repurchase of Capital Stock of the Company from directors,
officers or employees of the Company pursuant to the terms of an employee
benefit plan or employment or other agreement; provided that the aggregate
amount of all such repurchases shall not exceed $1.0 million in any fiscal year
and $5.0 million in the aggregate.
(c) For so long as the Company is a partnership or substantially similar
pass-through entity for Federal income tax purposes, the Company may make cash
distributions to its members, during each Quarterly Payment Period, in an
aggregate amount not to exceed the Permitted Quarterly Tax Distribution
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in respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such undistributed
portion.
Within 10 days following the Company's filing of Internal Revenue Service
Form 1065 for the immediately preceding taxable year, the Tax Amounts CPA shall
file with the Trustee a written statement indicating in reasonable detail the
calculation of the True-Up Amount. Is the case of a True-Up Amount due to the
members, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such True-Up Amount. In
the case of a True-Up Amount due to the Company, the Permitted Quarterly Tax
Distribution payable during the immediately following Quarterly Payment Period
shall be reduced by such True-Up Amount and the excess, if any, of the True-Up
Amount over such Permitted Quarterly Tax Distribution shall be applied to reduce
the immediately following Permitted Quarterly Tax Distributions until such
True-Up Amount is entirely offset.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) make any loans or advances to the Company or (c) transfer any
of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to the Bank Facility or any other agreement in effect at or
entered into on the Issue Date; (ii) any encumbrance or restriction with respect
to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting Refinancing
Indebtedness Incurred pursuant to an agreement referred to in clause (i) or (ii)
of this covenant or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to
any such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Holders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases to the extent such provisions restrict the
subletting, assignment or transfer of the lease or the property leased
thereunder or in purchase money financings; (v) in the case of clause (c) above,
restrictions contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements or mortgages; (vi)
encumbrances or restrictions imposed by operation of any applicable law, rule,
regulation or order; and (vii) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
sell, lease, transfer or otherwise dispose of the Escrowed Property other than
in accordance with the Escrow Agreement. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, consummate any
Asset Disposition of property other than the Escrowed Property, unless (i) the
Company or such Restricted Subsidiary receives consideration at the time of such
Asset Disposition at least equal to the fair market value (including the value
of all non-cash consideration), as determined in good faith by the Board of
Directors, of the shares and assets subject to such Asset Disposition, and at
least 85% of the consideration thereof received by the
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Company or such Restricted Subsidiary is in the form of cash or cash equivalents
and (ii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be) (A) First, to either (i) prepay, repay, redeem or purchase (and
permanently reduce the commitments under) Indebtedness under the Bank Facility
or that is otherwise secured by its assets subject to such Asset Disposition
within 180 days from the date of the receipt of such Net Available Cash (the
"Receipt Date") or (ii) to the extent the Company elects, to acquire Additional
Assets within 180 days from the Receipt Date; (B) Second, to the extent of the
balance of such Net Available Cash after application in accordance with clause
(A), to make an offer pursuant to paragraph (b) below to the Holders to purchase
Notes pursuant to and subject to the conditions contained in the Indenture; and
(C) Third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) or (B) to any other application or
use not prohibited by the Indenture. Notwithstanding the foregoing provisions of
this paragraph, the Company and the Restricted Subsidiaries shall not be
required to apply the Net Available Cash in accordance with this paragraph
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions which is not applied in accordance with this paragraph exceeds $5.0
million (at which time, the entire unutilized Net Available Cash, and not just
the amount in excess of $5.0 million, shall be applied pursuant to this
paragraph). Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes pursuant to clause (a)(ii)(B) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their principal amount plus accrued but unpaid
interest in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
Notes tendered pursuant to such offer is less than the Net Available Cash
allotted to the purchase thereof, the Company will be required to apply the
remaining Net Available Cash in accordance with clause (a)(ii)(C) above. The
Company shall not be required to make such an offer to purchase Notes pursuant
to this covenant if the Net Available Cash available therefor is less than $5.0
million (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to any subsequent
Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
APPLICATION OF EVENT OF LOSS PROCEEDS. (a) If an Event of Loss occurs at
any time with respect to a Rig (the Rig suffering such Event of Loss being the
"Lost Rig"), the Company shall apply an amount equal to 100% of the Event of
Loss Proceeds from such Event of Loss received by the Company (or such
Restricted Subsidiary, as the case may be) (i) FIRST, to either (A) prepay,
repay, redeem or purchase (and permanently reduce the commitments under)
Indebtedness under the Bank Facility or that is otherwise secured by the Rig
subject to such Event of Loss within 180 days from the date of the receipt of
such Event of Loss Proceeds (the "Loss Receipt Date") or (B) to the extent the
Company elects, to acquire a Qualified Substitute Rig within 180 days from the
Loss Receipt Date; (ii) SECOND, to the extent of the balance of such Event of
Loss Proceeds after application in accordance with clause (i), to make an offer
pursuant to paragraph (b) below to the Holders to purchase Notes pursuant to and
subject to the conditions contained
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in the Indenture; and (iii) THIRD, to the extent of the balance of such Event of
Loss Proceeds after application in accordance with clauses (i) or (ii) to any
other application or use not prohibited by the Indenture. Pending application of
Event of Loss Proceeds pursuant to this covenant, such Event of Loss Proceeds
shall be invested in Permitted Investments.
(b) In the event of an Event of Loss that requires the purchase of the Notes
pursuant to clause (a)(ii) above, the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes at a purchase price
of 101% of their principal amount plus accrued but unpaid interest in accordance
with the procedures (including prorating in the event of oversubscription) set
forth in the Indenture. If the aggregate purchase price of Notes tendered
pursuant to such offer is less than the Event of Loss Proceeds allotted to the
purchase thereof, the Company will be required to apply the remaining Event of
Loss Proceeds in accordance with clause (a)(iii) above.
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
INSURANCE. The Company shall, or shall cause the Restricted Subsidiary
owning a drilling rig or drilling rigs to, carry and maintain with respect to
each Rig owned by it insurance payable in United States Dollars in amounts,
against risks (including marine hull and machinery (including excess value)
insurance, marine protection and indemnity insurance, war risks insurance and
liability insurance and liability arising out of pollution and the spillage or
leakage of cargo and cargo liability insurance) and in a form which is
substantially equivalent to the coverage carried by other responsible and
experienced companies engaged in the operation of drilling rigs similar to the
Rigs and with insurance companies, underwriters, funds, mutual insurance
associations or clubs of recognized standing. No insurance shall provide for a
deductible in excess of $1.0 million per occurrence. No insurance policy shall
be subject to lapse without at least seven Business Days' prior notice to the
Trustee.
For purposes of insurance against total loss, each drilling rig is to be
insured for an amount not less than the fair market value (as determined in good
faith by the Board of Directors of the Company) and not less, when aggregated
with the insurance on the other drilling rigs, than the outstanding principal
amount of the Notes, Indebtedness under the Bank Facility and any other PARI
PASSU Indebtedness, in each case together with premium, if any, and accrued
interest thereon.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company other than the
Company or a Restricted Subsidiary (an "Affiliate Transaction") unless the terms
thereof (1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in a
comparable transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction involves an amount in excess of
$1.0 million, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the Board of Directors of the Company or such
Restricted Subsidiary as the case may be, having no material personal financial
stake in such Affiliate Transaction and (3) if such Affiliate Transaction
involves an amount in excess of $5.0 million, have been determined by a
nationally recognized investment banking firm to be fair, from a financial
standpoint, to the Company or its Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments," or any payment
or transaction specifically excepted from the definition of Restricted Payment,
(ii) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
stock options, stock ownership or other
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employee benefit plans approved by the Board of Directors of the Company, (iii)
the grant of stock options or similar rights to employees and directors pursuant
to plans approved by the Board of Directors of the Company, (iv) loans or
advances to officers, directors or employees in the ordinary course of business
or pursuant to compensation plans or employment agreements approved by the Board
of Directors of the Company, in an aggregate amount not to exceed $1.0 million
in any calendar year, (v) the payment of reasonable fees to directors of the
Company and its Restricted Subsidiaries who are not employees of the Company or
its Restricted Subsidiaries, (vi) any transaction between the Company and a
Wholly Owned Restricted Subsidiary or between Wholly Owned Restricted
Subsidiaries and (vii) management and administrative services agreements in
effect on the Issue Date that were disclosed in the Offering Circular relating
to the Notes under the caption "Certain Relationships and Related Transactions"
and any amendments thereto (so long as any such amendment is not more
disadvantageous to the holders of the Notes in any material respect than the
original agreement as in effect on the Issue Date and complies with clause
(a)(1) above).
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock to any person (other than to the Company or a Wholly
Owned Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Subsidiary) to own any Capital Stock of a Restricted Subsidiary, if in either
case as a result thereof such Restricted Subsidiary would no longer be a
Restricted Subsidiary; PROVIDED, HOWEVER, this provision shall not prohibit (x)
the Company or any Restricted Subsidiary from selling, leasing or otherwise
disposing of all of the Capital Stock of any Restricted Subsidiary or (y) the
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with the Indenture. The foregoing shall not apply to any Lien granted
on the Capital Stock of a Restricted Subsidiary.
MERGER AND CONSOLIDATION. Neither of the Issuers shall consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, its assets substantially as an entirety to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia, and the Successor
Company (if not the Company or Finance, as the case may be) shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company or Finance,
as the case may be, under the Notes, the Indenture and the Escrow Agreement;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) in the case of the Company,
immediately after giving effect to such transaction, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "--Limitation on Indebtedness"; (iv) in the case
of the Company, immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is not
less than the Consolidated Net Worth of the Company prior to such transaction,
minus any costs incurred in connection with such transaction; and (v) the
Company or Finance, as the case may be, shall have delivered to the Trustee an
officer's certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company shall be the successor to the Company or Finance, as
the case may be, and shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or Finance, as the case may be, under the
Indenture, but the predecessor company, only in the case of a conveyance,
transfer or lease, shall not be released from the obligation to pay the
principal of and interest on the Notes.
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Notwithstanding the foregoing, (i) any Restricted Subsidiary may consolidate
or merge with, or transfer its assets substantially as an entirety to, the
Company and (ii) the Company may consolidate or merge with, or transfer its
assets substantially as an entirety to, an Affiliate solely for the purpose of
effecting a Corporate Conversion, PROVIDED, HOWEVER, that, in either case, the
requirements set forth in clauses (i) and (v) of the first paragraph under
"--Merger and Consolidation" are complied with.
LIMITATION ON BUSINESS ACTIVITIES. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, engage to any material extent in
any business other than a Related Business.
FUTURE SUBSIDIARY GUARANTORS. The Company shall cause each Restricted
Subsidiary that is organized and existing under the laws of any State of the
United States or the District of Columbia and that at any time becomes an
obligor or guarantor with respect to any obligations under the Bank Facility to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary will Guarantee payment of the Notes on the same terms
and conditions as those set forth in the Indenture. Each Subsidiary Guarantee
will be limited in amount to an amount not to exceed the maximum amount that can
be Guaranteed by the applicable Subsidiary Guarantor without rendering such
Subsidiary Guarantee voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
LIMITATION ON FINANCE. In addition to the restrictions set forth under
"--Limitation on Indebtedness" above, Finance may not incur any Indebtedness
unless (a) the Company is a co-obligor and guarantor of such Indebtedness or (b)
the net proceeds of such Indebtedness are lent to the Company, used to acquire
outstanding debt securities issued by the Company or used directly or indirectly
to refinance or discharge Indebtedness permitted under the limitation of this
paragraph. Finance may not engage in any business not related directly or
indirectly to obtaining money or arranging financing for the Company.
SEC REPORTS. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC (unless the SEC will not accept such a
filing) and provide within 15 days to the Trustee and Holders such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. company
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such filing). In addition, the Company
shall furnish to the Holders and to prospective investors, upon the request of
such Holders, any information required to be delivered pursuant to Rule 144A (d)
(4) under the Securities Act so long as the Old Notes are not freely
transferable under the Securities Act.
IMPAIRMENT OF SECURITY INTEREST IN COLLATERAL. The Company shall not, and
shall not permit any Restricted Subsidiary to, take or knowingly omit to take,
any action which action or omission might or would have the result of materially
impairing the security interest with respect to the Collateral (as defined in
the Escrow Security Agreement) for the benefit of the Collateral Agent, the
Trustee and the Holders of the Notes, and the Company shall not, and shall not
permit any Restricted Subsidiary to, grant to any Person other than the
Collateral Agent, for the benefit of the Collateral Agent, the Trustee and the
Holders of the Notes, any interest whatsoever in any of the Collateral.
AMENDMENTS TO ESCROW AGREEMENT AND ESCROW SECURITY AGREEMENT. The Company
shall not, and shall not permit any Restricted Subsidiary to, amend, modify or
supplement, or permit or consent to any amendment, modification or supplement
of, the Escrow Agreement or the Escrow Security Agreement in any way that would
be adverse to the Holders of the Notes.
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DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal on any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon acceleration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above, (iv) the failure by the Company to
comply for 30 days after notice with any of its obligations in the covenants
described above under "Right to Require Repurchase Upon Contract Termination" or
"Change of Control" (in either case, other than a failure to purchase Notes) or
under "--Certain Covenants--Limitation on Indebtedness," "--Limitation on
Restricted Payments," "--Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "--Limitation on Sales of Assets and Subsidiary
Stock," "--Insurance," "--Limitations on Transactions with Affiliates,"
"--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries," "--Limitation on Business Activities," "-- Future Subsidiary
Guarantors," "--Limitation on Finance," "--Impairment of Security Interest in
Collateral" and "--Amendments to Escrow Agreement and Escrow Security
Agreement," (v) the failure by the Company to comply for 60 days after the
Company receives written notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the Holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10.0 million (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or any Restricted Subsidiary that is a Significant
Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the
payment of money in excess of $10.0 million is entered against the Company or
any Restricted Subsidiary, remains outstanding for a period of 60 days following
entry of such judgment and is not discharged, bonded, waived or stayed within 30
days after notice (the "judgment default provision"), (ix) a Subsidiary
Guarantee ceases to be in full force and effect (other than in accordance with
the terms of such Subsidiary Guarantee or the Indenture) or a Subsidiary
Guarantor denies or disaffirms its obligations under its Subsidiary Guarantee
(the "guarantee default provision"), or (x) the security interest under the
Escrow Security Agreement shall, at any time, cease to be in full force and
effect for any reason (other than by operation of the provisions of the
Indenture and the Escrow Security Agreement), or any security interest created
thereunder shall be declared invalid or unenforceable, or the Company or any
Restricted Subsidiary shall assert, in any pleading in any court of competent
jurisdiction that any such security interest is invalid or unenforceable (the
"security default provision"). However, a default under clause (iv) or (v) will
not constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified after receipt
of such notice.
If an Event of Default (other than the bankruptcy provisions relating to the
Company) occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes may declare the principal of and
accrued but unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default relating to the bankruptcy provisions relating to the
Company occurs and is continuing, the principal of and interest on all the Notes
will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. The Holders
of a majority in principal amount of the outstanding Notes may by notice to the
Trustee rescind any acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except non-payment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to
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enforce the right to receive payment of principal, premium (if any) or interest
when due, no Holder of a Note may pursue any remedy with respect to the
Indenture or the Notes unless (i) such Holder has previously given the Trustee
notice that an Event of Default is continuing, (ii) Holders of at least 25% in
principal amount of the outstanding Notes have requested the Trustee to pursue
the remedy, (iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the Holders of a majority in principal
amount of the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the Holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as the board of directors, the executive committee or a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the Holders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any event that would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes) and any past default or compliance with any provisions may also
be waived with the consent of the Holders of a majority in principal amount of
the Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Redemption"
above, (v) make any Note payable in money other than that stated in the Note,
(vi) impair the right of any Holder to receive payment of principal of and
interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (vii) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions, (viii) affect the ranking of
the Notes in any material respect or (ix) make any change in any Subsidiary
Guarantee or the Escrow Security Agreement that would adversely affect the
Holders or terminate the Lien of the Indenture or the Escrow Security Agreement
on the Collateral or deprive the Holders of the security afforded by such Lien.
Without the consent of any Holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to secure the Notes, to add
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to the covenants of the Company for the benefit of the Holders or to surrender
any right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
The New Notes will be issued in registered form and will be transferable
only upon the surrender of the New Notes being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges. The Company is not required to transfer or exchange any
Note selected for redemption or repurchase or to transfer or exchange any Note
for a period of 15 days prior to selection of Notes to be redeemed or
repurchased.
DEFEASANCE
The Issuers at their option at any time may terminate all of their
obligations under the Notes and the Indenture ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes. In addition, the Issuers at their option
at any time may terminate their obligations under "--Change of Control" and
under the covenants described under "--Certain Covenants" (other than the
covenant described under "--Merger and Consolidation") (and any omission to
comply with such obligations shall not constitute a Default or Event of Default
with respect to the Notes), the operation of the cross acceleration provision,
the bankruptcy provisions with respect to Significant Subsidiaries and the
judgment default provision, the guarantee default provision and the security
default provision described under "--Defaults" above and the limitations
contained in clauses (iii) and (iv) of the first paragraph under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Issuers may exercise their legal defeasance option notwithstanding their
prior exercise of their covenant defeasance option. If the Issuers exercise
their legal defeasance option, payment of the Notes may not be accelerated
because of an Event of Default with respect thereto. If the Issuers exercise
their covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries) or (viii), (ix) and (x) under
"--Defaults" above or because of the failure of the Company to comply with
clause (iii) or (iv) of the first paragraph under "--Certain Covenants--Merger
and Consolidation" above. If the Issuers exercise their legal defeasance option
or their covenant defeasance option, each Subsidiary Guarantor will be released
from all its obligations with respect to its Subsidiary Guarantee.
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of 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 such deposit and defeasance and will be
subject to Federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
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SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when: (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and the Issuers have
irrevocably deposited or caused to be deposited with the Trustee an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of deposit; (ii) the
Issuers have paid or caused to be paid all other sums payable under the
Indenture by the Issuers; and (iii) the Issuers have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
NO PERSONAL LIABILITY
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Issuers in the Indenture, or in any of the Notes or
because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, stockholder, member, officer, director, manager,
employee or controlling person of the Issuers or any successor Person thereof.
Each Holder, by accepting the Notes, waives and releases all such liability.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such waiver is against public
policy.
CONCERNING THE TRUSTEE
U.S. Bank Trust National Association is the Trustee under the Indenture, the
Escrow Agent under the Escrow Agreement and the Collateral Agent under the
Escrow Security Agreement and has been appointed by the Company as Registrar and
Paying Agent with regard to the Notes. Such bank may also act as a depository of
funds for, or make loans to and perform other services for, the Company or its
affiliates in the ordinary course of business in the future. The corporate trust
office of the Trustee is located at 100 Wall Street, New York, New York 10041.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture. The Trustee may resign at any
time or may be removed by the Company. If the Trustee resigns, is removed or
becomes incapable of acting as Trustee or if a vacancy occurs in the office of
the Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
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GOVERNING LAW
The Indenture provides that it and the Notes will 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 law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ADDITIONAL ASSETS" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"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 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
"controlling" and "controlled" have meanings correlative to the foregoing.
"ALLOCATED PORTION" means, with respect to any Rig, a fraction, the
numerator of which is the Purchase Price of such Rig and the denominator is the
sum of the Purchase Prices of both Rigs.
"ALLOCATED PRINCIPAL AMOUNT" means, with respect to the principal amount of
any Note and any Rig, an amount equal to the product of (a) the principal amount
of such Note and (b) the Allocated Portion.
"ASSET DISPOSITION" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (ii) all
or substantially all the assets (other than Capital Stock of an Unrestricted
Subsidiary) of any division or line of business of the Company or any Restricted
Subsidiary or (iii) any other assets (other than Capital Stock of an
Unrestricted Subsidiary) of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (x) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (y) for purposes of the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "--Certain Covenants-- Limitation on
Restricted Payments" or a disposition specifically excepted from the definition
of Restricted Payment and (z) a disposition by the Company or a Restricted
Subsidiary of a Construction Option to an Unrestricted Subsidiary or other
Affiliate of the Company); PROVIDED, HOWEVER, that Asset Disposition shall not
include (a) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration less than
or equal to $1.0 million or (b) the sale, lease, conveyance, disposition or
other transfer of all or substantially all of the assets of the Company as
permitted under "--Certain Covenants--Merger and Consolidation."
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date
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of determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"BANK FACILITY" means the credit agreement, dated as of the Issue Date,
among the Company, one or more commercial banks, as agent or agents, and the
other financial institutions party thereto, as such agreement, in whole or in
part, may be amended, renewed, extended, refunded, replaced or refinanced from
time to time.
"BOARD OF DIRECTORS" means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
similar governing body of such Person (or in the case of a limited partnership,
of such Person's general partner, or in the case of a limited liability company,
of such Person's manager if such manager(s) is not an individual), or any
authorized committee thereof responsible for the management of the business and
affairs of such Person.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"BUILDER" means AMFELS, Inc., a Texas corporation.
"CAPITAL LEASE OBLIGATIONS" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations, membership interests or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less than 45
days after the end of such fiscal quarter, ending as of the date the
consolidated financial statements of the Company shall be available) prior to
the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any
Restricted Subsidiary (x) has Incurred any Indebtedness (other than Indebtedness
Incurred for working capital purposes under the Bank Facility) since the
beginning of such period that remains outstanding or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period or (y) has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period that is no longer outstanding on such date of
determination, or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect to such discharge of such Indebtedness, including with the proceeds of
such new Indebtedness, as if such discharge had occurred on the first day of
such period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the average
daily balance of such Indebtedness during such four quarter period), (2) if
since the beginning of such period the Company or any Restricted Subsidiary
shall have made any Asset Disposition, EBITDA for such period shall be reduced
by an amount equal to EBITDA (if positive) directly
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attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (3) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period or (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition, Investment
or acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months). For purposes of this definition, in the case of the acquisition
since the beginning of such period of a drilling rig (or a Restricted Subsidiary
owning a rig) by the Company or by a Restricted Subsidiary pursuant to a binding
purchase agreement or the delivery since the beginning of such period of a
drilling rig to the Company or a Restricted Subsidiary pursuant to a drilling
rig construction contract, if such drilling rig is subject to a binding drilling
contract, the Company shall give pro forma effect to the earnings (losses) of
such drilling rig as if such drilling rig was acquired on the first day of such
period by basing such earnings (losses) on (A) (x) revenues to be earned from
any binding drilling contract of at least one year's duration that will be
applicable to any such drilling rig (including a drilling rig owned by a
Restricted Subsidiary) and in effect during such period and (y) a good faith
estimate of the operating costs of such drilling rig (as determined in the
reasonable judgment of a responsible financial officer of the Company) or (B)
with respect to any such drilling rig subject to a drilling contract of less
than one year's duration, the earnings (losses) for such period based on
industry average earning (losses) for comparable drilling rigs (as determined in
the reasonable judgment of a responsible financial officer of the Company).
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"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance costs, (iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, (vi) net costs
associated with Hedging Obligations (including amortization of fees), (vii)
dividends paid or payable in respect of any Disqualified Stock of the Company,
(viii) cash dividends paid or payable by the Company and all dividends paid or
payable by Restricted Subsidiaries, in each case in respect of all Preferred
Stock held by Persons other than the Company or a Wholly Owned Subsidiary, (ix)
interest incurred in connection with Investments in discontinued operations and
(x) interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by the Company or any Restricted Subsidiary.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) with respect to the calculation of EBITDA only, the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income up to the aggregate amount
invested by the Company or any Restricted Subsidiary in such Person during such
period; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, prohibiting the payment of dividends, the
repayment of intercompany debt and the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income up to the
aggregate amount invested by the Company or any Restricted Subsidiary in such
Person during such period; (iv) any gain or loss realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and (vi) the cumulative effect of a change in
accounting principles. Prior to a Corporate Conversion, the calculation of
Consolidated Net Income shall be adjusted by imputing to the Company as an
expense the amount of all Permitted Quarterly Tax Distributions.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance
sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the most recent fiscal quarter
of the Company for which financial statements are available, as (i) the par or
stated value of all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
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"CONSTRUCTION CONTRACT" means either of (i) the Platform Construction
Agreement, dated April 30, 1997, between the Company and the Builder relating to
the Rig referred to therein or (ii) the Platform Construction Agreement, dated
August 5, 1997, between the Company and the Builder relating to the Rig referred
to therein, in either case together with all exhibits and schedules thereto and
as either may be amended or supplemented from time to time.
"CONSTRUCTION OPTION" means any contractual option, existing on the Issue
Date or any date thereafter, exercisable by the Company or any of its
Subsidiaries with the Builder or another shipyard for the construction of a
drilling rig.
"CORPORATE CONVERSION" shall mean the conversion of the Company to a
corporation, whether pursuant to a merger, consolidation, conversion by filing,
assignment of assets, or similar transaction or series of transactions, in each
case resulting in a corporation substantially all of the assets of which consist
of substantially all of the assets that were held directly or indirectly by the
Company immediately prior to such transaction and substantially all of the
Capital Stock of which corporation is held by Persons who were members of the
Company immediately prior to such transaction or Permitted Transferees of such
Persons in substantially the same proportions.
"CURRENCY AGREEMENT" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DELIVERY DATE" means, with respect to a Rig, the date such Rig is accepted
by the related Owner pursuant to the terms of the related Construction Contract.
"DEPOSITORY" means The Depository Trust Company, its nominees and their
respective successors.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (other than
as a result of a Change of Control) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the Stated Maturity of the Notes; PROVIDED, HOWEVER, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--Change of
Control."
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) prior to a Corporate Conversion,
all Permitted Quarterly Tax Distributions made by the Company and, thereafter,
all income tax expense of the Company, (b) depreciation expense, (c)
amortization expense and (d) all other non-cash items reducing such Consolidated
Net Income (excluding any non-cash item to the extent it represents an accrual
of, or reserve for, cash disbursement for any subsequent period) less all non-
cash items increasing such Consolidated Net Income (such amount calculated
pursuant to this clause (d) not to be less than zero), in each case for such
period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income.
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"ESTIMATION PERIOD" means the period for which a partner who is an
individual is required to estimate for federal income tax purposes his
allocation of taxable income from a calendar year partnership in connection with
determining his estimated federal income tax liability for such period.
"EVENT OF LOSS" is defined to mean any of the following events: (a) the
actual or constructive total loss of a Rig or the agreed or compromised total
loss of a Rig, (b) the destruction of a Rig, (c) damage to a Rig to an extent,
determined in good faith by the Company within 90 days after the occurrence of
such damage (and evidenced by an Officers' Certificate to such effect delivered
to the Trustee, within such 90-day period), as shall make repair thereof
uneconomical or shall render such Rig permanently unfit for normal use (other
than obsolescence) or (d) the condemnation, confiscation, requisition, seizure,
forfeiture or other taking of title to or use of a Rig that shall not be revoked
within six months. An Event of Loss shall be deemed to have occurred: (i) in the
event of the destruction or other actual total loss of a Rig, on the date of
such loss; (ii) in the event of a constructive, agreed or compromised total loss
of a Rig, on the date of the determination of such total loss pursuant to the
relevant insurance policy; (iii) in the case of any event referred to in clause
(c) above, upon the delivery of the Officers' Certificate to the Trustee; or
(iv) in the case of any event referred to in clause (d) above, on the date six
months after the occurrence of such event.
"EVENT OF LOSS PROCEEDS" is defined to mean all compensation, damages and
other payments (including insurance proceeds) received by the Company or any
Subsidiary Guarantor, jointly or severally, from any Person, including any
governmental authority with respect to or in connection with an Event of Loss.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to keep
well, to purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning. The
term "Guarantor" shall mean any Person Guaranteeing any obligation.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is registered
on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise become liable for
Indebtedness; provided, however, that any Indebtedness of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a
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correlative meaning. The accretion of principal of a non-interest bearing or
other discount security shall be deemed the Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property
(which purchase price is due more than one year after taking title of such
property), all conditional sale obligations of such Person and all obligations
of such Person under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in clauses (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon, or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Subsidiary Guaranty (but only to the extent of the amount actually guaranteed);
(vii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or assets
or the amount of the obligation so secured; and (viii) to the extent not
otherwise included in this definition, Hedging Obligations of such Person. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. For purposes of
clarification, (i) Indebtedness shall not include undrawn commitments under the
Bank Facility or otherwise and (ii) any Guarantee of Indebtedness shall not be
deemed to be an Incurrence of Indebtedness to the extent that the Indebtedness
so Guaranteed is Incurred by the Company or any Restricted Subsidiary as
permitted pursuant to the terms of the Indenture.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"INVESTMENT" in any Person means any direct or indirect advance or loan
(including guarantees of Indebtedness or other obligations, but excluding
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of the Person making the advance or
loan) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the definition
of "Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that if such
designation is made in connection with the acquisition of such Subsidiary or the
assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be
deemed to
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be the consideration paid in connection with such acquisition; PROVIDED FURTHER,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the
Company's "Investment" in such Subsidiary at the time of such redesignation less
(y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation, and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"ISSUE DATE" means the date of original issuance of the Old Notes.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"MOODY'S" means Moody's Investors Service, Inc.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severance
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued or paid as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition or
made in order to obtain a necessary consent to such Asset Disposition or to
comply with applicable law, (iii) all distributions and other payments required
to be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Disposition. Further, with respect to an Asset Disposition by a Subsidiary which
is not a Wholly Owned Subsidiary, Net Available Cash shall be reduced pro rata
for the portion of the equity of such Subsidiary which is not owned by the
Company.
"NET CASH PROCEEDS," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted 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 guarantor or
otherwise), pursuant to the instrument governing such Indebtedness or (c)
constitutes the lender; and (ii) no default with respect to which (including any
rights that the holders thereof may have to take
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enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any Indebtedness (other than the
Notes being offered hereby) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
"OWNERS" means the following Restricted Subsidiaries, each of which owns a
Rig: (i) Chiles Columbus LLC, a Delaware limited liability company, and (ii)
Chiles Magellan LLC, a Delaware limited liability company, and their respective
successors.
"PERMITTED HOLDERS" means SEACOR SMIT Inc., William E. Chiles and their
respective Affiliates.
"PERMITTED INVESTMENT" means an Investment by the Company or any Wholly
Owned Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Wholly Owned Restricted
Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Wholly Owned Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's
primary business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
may include such concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees
permitted under "--Certain Covenants-- Limitation on Affiliate Transactions";
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for an
Asset Disposition as permitted pursuant to the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and as
described in clause (c) of the definition of Asset Disposition; (ix) an
Unrestricted Subsidiary or an Affiliate of the Company in consideration of the
transfer to such Person of a Construction Option; (x) an Unrestricted Subsidiary
or an Affiliate of the Company of the aggregate Net Cash Proceeds received by
the Company from capital contributions or the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of the Company), to the extent such
aggregate Net Cash Proceeds are applied by such Person to fund the payment of
all or a portion of the purchase price or cost of construction of a drilling
rig; PROVIDED, HOWEVER, that such Net Cash Proceeds shall be excluded from
clause (a)(iii)(B) of the covenant described under "--Certain Covenants--
Limitation on Restricted Payments"; and (xi) an Unrestricted Subsidiary or an
Affiliate of the Company to fund the payment of, or provide credit support for,
all or a portion of the purchase price or cost of construction of a drilling
rig, in an aggregate principal amount not to exceed $10 million.
"PERMITTED LIENS" means, with respect to any Person, (a) pledges or deposits
by such Person under workers' compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits or cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
incurred in the ordinary course of business; (b) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings; (c) Liens
arising out of judgments or awards against such Person with respect to which
such Person shall then be proceeding with an appeal or other proceedings for
review or the time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings; (e) Liens in favor
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of issuers of surety bonds or letters of credit issued pursuant to the request
of, and for the account of such Person in the ordinary course of its business;
PROVIDED, HOWEVER, that such letters of credit do not constitute Indebtedness;
(f) survey exceptions, encumbrances, easements or reservations of or rights of
others for licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (g) Liens securing an Interest
Rate Agreement so long as the related Indebtedness is, and is permitted to be
under the Indenture, secured by a Lien on the same property securing the
Interest Rate Agreement; and (h) leases and subleases of real property which do
not interfere with the ordinary conduct of the business of such Person, and
which are made on customary and usual terms applicable to similar properties.
"PERMITTED QUARTERLY TAX DISTRIBUTIONS" means quarterly distributions of Tax
Amounts determined on the basis of the estimated taxable income of the Company,
for the related Estimation Period, as determined by the Tax Amounts CPA in a
statement filed with the Trustee; PROVIDED, HOWEVER, that prior to any
distributions of Tax Amounts the Company shall deliver to the Trustee an
Officers' Certificate stating to the effect that the Company qualifies as a
partnership or substantially similar pass-through entity for Federal income tax
purposes for the period covered by such financial statements.
"PERMITTED TRANSFEREE" means, with respect to any Person: (a) in the case of
any Person who is a natural person, such individual's spouse or children, any
trust for such individual's benefit or the benefit of such individual's spouse
or children, or any corporation, limited liability company or partnership in
which the direct and beneficial owner of all of the equity interest is such
Person or individual's spouse or children or any trust for the benefit of such
persons; (b) in the case of any Person who is a natural person, the heirs,
executors, administrators or personal representatives upon the death of such
Person or upon the incompetency or disability of such Person for purposes of the
protection and management of such individual's assets; and (c) in the case of
any Person who is not a natural person, any Affiliate of such Person.
"PERSON" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"PREFERRED STOCK," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"PRINCIPAL" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
(other than on Form S-8) under the Securities Act.
"PURCHASE PRICE" means, with respect to a Rig, the amount specified under
the related Construction Contract as the total purchase price to be paid to the
Builder of such Rig.
"QUALIFIED SUBSTITUTE RIG" is defined to mean, as of any date, a
cantilevered jackup drilling rig which (i) is capable of operating in water
depths of 300 feet or greater, (ii) is in good operating condition and (iii)
will be owned by the Company or a Wholly Owned Restricted Subsidiary of the
Company.
"QUARTERLY PAYMENT PERIOD" means the period commencing on the tenth day and
ending on and including the twentieth day of each month in which Federal
individual estimated tax payments are due
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(PROVIDED, HOWEVER, that payments in respect of estimated state income taxes due
in January may instead, at the option of the Company, be paid during the last
five days of the immediately preceding December).
"REFINANCE" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that Refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"RELATED BUSINESS" means the ownership, management and operation of offshore
drilling rigs and any business related, ancillary or complementary thereto.
"RESTRICTED PAYMENT" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
of a sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"RIG" means either of the two LeTourneau premium jackup rigs built pursuant
to a Construction Contract.
"RIG PURCHASE INSTALLMENT DATE" means, with respect to a Construction
Contract, each date on which an installment of the Purchase Price is payable by
the related Owner pursuant to the terms of such Construction Contract.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
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<PAGE>
"SECURED INDEBTEDNESS" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"SUBORDINATED OBLIGATION" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
"SUBSIDIARY" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity (x) of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers, general partners or trustees thereof is at the time owned
or controlled, directly or indirectly, by (i) such Person, (ii) such Person and
one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of
such Person, or (y) that is consolidated for purposes of the Company's
consolidated financial statements.
"SUBSIDIARY GUARANTOR" means each Restricted Subsidiary designated as such
on the signature pages of the Indenture and any other Restricted Subsidiary that
has issued a Subsidiary Guarantee.
"SUBSIDIARY GUARANTEE" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"S&P" means Standard & Poor's Ratings Service.
"TAX AMOUNTS" with respect to any taxable period shall not exceed an amount
equal to (A) the product of (x) the taxable income of the Company for such
period as determined by the Tax Amounts CPA and (y) the Tax Percentage reduced
by (B) to the extent not previously taken into account, any income tax benefit
attributable to the Company which could be realized (without regard to the
actual realization) by its members in the current or any prior taxable year, or
portion thereof, commencing on or after the Issue Date (including any tax losses
or tax credits), computed at the applicable Tax Percentage for the year that
such benefit is taken into account for purposes of this computation.
"TAX AMOUNTS CPA" means a nationally recognized certified public accounting
firm.
"TAX PERCENTAGE" means, for a particular taxable year, the highest effective
marginal combined rate of Federal, state and city income tax, imposed on an
individual taxpayer, as certified by the Tax Amounts CPA in a certificate filed
with the Trustee. The rate of "state and city income tax" to be taken into
account for purposes of determining the Tax Percentage for a particular taxable
year shall be deemed to be the highest combined New York State and New York City
income tax rate imposed on individuals for such year.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $10.0 million (or the foreign
currency equivalent thereof) and
93
<PAGE>
has outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, and (v) investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's.
"TRUE-UP AMOUNT" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such year and (ii) the aggregate amount permitted to be distributed in
respect of such year as determined by reference to the Company's Internal
Revenue Service Form 1065 filed for such year. For purposes of the Indenture,
the amount equal to the excess, if any, of the amount described in clause (i)
above over the amount described in clause (ii) above shall be referred to as the
"True-Up Amount due to the Company" and the excess, if any, of the amount
described in clause (ii) over the amount described in clause (i) shall be
referred to as the "True-Up Amount due to the Members."
"TRUE-UP DETERMINATION DATE" means the date on which the Tax Amounts CPA
delivers a statement to the Trustee indicating the True-Up Amount.
"TRUE-UP PAYMENT PERIOD" means, in respect of any immediately preceding
taxable year of the Company, the later of (i) the period commencing on the tenth
day and ending on and including the twentieth day of April or (ii) the period
commencing on the tenth day following the True-Up Determination Date and ending
on and including the twentieth day following the True-Up Determination Date.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless (A) such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any property of,
the Company or any other Restricted Subsidiary of the Company or (B) such
Subsidiary or any of its Subsidiaries has any Indebtedness other than
Non-Recourse Debt; PROVIDED, HOWEVER, that either (I) the Subsidiary to be so
designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving
effect to such designation (x) if such Unrestricted Subsidiary at such time has
Indebtedness, the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "--Certain Covenants--Limitation
on Indebtedness" and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced by the Company to
the Trustee by promptly filing with the Trustee a copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions. Notwithstanding the
foregoing, Finance may not be designated as an Unrestricted Subsidiary.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the
94
<PAGE>
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
95
<PAGE>
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain material federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The analysis is
based upon the Code, Treasury regulations, Internal Revenue Service rulings and
pronouncements, and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect a Holder of the New Notes. The description does not consider the effect
of any applicable foreign, state, local or other tax laws or estate or gift tax
considerations.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute a material modification of the terms of the Old Notes and,
therefore, such exchange should not constitute an exchange for federal income
tax purposes. Accordingly, such exchange should have no federal income tax
consequences to Holders of Old Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. 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 New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date, they will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until November , 1998, all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New 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 New 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 purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Issuers 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 Issuers have agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the Holders of the
Notes) other than commissions or concessions of any brokers or dealers and will
indemnify the Holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
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<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Issuers prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Issuers and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Following a
decision of the U.S. Supreme Court, it is possible that Ontario purchasers will
not be able to rely upon the remedies set out in Section 12(2) of the United
States Securities Act of 1933 where securities are being offered under a U.S.
private placement memorandum such as this document.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the SECURITIES ACT (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to the Offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the Notes in their
particular circumstance and with respect to the eligibility of the Notes for
investment by the purchaser under the relevant Canadian legislation.
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<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the New Notes and Subsidiary
Guarantees offered hereby will be passed upon for the Company by Weil, Gotshal &
Manges LLP, 700 Louisiana, Suite 1600, Houston, Texas 77002.
EXPERTS
The financial statements of the Company as of December 31, 1997, and for the
period from inception (August 5, 1997) to December 31, 1997, included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto (which contains an explanatory paragraph describing
conditions that raise substantial doubt about the Company's ability to continue
as a going concern as described in Note 1 to the financial statements), and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
AVAILABLE INFORMATION
As a result of the filing of their Registration Statement with the
Securities and Exchange Commission (the "Commission"), the Issuers and the
Guarantors will become subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will be required to file reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the principal office of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the following Regional Offices of the
Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611 and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
The Issuers and the Guarantors have filed with the Commission a Registration
Statement (which term shall encompass any amendments thereto) on Form S-4 under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement and the exhibits thereto, to which reference is hereby made. Although
the Company believes that statements made in this Prospectus as to the contents
of any contract, agreement or other document describe all material elements of
such documents, such statements are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company will furnish holders of the securities offered hereby with
annual reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year. The Company will also furnish such other reports as it may
determine or as may be required by law or by the Indenture, in each case from
and after the effective date of the Registration Statement. Based upon certain
provisions of the Staff Accounting Bulletins of the Commission and
interpretations of the staff of the Commission set forth in no-action letters
issued to third parties unrelated to the Issuers and the Guarantors, Finance and
the Guarantors do not intend to file separate periodic and other reports with
the Commission under the Exchange Act because (i) the Company is a holding
company with no independent operations, (ii) the Guarantors are direct
wholly-owned consolidated subsidiaries of the Company that will fully and
unconditionally guarantee the New Notes on a joint and several basis and (iii)
Finance and the Guarantors comprise all of the Company's direct and indirect
subsidiaries.
98
<PAGE>
CHILES OFFSHORE LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets--as of March 31, 1998 (unaudited) and December 31, 1997................ F-3
Statements of Operations for the Period from Inception (August 5, 1997) to March 31,
1998 (unaudited), for the three months ended March 31, 1998 (unaudited) and for the
Period from Inception (August 5, 1997) to December 31, 1997.......................... F-4
Statements of Members' Equity for the Period from Inception (August 5, 1997) to
December 31, 1997 and for the three months ended March 31, 1998 (unaudited).......... F-5
Statements of Cash Flows for the Period from Inception (August 5, 1997) to March 1,
1998 (unaudited), for the three months ended March 31, 1998 (unaudited) and for the
Period from Inception (August 5, 1997) to December 31, 1997.......................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Chiles Offshore LLC:
We have audited the accompanying balance sheet of Chiles Offshore LLC (a
Delaware limited liability company in the development stage) as of December 31,
1997, and the related statements of operations, members' equity and cash flows
for the period from inception (August 5, 1997) to December 31, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chiles Offshore LLC as of
December 31, 1997, and the results of its operations and its cash flows for the
period from inception (August 5, 1997) to December 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company is a development-stage enterprise with no significant
operating results to date. The factors discussed in Note 1 to the financial
statements raise a substantial doubt about the ability of the Company to
continue as a going concern. Management's plans in regards to those matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ ARTHUR ANDERSEN LLP
Houston, Texas
February 11, 1998
F-2
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 18,844,746 $ 32,341,117
Prepaid expenses.......................................................... 6,463 37,112
-------------- -----------------
Total current assets.................................................. 18,851,209 32,378,229
RIGS UNDER CONSTRUCTION AND EQUIPMENT......................................... 44,904,398 35,026,044
Less accumulated depreciation............................................. (8,518) (5,953)
-------------- -----------------
Net rigs under construction and equipment............................. 44,895,880 35,020,091
-------------- -----------------
OTHER ASSETS.................................................................. 34,772 --
-------------- -----------------
TOTAL ASSETS.......................................................... $ 63,781,861 $ 67,398,320
-------------- -----------------
-------------- -----------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................................... -- $ 3,950,236
Accrued liabilities....................................................... 82,035 26,489
-------------- -----------------
Total current liabilities............................................. 82,035 3,976,725
MEMBERS' EQUITY:
Capital contributions, net of offering costs.............................. 63,730,707 63,730,707
Cumulative losses since inception......................................... (30,881) (309,112)
-------------- -----------------
Total members' equity................................................. 63,699,826 63,421,595
-------------- -----------------
Total Liabilities and Members' Equity................................. $ 63,781,861 $ 67,398,320
-------------- -----------------
-------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(AUGUST 5, 1997)
TO DECEMBER 31,
1997
FOR THE PERIOD FOR THE THREE -----------------
FROM INCEPTION MONTHS ENDED
(AUGUST 5, 1997) MARCH 31, 1998
TO MARCH 31, 1998 -----------------
----------------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative expenses................. $ (458,379) $ (82,290) $ (376,089)
Depreciation........................................ (8,518) (2,565) (5,953)
----------------- -------- -----------------
Operating loss.................................. (466,897) (84,855) (382,042)
INTEREST INCOME......................................... 436,016 363,086 72,930
----------------- -------- -----------------
NET INCOME (LOSS)....................................... $ (30,881) $ 278,231 $ (309,112)
----------------- -------- -----------------
----------------- -------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
GROUP A GROUP B GROUP C
MEMBERS MEMBERS MEMBERS TOTAL
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INITIAL CAPITAL CONTRIBUTIONS,
August 5, 1997.................................... $ 8,850,000 $ 8,850,000 $ -- $ 17,700,000
CAPITAL CONTRIBUTIONS,
December 16, 1997................................. 26,150,000 -- 20,000,000 46,150,000
OFFERING COSTS........................................ (66,065) (16,522) (36,706) (119,293)
NET LOSS.............................................. (158,733) (126,491) (23,888) (309,112)
------------- ------------ ------------- -------------
BALANCE, December 31, 1997............................ 34,775,202 8,706,987 19,939,406 63,421,595
NET INCOME (UNAUDITED)................................ 154,084 38,535 85,612 278,231
------------- ------------ ------------- -------------
BALANCE, MARCH 31, 1998 (UNAUDITED)................... $ 34,929,286 $ 8,745,522 $ 20,025,018 $ 63,699,826
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(AUGUST 5, 1997)
TO DECEMBER 31, 1997
FOR THE PERIOD FOR THE --------------------
FROM INCEPTION THREE MONTHS ENDED
(AUGUST 5, 1997) MARCH 31, 1998
TO MARCH 31, 1998 -------------------
----------------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ (30,881) $ 278,231 $ (309,112)
Adjustments to reconcile net loss to net cash
provided by operating activities--
Depreciation................................. 8,518 2,565 5,953
Increase (decrease) in operating cash flows
resulting from--
Accounts payable........................... (67,602) (3,950,236) 3,882,634
Accrued liabilities........................ 82,035 55,546 26,489
Prepaid expenses and other................. (38,738) (4,123) (34,615)
----------------- ------------------- --------------------
Net cash provided by (used in)
operating activities................. (46,668) (3,618,017) 3,571,349
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (15,093,470) (9,878,354) (5,215,116)
----------------- ------------------- --------------------
Net cash used in investing
activities........................... (15,093,470) (9,878,354) (5,215,116)
----------------- ------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Membership capital contributions, net.......... 33,984,884 -- 33,984,884
----------------- ------------------- --------------------
Net cash provided by financing
activities........................... 33,984,884 -- 33,984,884
----------------- ------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 18,844,746 (13,496,371) 32,341,117
CASH AND CASH EQUIVALENTS, beginning of period..... -- 32,341,117 --
----------------- ------------------- --------------------
CASH AND CASH EQUIVALENTS, end of period........... $ 18,844,746 $ 18,844,746 $ 32,341,117
----------------- ------------------- --------------------
----------------- ------------------- --------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash investing activities--
Purchase of property in exchange for
membership interest.......................... $ 21,260,000 -- $ 21,260,000
Noncash financing activities--
Receipt of net assets in exchange for
membership interest.......................... $ 8,486,000 -- 8,486,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
Chiles Offshore LLC (Chiles or the Company) is engaged in the construction
of offshore drilling rigs which will be contracted to oil and gas operators upon
completion of construction. The Company was formed under the laws of the state
of Delaware on August 5, 1997. The duration of the Company is 35 years from the
date of formation.
On August 5, 1997, two members, Group A and Group B, entered into the
Operating Agreement of Chiles Offshore LLC (the Operating Agreement) for the
purpose of forming the Company. Group A and Group B each made capital
contributions of $8,850,000 and received a 50 percent percentage interest, as
defined in the Operating Agreement, in the Company. Additionally, the president
of Group B was hired as president of the Company.
Group A's capital contribution consisted of $8,850,000 in cash, which was
paid directly to third parties on behalf of the Company. Group B's capital
contribution consisted of $364,000 in cash and net assets with an agreed-upon
value of $8,486,000. The value of Group B's net assets was mutually agreed upon
by Group A and Group B based upon Group B's construction contract rights,
construction in progress and shipyard slots secured through such construction
contracts. The historical cost of such net assets contributed by Group B was
$2,256,000. Accordingly, the difference between the agreed-upon value and
historical cost of Group B's net assets, $6,230,000, has been recorded in the
accompanying balance sheet as rigs under construction and equipment.
On December 16, 1997, in accordance with the Amended and Restated Agreement
of Chiles Offshore LLC (the Agreement) another member group, Group C contributed
capital of $20,000,000 in cash for a percentage interest in the Company. Also on
December 16, 1997, Group A contributed additional capital of $26,150,000
consisting of $12,158,284 in cash and advances Group A had made to the Company
in the amount of $13,991,716. In accordance with the Agreement and effective
December 16, 1997, the percentage interests in the Company were 55.38 percent,
13.85 percent and 30.77 percent for Group A, Group B and Group C, respectively.
The contributions of Groups A, B and C resulted in the issuance to these
members of membership interests in the Company. Membership interest is the
member's limited liability company interest in the Company which refers to all
of a member's rights and interest in the Company in such member's capacity as a
member, all as provided in the Agreement and the Delaware Limited Liability
Company Act. In conjunction with the issuance of the membership interest to a
member, the member received a percentage interest in the Company. The percentage
interest of a member means the aggregate limited liability company percentage
interest set forth in the Agreement, as modified from time to time.
The Company has operated as a development stage company since its inception
by devoting substantially all of its efforts to designing, engineering and
contracting with shipyards and vendors for two offshore drilling rigs, raising
capital and securing contracts for the rigs. The Company has not generated
revenues, nor is there any assurance that the Company will generate significant
revenues in the future. In addition, there can be no assurance that the Company
will successfully complete the transition from a development stage company to
successful operations. Additional risk factors associated with the Company's
operations include, but are not limited to, oil and gas prices, capital
expenditure plans of oil and gas operators, access to capital, completion of
construction of the rigs and competition. As a result of the aforementioned
factors and the related uncertainties, there can be no assurance of the
Company's future success.
F-7
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BUSINESS: (CONTINUED)
The Company has a loss from operations of $382,042 for the period from
inception to December 31, 1997. Management is currently pursuing a business
strategy which includes obtaining drilling contracts with oil and gas operators,
employment of rig personnel, obtaining additional financing to complete the
construction of the rigs and fund the purchase of drilling equipment, and
overseeing the construction of the rigs and installation of the drilling
equipment. There are no assurances that this business strategy will be achieved.
While pursuing this business strategy, the Company will experience cash flow
deficits until the rig construction is completed and the rigs are placed in
operation. As a result of the aforementioned factors and related uncertainties,
there is substantial doubt as to the Company's ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, all liquid investments with maturities
at the date of purchase of three months or less are considered cash equivalents.
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.
PROPERTY, EQUIPMENT AND REALIZATION OF LONG-LIVED ASSETS
Property and equipment includes costs incurred for the construction of the
rigs, including internal expenditures relating to construction support. All
expenditures not related to construction are expensed in the accompanying
Statements of Operations. Disposals are removed at cost less accumulated
depreciation, and any resulting gain or loss is reflected in the accompanying
statement of operations. Depreciation is calculated from the date the asset is
placed in service, using the straight-line method over the estimated useful
lives of the depreciable assets, which range from three to 25 years. The Company
capitalizes interest applicable to the construction of the rigs as a cost of
such assets. The Company has included in the property and equipment account all
costs incurred to support the construction of the rigs. Depreciation expense for
the period ended December 31, 1997, was $5,953.
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," was issued. SFAS No. 121, which became effective in 1996,
requires that certain long-lived assets be reviewed for impairment whenever
events indicate that the carrying amount of an asset may not be recoverable and
that an impairment loss be recognized under certain circumstances in the amount
by which the carrying value
F-8
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
exceeds the fair value of the asset. The Company adopted SFAS No. 121 in 1996,
and the adoption had no effect on the Company's results of operations or
consolidated financial position.
INCOME TAXES
No provision for income taxes is made since the Company is treated as a
partnership for tax purposes, and such taxes are liabilities of the individual
equity members, and the amounts thereof depend on their respective income tax
situations.
Capital accounts included in the accompanying financial statements differ
from amounts in the Company's federal income tax return primarily because of
differences in accounting policies adopted for financial and tax reporting
purposes.
The tax returns, the qualification of the Company as a partnership for tax
purposes and the amount of distributable partnership income or loss are subject
to examination by federal taxing authorities. If such examinations result in
changes with respect to the partnership qualification or in changes to
distributable partnership income or loss, the tax liability of the partners
could be changed accordingly.
3. RELATED-PARTY TRANSACTIONS:
The Company paid the Group A Members $50,000 in connection with assistance
in obtaining $20,000,000 of members' equity and other legal, financial and
administrative matters. As of December 31, 1997, no agreement exists between the
Company and Group A for Group A to provide any additional services; however, the
Company intends to enter into such an agreement with Group A to provide similar
services in 1998.
4. RIGS UNDER CONSTRUCTION AND EQUIPMENT:
Rigs under construction and equipment at December 31, 1997, consists of the
following:
<TABLE>
<S> <C>
Rigs under construction and rig equipment...................... $34,861,269
Furniture and fixtures......................................... 164,775
----------
35,026,044
Less-Accumulated depreciation.................................. (5,953)
----------
Net rigs under construction and equipment.............. $35,020,091
----------
----------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company has entered into agreements with a shipyard and various
equipment vendors for delivery of two mobile offshore drilling rigs, the Chiles
Columbus and Chiles Magellan, for a total estimated cost of approximately $175
million. At December 31, 1997, the Company had purchase commitments of
approximately $128 million with respect to these rigs and equipment. These
amounts will become payable in future periods in accordance with terms of the
construction contract and vendor agreements, and management is currently
negotiating to obtain additional financing to meet these terms. The Chiles
Columbus is scheduled for delivery during the second quarter of 1999, and Chiles
Magellan is scheduled for delivery during the third quarter of 1999. As
discussed further in Note 7, in April 1998, the
F-9
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Company completed a debt offering of Senior Notes and obtained a revolving
credit facility. Management believes the proceeds from the debt offering, the
capital contributions received in 1997 and discussed in Note 1 and the revolving
credit facility will enable the Company to finance the construction and
outfitting costs required to mobilize the rigs.
The Company occupies an administrative office and leases certain equipment
under operating leases from unaffiliated third parties. Rent expense for 1997
was $9,800. Lease terms range in length from one to five years. Aggregate
minimum future annual rental commitments under the operating leases with lease
terms in excess of one year as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 64,261
1999............................................................... 64,967
2000............................................................... 64,967
2001............................................................... 62,589
Thereafter......................................................... 45,380
</TABLE>
As of December 31, 1997, the Company has no commitments to provide any
executives with severance benefits; however, the Company expects to enter into
an employment contract with one of its executives in 1998.
6. MEMBERS' EQUITY:
ALLOCATION OF NET INCOME OR LOSS
In accordance with the Operating Agreement and the Agreement (collectively
referred to herein as the Agreements), profits or losses for any taxable year
were allocated in proportion to percentage interests, on a monthly basis and
after giving effect to special allocations set forth in the Agreements.
The special allocations primarily result from the effect of U.S. federal
income tax rules for certain types of events that may occur to the Company. If
there is a Minimum Gain or Member Nonrecourse Debt Minimum Gain, as defined in
the IRS code, then the Agreements provide specific allocations to members in
order to comply with the IRS regulations. The Agreements provide that in the
event a member unexpectedly receives any adjustments, allocations or
distributions resulting from the special allocation rules of IRS regulations as
noted in the Agreements, then Company income and losses shall be specifically
allocated to such member, in an amount and manner sufficient to eliminate, to
the extent provided by the IRS regulations, the adjusted capital account deficit
of the member. The Agreements provide that, in the event any member has a
deficit capital account at the end of any taxable year, which is in excess of
the sum of the amount such member is obligated to restore pursuant to any
provision of the Agreements and the amount such member is obligated to restore
pursuant to the IRS code sections noted in the Agreements, each such member
shall be specially allocated items of the Company income and gain in the amount
of such excess as quickly as possible and to the extent allowed in the
Agreements. The Agreements provide that Nonrecourse Deductions, as defined in
the Agreements, for any taxable year shall be specially allocated to the members
in proportion to their respective percentage interests and that any member
Nonrecourse Deductions for any taxable year shall be specially allocated to the
member who bears the economic loss with respect to the member nonrecourse debt
to which such member Nonrecourse
F-10
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. MEMBERS' EQUITY: (CONTINUED)
Deductions are attributable in accordance with the regulations. In the event
some, but not all, of the members would have adjusted capital account deficits
as a consequence of the special allocation rules, then losses not allocable to
any member due to such limitation shall be allocated to other members pro rata
in accordance with the balance of such members' capital accounts.
DISTRIBUTIONS
The Agreements provide for quarterly cash distribution of Net Cash Flow, as
defined in the Agreements, to members in proportion to, and to the extent of,
their relative percentage interests, an amount not in excess of the Tax
Distribution, as defined in the Agreements, for the taxable year, and upon the
approval by the Management Committee, as defined in the Agreements.
7. SUBSEQUENT EVENTS (UNAUDITED)
MANAGEMENT AGREEMENT
The Company and Group A entered into a Management and Administrative
Services Agreement, dated as of February 27, 1998 (the Services Agreement),
pursuant to which Group A agreed to continue to perform certain administrative
and technical services on behalf of the Company. Such services include general
management and financial services, including periodic advice and consultation in
connection with corporate, legal, finance, accounting, tax, marketing,
operations and other matters that may be required for the Company's day-to-day
operations. Under the Services Agreement, the Company agreed to pay a fee to
Group A not to exceed $15,000 per month and such other fees for services of
others not to exceed the reasonable value thereof and to reimburse Group A for
all out-of-pocket expenses related to the provision of such services. The
Services Agreement may be terminated at either party's option upon 60 days'
notice to the other party. Management believes the fees charged by Group A for
such services rendered under the Services Agreement approximate the rate that
would be charged by outside non-related parties.
OPTIONS PLAN
Subsequent to year-end, the Company adopted the Chiles Offshore LLC 1998
Equity Option Plan (the Option Plan). The Option Plan authorizes the issuance of
Options to acquire up to 5.0% of the then outstanding membership interests on a
fully diluted basis. As of March 31, 1998, 3,953 units have been issued under
the Option Plan with an exercise price per unit of $650, which the Management
Committee believes approximates the fair market value per unit on the date of
grant based on recent transactions.
DEBT OFFERING
In April, 1998, the Company formed three wholly owned subsidiaries, Chiles
Magellan LLC, Chiles Columbus LLC and Chiles Offshore Finance Corp. The Company
and Chiles Offshore Finance Corp. (Issuers) co-issued Senior Notes with a
principal amount of $110 million (Notes) on April 29, 1998. Prior to the
issuance of the Notes, the Company's three wholly owned subsidiaries were
nominally capitalized. The rig construction contracts, formerly owned by Chiles
Offshore LLC, for the Chiles Magellan and Chiles Columbus have been assigned to
Chiles Magellan LLC and Chiles Columbus LLC (Rig Owners), respectively.
F-11
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
As a result, the Issuers received net proceeds of approximately $106.3
million after deducting estimated offering-related expenses. The Notes bear an
interest rate of 10%, payable semiannually on May 1 and November 1, commencing
on November 1, 1998 and mature in full in the year 2008. The net proceeds of the
Notes have been placed in escrow for use to partially fund the construction of
the two rigs and pay the first two semi-annual interest installments. The Notes
are redeemable in May, 2003, except that until May, 2001, up to 35% of the notes
may be redeemable with the proceeds of a public equity offering, both at the
option of the Issuers. The Notes are guaranteed by the Rig Owners, jointly and
severally, on an unsecured basis. Debt issuance costs related to the Notes are
being deferred and will be amortized over the life of the Notes.
GUARANTOR FINANCIAL STATEMENTS
No separate financial statements of Chiles Offshore Finance Corp., Chiles
Magellan LLC or Chiles Columbus LLC have been presented. Chiles Offshore LLC and
all of its wholly owned subsidiaries are committed to the Senior Notes either by
being an issuer of the Senior Notes or a Guarantor on a full, unconditional and
joint and several basis. Therefore, no guarantor financial statements are
appropriate.
BANK FACILITY
The Company has entered into an agreement with two banks to provide a
revolving credit facility up to $25 million. The facility will be available to
the Company upon delivery of the first of the the two rigs. The facility will
bear interest at the rate of LIBOR plus 1.25% and matures on December 31, 2004,
at which time the outstanding principal amount will be due. The facility is
guaranteed by the Rig Owners.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with its President for
a three year period. The Agreement provides, among other things, the amount of
compensation and other benefits to be provided to the President as well as other
conditions of the employment term.
EMPLOYEE 401(K) AND PROFIT SHARING PLAN
Effective May 1, 1998, the Company adopted a 401(k) Profit Sharing Plan
(Plan), covering substantially all of its employees. The Company will match
employees' contributions to the Plan in an amount equal to 50%, up to 6% of
eligible compensation.
NEWLY ISSUED ACCOUNTING STANDARD
In June 1997, Statement of Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME ("SFAS 130") was issued. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is the total of
net income and all other non-owner changes in equity. The Company has no
non-owner changes in equity during the three months ended March 31, 1998 and
therefore, no reporting and display of comprehensive income was required.
F-12
<PAGE>
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- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
ISSUERS SINCE SUCH DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 21
Capitalization............................................................ 21
Selected Financial Data................................................... 22
Certain Financial Forecast Information.................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 28
Business.................................................................. 31
Management................................................................ 42
Principal Members......................................................... 47
Controlling Member........................................................ 48
Certain Relationships and Related Transactions............................ 48
Description of Bank Facility.............................................. 52
The Exchange Offer........................................................ 53
Description of New Notes.................................................. 60
Certain Material Federal Income Tax Considerations........................ 96
Plan of Distribution...................................................... 96
Notice to Canadian Residents.............................................. 97
Legal Matters............................................................. 98
Experts................................................................... 98
Available Information..................................................... 98
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL NOVEMBER , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
CHILES OFFSHORE LLC
CHILES OFFSHORE FINANCE CORP.
OFFER FOR ALL OUTSTANDING
10% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
10% SENIOR NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
AUGUST , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chiles Offshore LLC and both of the Owners are Delaware limited liability
companies.
Section 18-108 of the Delaware Limited Liability Company Act (the "Delaware
Act") grants a Delaware limited liability company the power, subject to such
standards and restrictions, if any, as are set forth in its limited liability
company agreement, to indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever. The Company's
Amended and Restated Operating Agreement, as amended, provides that the Company
will indemnify its Members, members of the Management Committee and the officers
of the Company, and certain other persons, from liabilities arising in the
course of such persons' service to the Company, provided that (i) the indemnitee
acted in good faith and in a manner which such indemnitee believed to be in or
not opposed to the interests of the Company and, with respect to any criminal
proceeding, had no reasonable cause to believe such indemnitee's conduct was
unlawful and (ii) the indemnitee's conduct did not constitute actual fraud,
gross negligence or willful or wanton misconduct. Such liabilities include all
losses, claims, demands, costs, damages, liabilities, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which an indemnitee may be involved, or threatened to be involved, as a party
or otherwise, arising out of or incidental to the business of the Company,
including, without limitation, liabilities under the Federal and state
securities laws. The limited liability company agreements of the Owners provide
that, except as otherwise provided by the Delaware Act, the debts, obligations
and liabilities of the Owners, whether arising in contract, tort or otherwise,
shall be the debts, obligations and liabilities solely of the respective Owner,
and the Company, as sole member, shall not be obligated personally for any of
such debts, obligations or liabilities solely by reason of being a member.
Finance is a Delaware corporation.
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or to its stockholders for monetary damages for a breach of his
fiduciary duty as a director, except in the case where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of the DGCL or obtained an improper personal
benefit. Finance's Certificate of Incorporation contains a provision which, in
substance, eliminates directors' personal liability as set forth above.
Section 145 of the DGCL allows a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director or officer of the corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding 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
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Finance's Certificate of
Incorporation contains a provision which, in substance, provides for
indemnification as set forth above to the fullest extent and in the manner set
forth in and permitted by the DGCL, and any other applicable law, as from time
to time in effect.
Under Section 12.10 of the Indenture, the Holders of the Notes have agreed
to waive all liability for any obligations incurred by the Issuers under the
Notes or the Indenture or for any claim based on, in respect of or by reason of
such obligations or their creation, against any incorporator, director, officer,
II-1
<PAGE>
employee, stockholder or controlling person, as such, of the Issuers or any
successor person thereof, and have agreed to the release of such persons from
any such liability.
Under Section 5 of the Registration Rights Agreement, the Holders of the
Notes have agreed, severally and not jointly, to indemnify and hold harmless the
Issuers and controlling persons (within the meaning of the Securities Act and
the Exchange Act) of the Issuers from and against any losses, claims, damages or
liabilities, or any actions in respect thereof, to which the Issuers or any such
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in any exchange offer registration
statement or shelf registration statement for the Notes or any prospectus
forming part thereof or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact necessary to make
the statements therein not misleading, in each case to the extent that such
untrue statement or omission or alleged untrue statement or omission was made in
reliance upon and in conformity with written information provided by such
Holders for inclusion therein.
The Company does not currently maintain directors and officers liability
insurance, although it may consider obtaining such insurance upon commencement
of operation of one or both of the Rigs.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*3.1 Limited Liability Company Certificate of Chiles Offshore LLC
*3.2 Amended and Restated Operating Agreement, dated as of December 16, 1997,
among the Members of Chiles Offshore LLC
*3.3 Amendment No. 1, dated effective as of April 28, 1998, to Amended and
Restated Operating Agreement of Chiles Offshore LLC, among the Members
of Chiles Offshore LLC
*3.4 Certificate of Incorporation of Chiles Offshore Finance Corp.
*3.5 Bylaws of Chiles Offshore Finance Corp.
*3.6 Certificate of Formation of Chiles Columbus LLC
*3.7 Limited Liability Company Agreement of Chiles Columbus LLC
*3.8 Certificate of Formation of Chiles Magellan LLC
*3.9 Limited Liability Company Agreement of Chiles Magellan LLC
*4.1 Indenture, dated as of April 29, 1998, among the Issuers, the Owners and
U.S. Bank Trust National Association, as Trustee
*4.2 Form of Old Note (included in Exhibit 4.1 as Exhibit A thereto)
*4.3 Form of New Note (included in Exhibit 4.1 as Exhibit B thereto)
*4.4 Registration Rights Agreement, dated as of April 29, 1998, among the
Issuers, the Owners and the Initial Purchasers
*4.5 Purchase Agreement, dated April 24, 1998, among the Issuers, the Owners
and the Initial Purchasers, relating to the Old Notes
+5.1 Opinion and consent of Weil, Gotshal & Manges LLP, counsel for the
Company, as to certain securities registered hereby
*10.1 Credit Agreement, dated as of April 29, 1998, by and among the Company,
Nederlandse Scheepshypotheek Bank N.V. ("Nedship") and MeesPierson
Capital Corp. ("MeesPierson"), as co-arrangers, the banks and financial
institutions named therein, Nedship, as documentation agent and security
trustee, and MeesPierson, as administrative agent and paying agent
*10.2 Platform Construction Agreement, dated April 30, 1997, between Chiles
Offshore Inc. and AMFELS, Inc., relating to the CHILES COLUMBUS
*10.3 Assignment and Assumption and Consent to Assignment, dated as of August 5,
1997, among the Company, COI, LLC and AMFELS, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*10.4 Platform Construction Agreement, dated August 5, 1997, between Chiles
Offshore LLC and AMFELS, Inc., relating to the CHILES MAGELLAN
*10.5 Assignment, Assumption, Acknowledgement and Consent Agreement, dated as of
April 23, 1998, among the Company, the Owners and AMFELS, Inc.
*10.6 Agreement, dated December 18, 1997, between the Company and AMFELS, Inc.
concerning Construction Options for the Option Rigs
*10.7 Chiles Offshore LLC 1998 Equity Option Plan
*10.8 Escrow Agreement, dated as of April 29, 1998, among U.S. Bank Trust
National Association, as Escrow Agent, Trustee and Collateral Agent, and
the Issuers
*10.9 Escrow Security Agreement, dated as of April 29, 1998, among U.S. Bank
Trust National Association, as Collateral Agent, and the Issuers
*10.10 Securities Intermediary and Account Agreement, dated as of April 29, 1998,
among U.S. Bank Trust National Association, as Securities Intermediary,
Trustee and Collateral Agent, and the Issuers
*10.11 Employment Agreement, dated as of November 1, 1997, between the Company
and William E. Chiles
*10.12 Management and Administrative Services Agreement, dated as of February 27,
1998, between the Company and SEACOR SMIT Inc.
+12.1 Statement Re Computation of Ratio of Earnings to Fixed Charges
*21.1 Subsidiaries of the Company
+23.1 Consent of Arthur Andersen LLP
+23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1)
*24.1 Powers of Attorney
*25.1 Form T-1 of U.S. Bank Trust National Association, as Trustee under the
Indenture filed as Exhibit 4.1
+27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* Previously filed.
+ Filed herewith.
(b) Financial Statement Schedules
All schedules have been omitted since the required information is either not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
The co-registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made of the
securities registered hereby, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
II-3
<PAGE>
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
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 foregoing provisions, or otherwise, the
co-registrants have been advised that in the opinion of the Securities and
Exchange 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 co-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 public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-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 6th day of August, 1998.
<TABLE>
<S> <C> <C>
CHILES OFFSHORE LLC
By: /s/ DICK H. FAGERSTAL
-----------------------------------------
Dick H. Fagerstal
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 6th day of August, 1998 by the
following persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President and Chief
* Executive Officer
- ------------------------------ (Principal Executive
William E. Chiles Officer) and Manager
Senior Vice President,
/s/ DICK H. FAGERSTAL Chief Financial Officer
- ------------------------------ and Secretary (Principal
Dick H. Fagerstal Financial Officer) and
Manager
Vice President--Controller
* and Assistant Secretary
- ------------------------------ (Principal Accounting
William A. Thorogood Officer)
*
- ------------------------------ Chairman of the Management
Charles Fabrikant Committee
*
- ------------------------------ Manager
Randall Blank
*
- ------------------------------ Manager
Timothy J. McKeand
*
- ------------------------------ Manager
Robert Pierot, Jr.
*
- ------------------------------ Manager
Jonathan B. Fairbanks
<TABLE>
<S> <C>
*By: /s/ DICK H. FAGERSTAL
---------------------------------------
Dick H. Fagerstal
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-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 6th day of August, 1998.
<TABLE>
<S> <C> <C>
CHILES OFFSHORE FINANCE CORP.
By: /s/ DICK H. FAGERSTAL
-----------------------------------------
Dick H. Fagerstal
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 6th day of August, 1998 by the
following persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President and Chief
* Executive Officer
- ------------------------------ (Principal Executive
William E. Chiles Officer) and Director
Senior Vice President,
/s/ DICK H. FAGERSTAL Chief Financial Officer
- ------------------------------ and Secretary (Principal
Dick H. Fagerstal Financial Officer) and
Director
Vice President--Controller
* and Assistant Secretary
- ------------------------------ (Principal Accounting
William A. Thorogood Officer)
*
- ------------------------------ Director
Charles Fabrikant
*
- ------------------------------ Director
Randall Blank
*
- ------------------------------ Director
Timothy J. McKeand
*
- ------------------------------ Director
Robert Pierot, Jr.
*
- ------------------------------ Director
Jonathan B. Fairbanks
<TABLE>
<S> <C>
*By: /s/ DICK H. FAGERSTAL
---------------------------------------
Dick H. Fagerstal
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-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 6th day of August, 1998.
<TABLE>
<S> <C> <C>
CHILES COLUMBUS LLC
By: /s/ DICK H. FAGERSTAL
-----------------------------------------
Dick H. Fagerstal
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 6th day of August, 1998 by the
following persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President and Chief
Executive Officer
(Principal Executive
* Officer) and President
- ------------------------------ and Chief Executive
William E. Chiles Officer of Chiles
Offshore LLC, the sole
Manager
Senior Vice President,
/s/ DICK H. FAGERSTAL Chief Financial Officer
- ------------------------------ and Secretary (Principal
Dick H. Fagerstal Financial Officer)
Vice President--Controller
* and Assistant Secretary
- ------------------------------ (Principal Accounting
William A. Thorogood Officer)
<TABLE>
<S> <C>
*By: /s/ DICK H. FAGERSTAL
---------------------------------------
Dick H. Fagerstal
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-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 6th day of August, 1998.
<TABLE>
<S> <C> <C>
CHILES MAGELLAN LLC
By: /s/ DICK H. FAGERSTAL
-----------------------------------------
Dick H. Fagerstal
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 6th day of August, 1998 by the
following persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President and Chief
Executive Officer
(Principal Executive
* Officer) and President
- ------------------------------ and Chief Executive
William E. Chiles Officer of Chiles
Offshore LLC, the sole
Manager
Senior Vice President,
/s/ DICK H. FAGERSTAL Chief Financial Officer
- ------------------------------ and Secretary (Principal
Dick H. Fagerstal Financial Officer)
Vice President--Controller
* and Assistant Secretary
- ------------------------------ (Principal Accounting
William A. Thorogood Officer)
<TABLE>
<S> <C>
*By: /s/ DICK H. FAGERSTAL
---------------------------------------
Dick H. Fagerstal
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*3.1 Limited Liability Company Certificate of Chiles Offshore LLC
*3.2 Amended and Restated Operating Agreement, dated as of December 16, 1997,
among the Members of Chiles Offshore LLC
*3.3 Amendment No. 1, dated effective as of April 28, 1998, to Amended and
Restated Operating Agreement of Chiles Offshore LLC, among the Members
of Chiles Offshore LLC
*3.4 Certificate of Incorporation of Chiles Offshore Finance Corp.
*3.5 Bylaws of Chiles Offshore Finance Corp.
*3.6 Certificate of Formation of Chiles Columbus LLC
*3.7 Limited Liability Company Agreement of Chiles Columbus LLC
*3.8 Certificate of Formation of Chiles Magellan LLC
*3.9 Limited Liability Company Agreement of Chiles Magellan LLC
*4.1 Indenture, dated as of April 29, 1998, among the Issuers, the Owners and
U.S. Bank Trust National Association, as Trustee
*4.2 Form of Old Note (included in Exhibit 4.1 as Exhibit A thereto)
*4.3 Form of New Note (included in Exhibit 4.1 as Exhibit B thereto)
*4.4 Registration Rights Agreement, dated as of April 29, 1998, among the
Issuers, the Owners and the Initial Purchasers
*4.5 Purchase Agreement, dated April 24, 1998, among the Issuers, the Owners
and the Initial Purchasers, relating to the Old Notes
+5.1 Opinion and consent of Weil, Gotshal & Manges LLP, counsel for the
Company, as to certain securities registered hereby
*10.1 Credit Agreement, dated as of April 29, 1998, by and among the Company,
Nederlandse Scheepshypotheek Bank N.V. ("Nedship") and MeesPierson
Capital Corp. ("MeesPierson"), as co-arrangers, the banks and financial
institutions named therein, Nedship, as documentation agent and security
trustee, and MeesPierson, as administrative agent and paying agent
*10.2 Platform Construction Agreement, dated April 30, 1997, between Chiles
Offshore Inc. and AMFELS, Inc., relating to the CHILES COLUMBUS
*10.3 Assignment and Assumption and Consent to Assignment, dated as of August 5,
1997, among the Company, COI, LLC and AMFELS, Inc.
*10.4 Platform Construction Agreement, dated August 5, 1997, between Chiles
Offshore LLC and AMFELS, Inc., relating to the CHILES MAGELLAN
*10.5 Assignment, Assumption, Acknowledgement and Consent Agreement, dated as of
April 23, 1998, among the Company, the Owners and AMFELS, Inc.
*10.6 Agreement, dated December 18, 1997, between the Company and AMFELS, Inc.
concerning Construction Options for the Option Rigs
*10.7 Chiles Offshore LLC 1998 Equity Option Plan
*10.8 Escrow Agreement, dated as of April 29, 1998, among U.S. Bank Trust
National Association, as Escrow Agent, Trustee and Collateral Agent, and
the Issuers
*10.9 Escrow Security Agreement, dated as of April 29, 1998, among U.S. Bank
Trust National Association, as Collateral Agent, and the Issuers
*10.10 Securities Intermediary and Account Agreement, dated as of April 29, 1998,
among U.S. Bank Trust National Association, as Securities Intermediary,
Trustee and Collateral Agent, and the Issuers
*10.11 Employment Agreement, dated as of November 1, 1997, between the Company
and William E. Chiles
*10.12 Management and Administrative Services Agreement, dated as of February 27,
1998, between the Company and SEACOR SMIT Inc.
+12.1 Statement Re Computation of Ratio of Earnings to Fixed Charges
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*21.1 Subsidiaries of the Company
+23.1 Consent of Arthur Andersen LLP
+23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1)
*24.1 Powers of Attorney
*25.1 Form T-1 of U.S. Bank Trust National Association, as Trustee under the
Indenture filed as Exhibit 4.1
+27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* Previously filed.
+ Filed herewith.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WEIL, GOTSHAL & MANGES LLP]
August 6, 1998
Chiles Offshore LLC
Chiles Offshore Finance Corp.
Chiles Columbus LLC
Chiles Magellan LLC
11200 Westheimer, Suite 410
Houston, Texas 77042
Ladies and Gentlemen:
We have acted as counsel to Chiles Offshore LLC, a Delaware limited
liability company (the "Company"), and Chiles Offshore Finance Corp., a Delaware
corporation and wholly owned subsidiary of the Company ("Finance Corp." and,
together with the Company, the "Issuers"), and Chiles Columbus LLC, a Delaware
limited liability company and wholly owned subsidiary of the Company
("Columbus"), and Chiles Magellan LLC, a Delaware limited liability company and
wholly owned subsidiary of the Company ("Magellan" and, together with Columbus,
the "Subsidiary Guarantors"), in connection with the preparation and filing by
the Issuers and the Subsidiary Guarantors of a Registration Statement on Form
S-4 (Registration No. 333-57325) (as amended to date, the "Registration
Statement"), initially filed with the Securities and Exchange Commission on June
19, 1998 under the Securities Act of 1933, as amended, relating to $110,000,000
in aggregate principal amount of 10% Senior Notes due 2008 (the "New Notes") of
the Issuers that may be issued in exchange for a like principal amount of the
issued and outstanding 10% Senior Notes due 2008 (the "Old Notes") of the
Issuers. The Issuers propose to offer, upon the terms set forth in the
Registration Statement, to exchange $1,000 principal amount of New Notes for
each $1,000 principal amount of Old Notes (the "Exchange Offer"). The Subsidiary
Guarantors will fully and unconditionally guarantee (the "Guarantees") the New
Notes on an unsecured senior basis. The New Notes and Guarantees will be offered
under an Indenture dated as of April 29, 1998 (the "Indenture") among the
Issuers, the Subsidiary Guarantors and U.S. Bank Trust National Association, as
Trustee (the "Trustee"). Capitalized terms defined in the Registration Statement
and not otherwise defined herein are used herein as so defined.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of (i) the Indenture, (ii) the Registration
Statement, (iii) the form of New Note filed as an exhibit to the Registration
Statement, (iv) the form of Guarantee contained in the form of New Note filed as
an exhibit to the Registration Statement and (v) such other corporate records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the Issuers
and the Subsidiary Guarantors, and we have made such inquiries of such officers
and representatives, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Issuers and the Subsidiary Guarantors, and upon the
representations and warranties of the Issuers and the Subsidiary Guarantors
contained in the Indenture.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
1. Assuming that the Indenture has been duly authorized, executed and
delivered by the parties thereto and that the issuance of New Notes upon
consummation of the Exchange Offer has been duly
<PAGE>
authorized by the Issuers, when (i) the New Notes upon consummation of the
Exchange Offer have been duly executed by the Issuers and authenticated by the
Trustee therefor in accordance with the terms of the Indenture and (ii) the New
Notes issuable upon consummation of the Exchange Offer have been duly delivered
against receipt of Old Notes surrendered in exchange therefor, the New Notes
issuable upon consummation of the Exchange Offer will constitute the legal,
valid and binding obligations of the Issuers, enforceable against them in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity), and subject to the qualification that we
express no opinion as to the effect on the New Notes of the laws of any
jurisdiction other than the State of New York, including laws which limit the
rates of interest legally chargeable or collectible.
2. Assuming that the Indenture has been duly authorized, executed and
delivered by the parties thereto and that the Guarantees of New Notes upon
consummation of the Exchange Offer have been duly authorized, executed and
delivered by the Subsidiary Guarantors, when (i) the New Notes upon consummation
of the Exchange Offer have been duly executed by the Issuers and authenticated
by the Trustee therefor in accordance with the terms of the Indenture and (ii)
the New Notes issuable upon consummation of the Exchange Offer have been duly
delivered against receipt of Old Notes surrendered in exchange therefor, the
Guarantees of New Notes issuable upon consummation of the Exchange Offer will
constitute the legal, valid and binding obligations of the Subsidiary
Guarantors, enforceable against them in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity), and
subject to the qualification that we express no opinion as to the effect on the
Guarantees of New Notes of the laws of any jurisdiction other than the State of
New York, including laws which limit the rates of interest legally chargeable or
collectible.
The opinions expressed herein are limited to the laws of the State of New
York and the federal laws of the United States, and we express no opinion as to
the effect on the matters covered by this letter of the laws of any other
jurisdiction.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/S/ WEIL, GOTSHAL & MANGES LLP
2
<PAGE>
EXHIBIT 12.1
STATEMENT RE COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (AUGUST 5,
THREE MONTHS ENDED 1997) TO DECEMBER
MARCH 31, 1998 31, 1997
------------------- --------------------
<S> <C> <C>
Net Income (Loss) (a)................................................. $ 278,231 $ (309,112)
Add:
Portion of rents representative of the interest factor.............. 4,540 2,772
-------- ----------
Net Income as adjusted............................................ $ 282,771 $ (306,340)
-------- ----------
-------- ----------
Fixed Charges
Portion of rents representative of the interest factor................ $ 4,540 $ 2,772
-------- ----------
Fixed Charges..................................................... $ 4,540 $ 2,772
-------- ----------
-------- ----------
-------- ----------
Ratio of Earnings to Fixed Charges.................................... 62.3 (b)
-------- ----------
-------- ----------
</TABLE>
- ------------------------
(a) Net Income (Loss) is representative of Income (Loss) before income taxes as
the Company is treated as a partnership for federal income tax purposes.
(b) As a result of the loss incurred in 1997, earnings did not cover fixed
charges by $303,568. Thus, no positive ratio is presented.
(c) No pro forma earnings to fixed charges is presented as the Company had no
debt outstanding prior to the issuance of the Old Notes in April 1998.
Additionally, the terms of the New Notes are the same as those of the Old
Notes.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 11, 1998 in this Registration Statement (No. 333-57325) on
Form S-4 of our audit of the financial statements of Chiles Offshore LLC at
December 31, 1997 and for the period from inception (August 5, 1997) to December
31, 1997 and to all references to our firm included in this registration
statement.
/S/ ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Chiles Offshore LLC contained in the accompanying
Registration Statement on Form S-4 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 18,845 32,341
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 18,851 32,378
<PP&E> 44,904 35,026
<DEPRECIATION> (9) (6)
<TOTAL-ASSETS> 63,782 67,398
<CURRENT-LIABILITIES> (82) (3,977)
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (63,700) (63,422)
<TOTAL-LIABILITY-AND-EQUITY> (63,782) (67,398)
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 85 382
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 278 (309)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 278 (309)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 278 (309)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
