As filed with the Securities and Exchange Commission on December 19, 1996.
Registration No. 333-14783
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
To
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2144774
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------
450 GEARS ROAD, SUITE 625
HOUSTON, TEXAS 77067
(713) 874-0202
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
T. Scott O'Keefe, Senior Vice President and Chief Financial Officer
450 Gears Road, Suite 625
Houston, Texas 77067
(713) 874-0202
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
Nick D. Nicholas
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
(713) 226-0600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.[ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PURSUANT TO THE PROVISIONS OF RULE 429 OF THE SECURITIES ACT OF 1933, AS
AMENDED, THE PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATES TO
71,339,038 SHARES OF COMMON STOCK COVERED BY THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-3 (REG. NO. 333-6077). THIS PREVIOUSLY FILED FORM S-3
AMENDED A REGISTRATION STATEMENT ON FORM S-4 AND REGISTERED 82,337,956 SHARES OF
COMMON STOCK, 8,998,918 OF WHICH HAVE BEEN SOLD AND 2,000,000 OF WHICH RELATED
TO SHARES UNDERLYING WARRANTS THAT HAVE TERMINATED. THE REGISTRATION FEES WITH
RESPECT THERETO WERE PREVIOUSLY PAID.
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<PAGE>
SUBJECT TO COMPLETION DATED DECEMBER 19, 1996
PROSPECTUS 78,839,038 SHARES
DI INDUSTRIES, INC.
COMMON STOCK
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The 78,839,038 shares (the "Shares") of common stock, par value $0.10 per
share (the "Common Stock"), of DI Industries, Inc., a Texas corporation (the
"Company"), offered hereby are held by, or subject to certain warrants or
options held by, certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any part of the proceeds of the
sale of the Shares offered hereby.
Sales of the Shares by the Selling Shareholders may be made from time to
time in one or more transactions, including block transactions, on the American
Stock Exchange ("AMEX"), or any other exchange or quotation system on which the
Common Stock may be listed or quoted (collectively, the "Exchanges"), pursuant
to and in accordance with the applicable rules of the Exchanges, in negotiated
transactions or in a combination of any such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Shares may
be offered directly, to or through agents designated from time to time, or to or
through brokers or dealers, or through any combination of such methods of sale.
Such agents, brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). A member firm of an
Exchange may be engaged to act as an agent in the sale of Shares by the Selling
Shareholders. See "Plan of Distribution."
The Selling Shareholders and any brokers, dealers, agents or others that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commissions or fees received by such
persons and any profit on the resale of the Shares purchased by such persons may
be deemed to be underwriting commissions or discounts under the Securities Act.
The Company has agreed to indemnify certain of the Selling Shareholders against
certain liabilities, including liabilities under the Securities Act. See "Plan
of Distribution."
The total costs, fees and expenses incurred in connection with the
registration of the Shares are estimated to be approximately $38,120.
The Common Stock is traded on the AMEX under the symbol "DRL." On December
18, 1996, the closing sales price of the Common Stock as reported on the AMEX
was $2.875 per share.
------------------------
INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December , 1996.
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THIS PROSPECTUS CONTAINS OR INCORPORATES BY REFERENCE, "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS SO INCLUDED IN THIS
PROSPECTUS INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S
BUSINESS STRATEGY, PLANS, OBJECTIVES AND BELIEFS OF MANAGEMENT FOR FUTURE
OPERATIONS, THE ANTICIPATED CLOSING AND METHODS OF FINANCING THE PROPOSED
ACQUISITION OF ASSETS FROM DIAMOND M ONSHORE, INC. ARE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THE EXPECTATIONS AND BELIEFS REFLECTED
IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCUSSED HEREIN UNDER THE CAPTIONS "RISK FACTORS"
AND "RECENT DEVELOPMENTS" AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A AND
QUARTERLY REPORTS ON FORM 10-Q, INCORPORATED HEREIN BY REFERENCE UNDER THE
CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement (defined below), as well as such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices at Seven World Trade Center, New York, New York 10048 and
at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549. The Common Stock is listed and traded on the AMEX and
certain of the Company's reports, proxy statements and other information can be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006. The Commission maintains a site on the World Wide Web that
contains certain documents filed with the Commission electronically. The address
of such site is http://www.sec.gov and the Registration Statement may be
inspected at such site.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Shares. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement and the exhibits thereto. Statements
contained in this Prospectus (or in any document incorporated into this
Prospectus by reference) as to the contents of any contract or other document
referred to herein (or therein) are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission
pursuant to the Exchange Act (File No. 1-8826), are incorporated herein by
reference and made a part of this Prospectus:
1. The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996.
4. The Company's Definitive Proxy Statement for the 1996 Annual Meeting
of Shareholders to be held August 27, 1996, including the
description of the Common Stock contained therein under the caption
"Description of Capital Stock of the Company."
5. The Company's Current Reports on Form 8-K dated June 24, 1996,
October 2, 1996 and November 4, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock covered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document or information incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is, or is deemed to be, incorporated
herein by reference, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, expect as so modified or
superseded, to constitute a part of this Prospectus.
The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, a copy of any and all of the
documents or information referred to above that has been or may be incorporated
by reference in this prospectus (excluding exhibits to such documents unless
such exhibits are specifically incorporated by reference). Requests should be
directed to the corporate secretary, DI Industries, Inc., 450 Gears Road, Suite
625, Houston, Texas 77067, telephone (713) 874-0202.
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THE COMPANY
DI Industries, Inc., a Texas corporation formed in 1980, is engaged
primarily in the business of providing onshore contract drilling services to the
oil and gas industry. The Company conducts domestic operations in Texas,
Louisiana, Arkansas, Oklahoma, Ohio, Pennsylvania, New York, Michigan and other
states; and currently has international operations in Argentina and Venezuela.
The principal office of the Company is located at 450 Gears Road, Suite 625,
Houston, Texas 77067, and its telephone number is (713) 874-0202.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
CHANGE IN BUSINESS STRATEGY AND MANAGEMENT
In early 1996, the Company began implementing a new business strategy
which involves new management, focusing its resources toward higher margin
markets and recapitalizing the Company to provide for growth capacity.
Implementing the new strategy will involve redeploying its rigs to more
profitable markets, refurbishing and upgrading certain of its rigs, and
acquiring businesses and assets complementing the Company's land drilling
operations. Inherent in such strategy are certain risks, such as increasing
demand for liquidity and capital resources, increasing debt service
requirements, combining disparate company cultures and facilities, and
conducting operations in geographically and competitively diverse markets.
Material changes in the Company's management and business strategy have
only recently occurred. The Company is therefore unable to predict the effect of
these material changes on the Company's financial condition and results of
operations. This is particularly so in light of the rapid consolidation and
competitive changes in the Company's most profitable markets. The success of the
Company's new business strategy and its ability to repay increased debt service
will depend in part on the Company's ability (i) to redeploy its rigs to higher
margin markets, (ii) to finance and timely complete the refurbishment and
upgrade of its rig inventory on a cost effective basis and, (iii) to continue to
contract for, finance and integrate into its business future acquisitions. There
can be no assurance these material changes will result in the desired effect of
improving the Company's competitive position and its financial condition. See
"Recent Developments."
LEVERAGE AND LIQUIDITY
The Company currently has approximately $16.0 million of debt obligations
and expects to incur approximately $25.0 million of additional debt in
connection with a pending acquisition (described under "Recent Developments).
Accordingly, the Company will require substantial cash flow to meet its debt
service requirements. Payment of principal and interest on these obligations
will depend on the Company's future performance, which is subject to general
economic and business factors beyond the Company's control. The Company's
programs of rig refurbishment and upgrades will require increasing amounts of
capital and to the extent, if any, it is unable to continue such programs, the
Company will have fewer rigs available for service. Further debt may be needed
to finance any future acquisitions. It is likely therefore, that the Company's
exposure to the risks associated with leverage will increase as its new business
strategy is implemented.
The loan agreements governing the Company's term loan (the "Loan
Agreement") and an ancillary guaranty restrict, among other things, the
Company's ability to incur additional indebtedness, mortgage or otherwise
encumber certain of its properties and make certain asset dispositions.
Furthermore, the Loan Agreement prohibits the payment of dividends by the
Company and requires the Company to maintain a minimum working capital balance
of $7.0 million and a minimum adjusted net worth of $50.0 million. In connection
with the completion of a proposed credit agreement, the Company intends to repay
the Loan Agreement. This proposed credit agreement is expected to include
customary restrictions, which should be similar to those contained in the Loan
Agreement. These restrictions could limit the Company's flexibility in
responding to changing market conditions and impair its ability to achieve its
new business strategy. See "Recent Developments."
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DEPENDENCE ON KEY PERSONNEL
Since April 1996, the Company has hired a majority of its current senior
management team. In addition, in August 1996, the shareholders of the Company
elected a Board of Directors comprised of five members, all but one of which
were elected to the Board for the first time. The Company believes that its
operations are dependent upon this small group of relatively new management
personnel, the loss of any of whom could have a material adverse effect on the
Company. See "Recent Developments."
INTENSE COMPETITION; INDUSTRY CONDITIONS
The Company experiences intense competition in its onshore drilling
markets. The contract drilling industry is cyclical and is characterized by high
capital and maintenance costs. Due to an oversupply of rigs, the onshore
drilling market is highly competitive and no one competitor is dominant. While
price is a primary factor in the selection of drilling contractors, a
contractor's safety record, crew quality, service record and equipment
capability are also important factors. Certain of the Company's competitors have
greater financial and other resources than the Company and may commit more
resources than the Company to these important factors.
The Company's operations are materially dependent upon the levels of
activity in the exploration, development and production of oil and natural gas
in the United States and worldwide. Such activity levels are affected both by
short-term and long-term trends in the prices of oil and natural gas. In recent
years, oil and natural gas prices, and therefore the level of drilling and
exploration activity, have been volatile. Worldwide military, political and
economic events have contributed to, and are likely to continue to contribute
to, such price volatility. Any prolonged reduction in oil and natural gas prices
would depress the level of exploration and development activity and would result
in a corresponding decline in the demand for the Company's services and
therefore have a material adverse effect on the Company's financial condition
and results of operations.
LOSSES FROM OPERATIONS
The historical financial data for the Company reflect net losses of $13.4
million and $3.5 million (unaudited) for the calendar years ended December 31,
1995 and 1994, which included a non-cash impairment provision of $5,290,000
during the fourth quarter of 1995 for certain drilling rigs and equipment. This
provision was the result of market indications that the carrying amount was not
fully recoverable based on appraisals, comparable sales data and management
estimates. The Company continues to experience losses, realizing a net loss to
Common Stock of $559,000 for the nine months ended September 30, 1996. There can
be no assurance that any capital needed for the future will be available on
acceptable terms.
INTERNATIONAL OPERATIONS
A major portion of the Company's revenues has been attributable to
international operations. Revenues from international sources accounted for
approximately 41.2 percent and 52.7 percent of the Company's operating revenues
for the nine-month period ended September 30, 1996 and the year ended December
31, 1995, respectively. In addition to the risks inherent in the drilling
business, the Company's international operations are subject to certain
political, economic and other uncertainties, including, among others, risks of
war and civil disturbances, expropriation, nationalization, renegotiation or
modification of existing contracts, taxation policies, foreign exchange
restrictions, international monetary fluctuations and other hazards arising out
of foreign operations. See "Recent Developments."
ABSENCE OF DIVIDENDS ON THE COMMON STOCK
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying dividends on the Common Stock at any time in the
foreseeable future. Additionally, certain of its debt covenants prohibit the
Company from paying dividends without the consent of the lender .
LIMITATIONS ON THE AVAILABILITY OF THE COMPANY'S NET OPERATING LOSS
CARRYFORWARDS
As a result of the Mergers (as hereinafter defined), the Company has
undergone an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended. Therefore, the right of the Company
to use its existing net operating loss carryforwards ("NOLs") and certain other
tax attributes for both regular tax and alternative minimum tax purposes during
each future year is limited to a percentage (currently approximately six
percent) of the fair market value of the Company's Common Stock immediately
before the ownership change (the "Section 382 Limitation"). To the extent that
taxable income exceeds the Section 382 Limitation in any year subsequent to the
ownership change, such excess income may not be offset by NOLs from years prior
to the ownership change. To the extent the amount of taxable income in any
subsequent year is less than the Section 382 Limitation for such year, the
Section 382 Limitation for future years is correspondingly increased. There is
generally no restriction on the use of NOLs arising after the ownership change,
although Section 382 applies anew each time there is an ownership change.
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The actual effect, if any, of such utilization of NOLs will depend on the
Company's profitability in future years. As of December 31, 1995, the Company
had approximately $64.0 million of NOLs, a significant portion of which are
already subject to a Section 382 Limitation resulting from ownership changes in
years prior to 1996.
OPERATIONAL RISKS
The Company's operations are subject to the many hazards inherent in the
drilling business, including blowouts, cratering, fires and collisions. These
hazards could 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 damage to producing
formations and surrounding areas. Although the Company maintains insurance
against many of these hazards, the Company does not have casualty or other
insurance with respect to the rigs themselves, and such other insurance is
subject to substantial deductibles and provides for premium adjustments based on
claims. Certain other matters are also excluded from coverage, such as loss of
earnings on certain rigs.
GOVERNMENTAL AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous domestic and foreign
governmental regulations that may relate directly or indirectly to the contract
drilling industry. The regulations applicable to the Company's operations
include certain regulations that control the discharge of materials into the
environment or require remediation of contaminations, under certain
circumstances. Usually these environmental laws and regulations impose "strict
liability," rendering a person liable without regard to negligence or fault on
the part of such person. Such environmental 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.
CONTROL CONSIDERATIONS
On May 7, 1996, certain shareholders of the Company entered into a
Shareholders' Agreement (the "Shareholders' Agreement"), which shareholders and
their affiliates beneficially own approximately 65% of the issued and
outstanding shares of Common Stock as of the date of this Prospectus. The
Shareholders' Agreement provides that all of the parties thereto, and certain of
their successors will be required to vote their shares of Common Stock so as to
maintain the size of the Board of Directors at five, and to vote their shares at
any annual or special meeting of the shareholders for three directors designated
by such parties and two independent directors. By reason of their shareholdings
and the Shareholders' Agreement, the parties to the Shareholders' Agreement, and
certain of their successors will each exercise considerable influence over the
Company and will be able to collectively control all of its business and affairs
for so long as they own these shares. Several of the Selling Shareholders are
party to the Shareholders' Agreement.
RECENT DEVELOPMENTS
OVERVIEW
In 1996, the Company's elected a substantially new board of directors,
installed new senior management and completed several transactions that
significantly improved its liquidity and added drilling rigs to its existing
fleet. The combined effect of these changes has materially changed the Company's
principal shareholders, management, capital structure, and business strategy.
CHANGE IN MANAGEMENT
The Company began its management restructuring in April 1996, with the
termination of its former President and Chief Executive Officer, Max M. Dillard
on April 9, 1996. Since that date, the Company has hired a majority of its
current senior management team, including Thomas P. Richards, President and
Chief Executive Officer, Forrest M. Conley, Jr., Senior Vice President -
International, Donald J. Guedry, Treasurer, Ronnie E. McBride, Senior Vice
President - Operations, T. Scott O'Keefe, Senior Vice President and Chief
Financial Officer, and David W. Wehlmann, Vice President and Controller. Mr.
Wehlmann was hired in July 1996 while Messrs. Conley, McBride, O'Keefe and
Richards began employment in September 1996. Mr. Guedry joined the Company in
October 1996. In addition, on August 27, 1996, the shareholders of the Company
elected a Board of Directors comprised of five members, all but one of which
were elected to the Board for the first time. Returning to the Board as Chairman
was Ivar Siem. Directors Roy T. Oliver, Steven A. Webster, William R. Ziegler
and Peter M. Holt were newly elected to the Board of Directors of the Company.
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CHANGE IN BUSINESS STRATEGY
The Company also began implementing in 1996 a new business strategy
intended to return the Company to profitability and to enable it to keep pace
with rapidly changing competitive conditions in the land drilling business
which, management believes, is undergoing a period of rapid consolidation. This
strategy involves:
o redeploying its drilling rigs and related assets where feasible to
geographic markets with greater potential for increased gross
operating margin;
o restoring certain of its stacked rigs to marketable condition
through a program of capital expenditures; and
o acquiring businesses and assets complementing its land drilling
operations.
To meet the increased capital resources and liquidity requirements of its new
business strategy, the Company will incur additional bank debt and may be
required to pursue other financing methods.
REDEPLOYMENT OF OPERATING ASSETS
Due to continuing operating losses, the Company has recently withdrawn all
four of its rigs from Mexico. These rigs have been returned to Texas for
subsequent service in the higher margin markets of Texas, Oklahoma, Arkansas and
Louisiana. The Company is considering withdrawing from Argentina and certain
other low margin domestic markets.
REFURBISHMENT OF STACKED RIGS
The majority of the Company's existing drilling rigs were built during
1979 to 1981, the industry's most recent rig building cycle. As of the date of
this Prospectus, approximately one third of its rig fleet is stacked. Over the
years, the Company has deferred some maintenance on its stacked rigs. Management
believes that the market for land drilling rigs in the southern United States
("U.S."), particularly in Arkansas, Louisiana, Oklahoma and Texas, has improved
sufficiently to justify a program to restore certain of its stacked rigs to
marketable condition. Accordingly, as market conditions warrant and the
Company's finances permit, the Company plans to undertake capital expenditures
to refurbish and upgrade certain of its rig inventory. As noted below, the
Company recently placed in service one of the deep land drilling rigs acquired
in the Mergers (hereinafter defined.) The Company is currently refurbishing
three of its rigs at an estimated cost of approximately $1.5 to $2.0 million.
These rigs should be ready for redeployment into the Company's U.S. based rig
fleet in the first quarter of 1997.
ACQUISITIONS
Three major acquisitions have been completed since the Company's change of
management. Two of the acquisitions were pursuant to separate merger agreements
and effected a $25.0 million equity infusion and the acquisition of deep
drilling equipment. The third acquisition was pursuant to an asset purchase
agreement for three rigs operating in South Texas and three stacked rigs in
exchange for 5,500,000 shares of Common Stock.
The two mergers (collectively, the "Mergers") were closed on August 29,
1996. Under the first agreement, the capital stock of R. T. Oliver, Inc., an
Oklahoma corporation ("RTO"), and Land Rig Acquisition Corp., a Delaware
corporation("LRAC"), was exchanged for 39,423,978 shares of the Common Stock. In
addition, RTO's and LRAC's stockholders were issued warrants to acquire up to
1,720,000 additional shares of the Common Stock ("Shadow Warrants"), the
exercise of which is contingent upon the occurrence of certain events. Since the
date of issuance, one million of these shadow warrants have been terminated.
This Merger resulted in the acquisition of 18 inactive, deep capacity land
drilling rigs. The Company believes that these rigs can be brought up to
operating condition within a reasonable time on an economic basis and that this
group of rigs represents a significant concentration of the relatively small
number of such deep drilling land rigs currently available in the market. The
Company has placed one of these rigs in operation. Under the second agreement,
the capital stock of Somerset Investment Corp., a Texas corporation
("Somerset"), was exchanged for 39,423,978 shares of the Common Stock. In
addition, Somerset's shareholders were issued Shadow Warrants to acquire up to
1,720,000 shares of the Common Stock were issued, the exercise of which is
contingent upon the occurrence of certain events. Since the date of issuance,
one million of these Shadow Warrants have been terminated. This Merger resulted
in a $25.0 million equity infusion into the Company and it is anticipated that
these funds will be used for combined rig fleet refurbishment and general
corporate purposes.
In November 1996, the Company signed a definitive asset purchase
agreement to acquire all of the South Texas operational assets of Diamond M
Onshore, Inc., a wholly owned subsidiary of Diamond Offshore Drilling, Inc.
("Diamond M").
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These assets are to be acquired for approximately $26.0 million in cash. It is
anticipated that the acquisition will close by December 31, 1996, subject to
satisfaction of conditions contained in the definitive asset purchase agreement.
The Company placed $2.0 million in escrow upon the signing of the definitive
agreement and management expects the remainder of the acquisition price will be
primarily funded by new indebtedness. See "-- Proposed Bank Facility."
PROPOSED BANK FACILITY
The Company has obtained a commitment from Bankers Trust Company and ING
(US) Capital Corporation to provide
a $35.0 million reducing revolving credit facility (the "Facility"). DI intends
to utilize the Facility to fund the acquisition of Diamond M's operating assets
for $26.0 million and for other general corporation purposes. The Facility will
provide for an initial loan commitment of $35.0 million which reduces by $5.0
million each year until the December 31, 1999 maturity date. The Facility will
be secured by substantially all of the Company's assets and will call for
quarterly interest payments on the outstanding balance at either LIBOR plus 3%
or prime plus 2%. Additionally, the Facility will contain customary affirmative
and negative covenants. Closing and funding of the Facility is subject to
negotiation and execution of definitive loan documentation which the Company
anticipates will occur before year-end. In connection with this closing and
funding, the Company intends to utilize existing working capital to repay the
$9.4 million balance outstanding under its existing Loan Agreement.
SELLING SHAREHOLDERS
The following table sets forth certain information, as of the date hereof,
with respect to the number of Shares beneficially owned and being offered hereby
by the Selling Shareholders.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned and to be Shares Offered Owned after
Name of Beneficial Owner Owned(1) Hereby(1) the Offering
- - -------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Somerset Capital Partners ("SCP")(2),(3) ......... 35,423,978(4) 35,423,978(4) --
Somerset Drilling Associates, L.L.C.("SDA")(2),(3) 29,962,223 29,962,223 --
John Winfield (3) ................................ 500,000 500,000 --
Intergroup Corporation (3) ....................... 500,000 500,000 --
PMG Investment Club(3) ........................... 145,000 145,000 --
Winston Partners, L.P.(3) ........................ 2,000,000 2,000,000 --
Roy T. Oliver, Jr.(2), (3) ....................... 15,703,306(5) 15,279,827 423,479*
U.S. Rig & Equipment, Inc.(2), (3) ............... 2,701,051 2,701,051 --
Don Bodard 1995 Revocable Trust (3) .............. 2,524,102 2,524,102 --
Roberds Johnson Industries, Inc.(3) .............. 399,282 399,282 --
Craig Cannon (3) ................................. 1,070,703 277,053 793,650*
Mike Mullen Energy Equipment
Resource, Inc.(2), (3) ....................... 7,373,620 7,373,620 --
GCT Investments, Inc., (2), (3) .................. 3,219,191 3,219,191 --
Empire Holdings, Ltd., (3) ....................... 215,657 215,657 --
Layton Humphrey, (3) ............................. 755,222 705,222 50,000*
John Mullen, III (3) ............................. 508,605 508,605 --
NRY #1 Family Ltd. Partnership (3) ............... 73,323 73,323 --
PAN #1 Family Ltd. Partnership (3) ............... 73,323 73,323 --
La Patagonia Offshore, Inc. (3) .................. 887,692 887,692 --
R.E. Ferrell (3) ................................. 83,039 83,039 --
Lloyd Haggard (3) ................................ 41,520 41,520 --
Jack Witkin Family LLC (3) ....................... 41,520 41,520 --
Lee Irrevocable Trust #1 (3) ..................... 41,520 41,520 --
Alan Munoz (3) ................................... 41,520 41,520 --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned and to be Shares Offered Owned after
Name of Beneficial Owner Owned(1) Hereby(1) the Offering
- - -------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
James L. Northrup (3) ................ 166,079 166,079 --
Lee Financial Corporation (3) ........ 7,607 2,158 5,449*
Dr. Brady Allen (3) .................. 31,256 8,862 22,394*
Dr. F. Allen Barber (3) .............. 60,501 17,154 43,347*
BMRN Family Partners, Ltd. (3) ....... 12,100 3,431 8,669*
Dr. Francisco Cardenas (3) ........... 30,251 8,577 21,674*
Mrs. Bobbie A. Chrest (3) ............ 31,256 8,862 22,394*
David Franklin (3) ................... 52,201 14,801 37,400*
Gonzalez Partners L.P. (3) ........... 31,256 8,862 22,394*
Dr. Robert W. Hahn (3) ............... 31,256 8,862 22,394*
Marilyn L. Hanna Trust (3) ........... 30,251 8,577 21,674*
Polly Pierson Living Trust (3) ....... 30,251 8,577 21,674*
RRG #1 Family Limited Partnership (3) 15,126 4,289 10,837*
Ronald L. Skaggs (3) ................. 62,514 17,725 44,789*
David C. Vaughn (3) .................. 62,514 17,725 44,789*
Ronald D. Watson (3) ................. 30,251 8,577 21,674*
Jack A. Witkin ....................... 242,008 68,618 173,390*
Scott O'Keefe ........................ 50,000(6) 50,000 --
Spencer Finance Corp. (7) ............ 3,297,436 3,297,436 --
Scan Atlantic, Inc. (7) ............. 618,540 618,540 --
B.F. Interests, Inc. (7) ............. 618,540 618,540 --
Gilbo Invest A/S (7) ................. 422,581 422,581 --
Vantage Industry Partners, Inc. (7) .. 542,903 542,903 --
Thomas P. Richards ................... 2,000,000(8) 2,000,000 --
</TABLE>
- - ------------
* Less than one percent.
(1) Unless otherwise noted, all Shares reflected are beneficially owned and of
record. These amounts do not reflect 1,440,000 shares which may be issued,
subject to certain contingencies, under the Shadow Warrants.
(2) Party to the Shareholders' Agreement or, in the case of SCP, a person that
controls a party to the Shareholders' Agreement. See "Risk Factors--
Control Considerations."
(3) The Company issued 78,847,956 shares of Common Stock directly to these
Selling Shareholders, other Shareholders who have since sold such shares
or partnerships in which certain of these Selling Shareholders were
partners, in a private placement in connection with the consummation of
the Mergers. As of the date of this Prospectus, 8,998,918 of such shares
of Common Stock have been resold.
See "Recent Developments."
(4) Includes 5,461,755 shares owned beneficially through SDA of which SCP is
the managing member.
(5) Includes 12,114,563 shares owned beneficially and of record by Mr. Oliver,
2,701,051 shares beneficially owned through U.S. Rig & Equipment, Inc., a
corporation wholly-owned and controlled by him, and 887,692 shares
beneficially owned through La Patagonia Offshore, Inc., a corporation
jointly-owned and controlled by Mr. Oliver.
(6) Represents shares issuable to Mr. O'Keefe upon the exercise of options
granted pursuant to a letter agreement dated April 2, 1996. The options
were granted to Mr. O'Keefe as partial compensation for consulting
services provided by him to the Company. The options may be exercised at
any time and expire on April 1, 1997.
8
<PAGE>
(7) The Company issued 5,500,000 shares of Common Stock directly to Meritus,
Inc., a Texas corporation, Mesa Rig 4 L.L.C., a Texas Limited Liability
company, Mesa Venture, a Texas general partnership and Mesa Drilling,
Inc., a Texas corporation (collectively, "Mesa"), which these Selling
Shareholders were shareholders, members or partners, in a private
placement in connection with the consummation of an asset purchase from
Mesa and the other transactions contemplated thereby. See "Recent
Developments."
(8) Represents shares issuable to Mr. Richards upon the exercise of options
granted pursuant to a Non-Qualified Stock Option Agreement dated September
3, 1996 (the "Option Agreement"). The options were granted to Mr. Richards
as partial consideration for his employment as the President and Chief
Executive Officer of the Company. The options may be exercised as to 20%
of the total option shares beginning on December 31, 1996, and as to 20%
of the total option shares beginning on the next four annual anniversaries
of the date of the Option Agreement.
Roy T. Oliver, Jr. is a director of the Company. Thomas P. Richards is the
President and Chief Executive Officer of the Company. Scott O'Keefe provided
consulting services to the Company from April, 1996, until September, 1996, when
he was appointed Senior Vice President and Chief Financial Officer. William R.
Ziegler and Steven A. Webster, both general partners of SCP, are also directors.
The Company has entered into an investment monitoring agreement providing for a
one-time $75,000 payment by the Company to SCP to monitor SDA's investment in
the Company.
In connection with the Mergers, 3,440,000 shares of Common Stock were
issuable upon the occurrence of certain events, to the shareholders of LRAC, RTO
and Somerset upon the exercise of the Shadow Warrants. As of the date of this
Prospectus, 2,000,000 of the Shadow Warrants have been terminated.
Except as otherwise noted, none of the other Selling Shareholders have
held any position or office or had any other material relationship with the
Company.
PLAN OF DISTRIBUTION
Sales of the Shares by the Selling Shareholders may be made from time to
time in one or more transactions, including block transactions, on the AMEX or
any other exchange or quotation system on which the Common Stock may be listed
or quoted pursuant to and in accordance with the applicable rules of the
Exchanges, in negotiated transactions or in a combination of any such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Shares may be offered directly, to or through agents
designated from time to time, or to or through brokers or dealers, or through
any combination of these methods of sale. Such agents, brokers or dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). A member firm of an Exchange may be engaged to act as an
agent in the sale of Shares by the Selling Shareholders.
The Selling Shareholders and any brokers, dealers, agents or others that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions or fees received by such persons and any profit on the resale of the
Shares purchased by such persons may be deemed to be underwriting commissions or
discounts under the Securities Act.
Agents, brokers and dealers may be entitled under agreements entered into
by the Selling Shareholders and/or the Company to indemnification against
certain civil liabilities, including liabilities under the Securities Act.
There is no assurance that the Selling Shareholders will sell any or all
of the Shares offered hereby.
9
<PAGE>
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from the Company's Definitive Proxy
Statement for the 1996 Annual Meeting of Shareholders for the year ended
December 31, 1995 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports which are incorporated herein by reference,
and have been so incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Shares have been passed upon
for the Company by Cokinos, Bosien & Young, Houston, Texas.
10
<PAGE>
================================================================================
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MAiDE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, NOR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
Available Information.................. 2
Incorporation of Certain
Documents by Reference............... 2
The Company............................ 3
Risk Factors........................... 3
Recent Developments.................... 5
Selling Shareholders................... 7
Plan of Distribution................... 9
Experts................................ 10
Legal Matters.......................... 10
78,839,038 SHARES
DI INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
[DI LOGO]
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee...................... $ 4,120
Blue Sky fees and expenses................ 1,000
Legal fees and expenses................... 19,000
Printing expenses......................... 7,000
Accounting fees and expenses.............. 2,000
Miscellaneous............................. 5,000
--------
Total Expenses................ $ 38,120
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
the articles of incorporation of a Texas corporation may provide that a director
of that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (i) a breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good faith
that constitutes a breach of duty of the director to the corporation or an act
or omission that involves intentional misconduct or a knowing violation of the
law, (iii) any transaction from which the director received an improper personal
benefit, or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute. Article XII of the Company's
Articles of Incorporation, as amended, states that a director of the Company
shall not be liable to the Company or its shareholders for monetary damages
except to the extent otherwise expressly provided by the statutes of the State
of Texas.
In addition, Article 2.02-1 of the Texas Business Corporations Act (the
"TBCA") authorizes a Texas corporation to indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding, including
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative because the person is or
was a director. The TBCA provides that unless a court of competent jurisdiction
determines otherwise, the indemnification is permitted only if it is determined
that the person (1) conducted himself in good faith; (2) reasonably believed (a)
in the case of conduct in his official capacity as a director of the
corporation, that his conduct was in the corporation's best interests; and (b)
in all other cases, that his conduct was at least not opposed to the
corporation's best interests; and (3) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. A person may be
indemnified under Article 2.02-1 against judgments, penalties (including excise
and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person (including court costs and attorneys' fees), but if the
person is found liable to the corporation or is found liable on the basis that
personal benefit was improperly received by him, the indemnification is limited
to reasonable expenses actually incurred and shall not be made in respect of any
proceeding in which the person has been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. A corporation is
obligated under Article 2.02-1 to indemnify a director or officer against
reasonable expenses incurred by him in connection with a proceeding in which he
is named defendant or respondent because he is or was a director or officer if
he has been wholly successful, on the merits or otherwise, in the defense of the
proceeding. Under Article 2.02-1 a corporation may (i) indemnify and advance
expenses to an officer, employee, agent or other persons who are or were serving
at the request of the corporation as a director, officer, partner venturer,
proprietor, trustee, employee, agent or similar functionary of another entity to
the same extent that it may indemnify and advance expenses to its directors,
(ii) indemnify and advance expenses to directors and such other persons
identified in (i) to such further extent, consistent with law, as may be
provided in the corporation's articles of incorporation, bylaws, action of its
board of directors, or contract or as permitted by common law and (iii) purchase
and maintain insurance or another arrangement on behalf of directors and such
other persons identified in (i) against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as such a
person. The Bylaws of the Company set forth specific provisions for
indemnification of directors, officers, agents and other persons which are
substantially identical to the provisions of Article 2.02-1 described above. The
Company maintains directors and officers insurance.
II-1
<PAGE>
ITEM 16. EXHIBITS
(A) EXHIBITS
The exhibits listed in the Exhibit Index below are filed as part of the
Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
2.1 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver, Jr., Mike L.
Mullen, R.T. Oliver, Inc. and Land Rig Acquisition Corp. (Incorporated
herein by reference to Exhibit 2.1 to Registration Statement No.
333-6077).
2.1.1 -- Amendment to Agreement and Plan of Merger dated May 7, 1996, among
DI Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver, Jr., Mike L.
Mullen, R.T. Oliver, Inc. and Land Rig Acquisition Corp. (Incorporated
herein by reference to Exhibit 2.1.1 to Registration Statement No.
333-6077).
2.1.2 -- Second Amendment to Agreement and Plan of Merger dated July 26,
1996, among DI Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver,
Jr., Mike L. Mullen, R.T. Oliver, Inc. and Land Rig Acquisition Corp.
(Incorporated herein by reference to Exhibit 2.1.2 to Amendment No. 1
to Registration Statement No. 333- 6077).
2.2 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc. and Somerset Investment Corp. (Incorporated herein by
reference to Exhibit 2.2 to Registration Statement No. 333-6077).
2.2.1 -- Amendment to Agreement and Plan of Merger dated May 7, 1996, among
DI Industries, Inc. and Somerset Investment Corp. (Incorporated herein
by reference to Exhibit 2.2.1 to Registration Statement No. 333-
6077).
2.2.2 -- Second Amendment to Agreement and Plan of Merger dated July 26,
1996, among DI Industries, Inc. and Somerset Investment Corp.
(Incorporated herein by reference to Exhibit 2.2.2 to Amendment No. 1
to Registration Statement No. 333-6077).
2.3* -- Asset Purchase Agreement dated October 3, 1996, by and between the
Company and Meritus, Inc., a Texas corporation, Mesa Rig 4 L.L.C., a
Texas limited liability company, Mesa Venture, a Texas general
partnership and Mesa Drilling, Inc., a Texas corporation.
5* -- Opinion of Cokinos, Bosien & Young .
10.1 -- Shareholders' Agreement dated May 7, 1996, among Somerset Drilling
Associates, L.L.C., Roy T. Oliver, Jr., U.S. Rig and Equipment, Inc.,
Mike Mullen Energy Equipment Resource, Inc., GCT Investments, Inc.,
Mike L. Mullen, Norex Drilling Ltd., and Pronor Holdings, Ltd.
(Incorporated herein by reference to Exhibit 10.9 to Registration
Statement No. 333-6077).
10.1.1 -- Amendment to Shareholders' Agreement dated May 7, 1996, among
Somerset Drilling Associates, L.L.C., Somerset Capital Partners, Roy
T. Oliver, Jr., U.S. Rig and Equipment, Inc., Mike Mullen Energy
Equipment Resource, Inc., GCT Investments, Inc., Mike L. Mullen, Norex
Drilling Ltd., and Pronor Holdings, Ltd. (Incorporated herein by
reference to Exhibit 10.9.1 to Registration Statement No. 333-6077).
10.2 -- Form of Shadow Warrant to be issued to the shareholders of Somerset
Investment Corporation (Incorporated herein by reference to Exhibit
10.10 to Registration Statement No. 333-6077).
10.3 -- Form of Shadow Warrant to be issued to the shareholders of R.T.
Oliver, Inc. and Land Rig Acquisition Corporation (Incorporated herein
by reference to Exhibit 10.11 to Registration Statement No. 333-6077).
10.4 -- Registration Rights Agreement dated May 7, 1996, among Somerset
Drilling Associates, L.L.C., Roy T. Oliver, Jr., U.S. Rig and
Equipment, Inc., Mike Mullen Energy Equipment Resource, Inc., GCT
Investments, Inc., Norex Drilling Ltd., and Pronor Holdings, Ltd.
(Incorporated herein by reference to Exhibit 10.12 to Registration
Statement No. 333-6077).
II-2
<PAGE>
10.4.1 -- Amendment to Registration Rights Agreement dated May 7, 1996, among
Somerset Drilling Associates, L.L.C., Somerset Capital Partners, Roy
T. Oliver, Jr., U.S. Rig and Equipment, Inc., Mike Mullen Energy
Equipment Resource, Inc., GCT Investments, Inc., Norex Drilling Ltd.,
and Pronor Holdings, Ltd. (Incorporated herein by reference to Exhibit
10.12.1 to Registration Statement No. 333-6077).
10.4.2 -- Second Amendment to Registration Rights Agreement dated July 26,
1996, among Somerset Drilling Associates, L.L.C., Somerset Capital
Partners, Roy T. Oliver, Jr., U.S. Rig and Equipment, Inc., Mike
Mullen Energy Equipment Resource, Inc., GCT Investments, Inc., Norex
Drilling Ltd., and Pronor Holdings, Ltd. (Incorporated herein by
reference to Exhibit 10.4.2 to Amendment No. 1 to Registration
Statement No. 333-6077).
10.5 -- Investment Monitoring Agreement dated May 7, 1996, among DI
Industries, Inc., Somerset Capital Partners and Somerset Drilling
Associates, L.L.C. (Incorporated herein by reference to Exhibit 10.13
to Registration Statement No. 333-6077).
10.6 -- Form of Non-Competition Agreement to be executed among DI
Industries, Inc., Roy T. Oliver, Jr., U.S. Rig and Equipment, Inc.,
Mike L. Mullen and Mike Mullen Energy Equipment Resource, Inc.
(Incorporated herein by reference to Exhibit 10.14 to Registration
Statement No. 333-6077).
10.7* -- Employment Agreement dated September 3, 1996, by and between the
Company and Thomas P. Richards.
10.8* -- Non-Qualified Stock Option Agreement dated September 3, 1996, by
and between the Company and Thomas P. Richards.
10.9** -- Letter Agreement dated April 2, 1996, by and between the Company
and T. Scott O'Keefe, regarding consulting arrangement and stock
options.
10.10** -- Letter Agreement dated August 31, 1996, by and between the Company
and T. Scott O'Keefe, regarding employment and stock options.
10.11** -- Employment Agreement dated September 17, 1996, by and between the
Company and Forrest M. Conley, Jr.
10.12** -- Incentive Stock Option Agreement dated September 17, 1996, by and
between the Company and Forrest M. Conley.
10.13** -- Employment Agreement dated September 3, 1996, by and between the
Company and Ronnie E. McBride.
10.14** -- Incentive Stock Option Agreement dated September 3, 1996, by and
between the Company and Ronnie E. McBride.
10.15* -- Non-Qualified Stock Option Agreement dated September 3, 1996, by
and between the Company and Ronnie E. McBride.
10.16** -- Employment Agreement dated October 1, 1996, by and between the
Company and Terrell L. Sadler.
10.17** -- Non-Qualified Stock Option Agreement dated October 1, 1996, by and
between the Company and Terrell L. Sadler.
10.18** -- Incentive Stock Option Agreement dated September 3, 1996, by and
between the Company and Terrell . Sadler.
23.1** -- Consent of Deloitte & Touche LLP.
23.2* -- Consent of Cokinos, Bosien & Young contained in their opinion filed
as Exhibit 5.
24* -- Powers of Attorney.
II-3
<PAGE>
- - ------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, 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 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the 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; 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;
PROVIDED, HOWEVER, that clauses (a)(1)(i) and (a)(1)(ii) of this paragraph
do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic reports
filed with or furnished to the Securities and Exchange Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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;
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) 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
registrant has 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 registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against 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, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-3 NO.
333-14783 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON DECEMBER 19, 1996.
DI INDUSTRIES, INC.
By: /s/ THOMAS P. RICHARDS
Thomas P. Richards,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT FORM S-3 333-14783 HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
- - ---------- ----- ----
/s/ THOMAS P. RICHARDS President and Chief December 19, 1996
Thomas P. Richards Executive Officer
/s/ T. SCOTT O'KEEFE Senior Vice President December 19, 1996
T. Scott O'Keefe and Chief Financial
Officer
/s/ DAVID W. WEHLMANN* Vice President December 19, 1996
David W. Wehlmann and Controller
/s/ PETER M. HOLT* Director December 19, 1996
Peter M. Holt
/s/ ROY T. OLIVER, JR.* Director December 19, 1996
Roy T. Oliver, Jr.
/s/ IVAR SIEM* Director December 19, 1996
Ivar Siem
/s/ STEVEN A. WEBSTER* Director December 19, 1996
Steven A. Webster
/s/ WILLIAM R. ZIEGLER* Director December 19, 1996
William R. Ziegler
*By: /s/ THOMAS P. RICHARDS
Thomas P. Richards
(as Attorney-in-Fact)
II-5
April 2, 1996
Mr. T. Scott O'Keefe
14427 Chadbourne
Houston, Texas 77079
Dear Scott:
This letter will confirm our understanding with respect to you providing
full-time consulting services to DI beginning April 2, 1996. In your capacity as
a consultant to DI, you will report to me and it is anticipated that your work
will relate to special projects. You will be compensated at a rate of $12,500
per month adjusted on a pro-rata basis for days that you do not work for DI.
Normal and necessary business expenses will also be reimbursed provided these
have been authorized in advance.
The term of this agreement is uncertain due to the dynamics of the company's
current situation; however, it is understood that we will each provide one
another with two months' notice in the event either of us is desirous of
terminating this agreement. As an incentive for you to accept an assignment of
uncertain duration, you will be granted as of this date, options to acquire
50,000 shares of DI common stock at $0.6875 per share (April 1 closing price).
The options shall be exercisable at your sole discretion in whole or in part at
anytime prior to April 1, 1997 with notification to DI in writing prior to
exercise.
If the above is satisfactory to you, please indicate so by signing in the space
provided below.
Sincerely,
/s/ IVAR SIEM
Ivar Siem
Chairman of the Board
Agreed to and accepted on April 2, 1996.
/s/ T. SCOTT O'KEEFE
IVAR SIEM
President
August 31, 1996
Mr. T. Scott O'Keefe
14427 Chadbourne
Houston, Texas 77079
Dear Scott:
I am pleased to confirm our offer of employment to you as outlined below.
Start Date: September 1, 1996
Title: Senior Vice President & CFO
Reporting to: Chief Executive Officer (with access to the Board)
Responsibilities: Direct ALL financial and administrative activities of the
company including accounting, treasury, tax, investor
relations, capital markets work and office services. Also
provide support to and participate in all investment analysis,
due diligence and deal closure. Help establish the company's
goals, monitor progress relative to the goals and assist in
keeping the company on track.
Annual Salary: $150,000
Annual Bonus: Discretionary based on company & individual performance
Stock Options: Grant of 350,000 shares at market strike price upon closing of
Merger transaction; 175,000 vest 50% on the one and two
anniversary dates with total life of 4 years and 175,000 vest
one-third at the end of year 3, 4 and 5 with 10 year total
life. Eligible for additional annual grants based primarily on
individual performance. Options vest immediately upon change
of control and survive for one year following involuntary
termination or change of control. Piggyback rights upon change
of control.
<PAGE>
T. Scott O'Keefe
August 29,1996
Page 2
Severance Agreement: Salary and medical benefit continuation for 12 months
upon involuntary termination or change in control.
Recurring Benefits:
Medical insurance Per company plan
Dental insurance Per company plan
Disability insurance Per company plan (which is to be developed)
Life insurance Per company plan (which is to be developed)
Sick leave Per company plan
401(k) participation Per company plan
Vacation 3 weeks
Club membership Company to provide CCA membership (example-Greenspoint)
Company car Company to provide
DI's current medical benefits policy includes a 60 day eligibility waiting
period which will be waived due to your contractual employment since April 2,
1996. DI also currently does not provide long-term disability insurance and only
provides nominal life insurance. DI agrees to undertake an effort to develop a
benefit plan for executive at your level which will include long-term disability
and life insurance that is competitive. It is anticipated that this plan will
provide some multiple of salary (minimum of 2x) in term life insurance and some
percentage (minimum of 60%) of your salary in the form of long-term disability
insurance.
If the above meets with your approval, please indicate so by signing below. And
we will endeavor to develop and execute a definitive severance agreement and
stock option agreement within the next week or so as outlined above.
Sincerely,
/s/ IVAR SIEM
Ivar Siem
/s/ T. SCOTT O'KEEFE
Agreed to an accepted, date
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 17, 1996, between DI
INDUSTRIES, INC., a Texas corporation (the "Company"), and FORREST M. CONLEY,
JR. (the "Executive").
The Company desires to employ the Executive and the Executive desires to
accept employment with the Company, on the terms and conditions of this
Agreement.
Accordingly, the parties agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY; DUTIES. The Company hereby agrees to
employ the Executive for a term commencing on September 17, 1996, and expiring
at the end of the day on September 16, 1997 (such date, or later date to which
this Agreement is extended in accordance with the terms hereof, the "Termination
Date"), unless earlier terminated as provided in Article 4 or unless extended as
provided herein (the "Term"). The Term shall automatically be extended on the
Termination Date and each anniversary thereof for successive one-year periods
unless either party notifies the other on or before the date 90 days prior to
the Termination Date that he or it desires to terminate the Agreement. During
the Term, the Executive shall initially serve in the capacity of Vice President
- - -- International Operations of the Company and shall initially serve in those
offices and directorships of subsidiary corporations or entities of the Company
to which he may from time to time be appointed or elected. During the Term, the
Executive shall devote all reasonable efforts and all of his business time and
services to the Company, subject to the direction of the Board. The Executive
shall not engage in any other business activities except for passive investments
in corporations or partnerships not engaged in the oil or gas drilling or well
servicing business.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.
2. COMPENSATION AND OTHER BENEFITS.
2.1 ANNUAL SALARY. The Company shall pay the Executive an annual
salary at a rate of not less than one hundred thirty five thousand dollars
($135,000) per year (the "Annual Salary"), subject to increase at the sole
discretion of the Board of Directors of the Company (the "Board"). The Annual
Salary shall be payable in accordance with the payroll policies of the Company
as from time to time in effect, but in no event less frequently than once each
month, less such deductions as shall be required to be withheld by applicable
law and regulations.
2.2 BONUSES. The Executive may receive, at the sole discretion of the
Board, an incentive bonus with respect to the fiscal years ending during the
term hereof (the "Incentive Bonus"), provided that an Incentive Bonus, payable
in respect of fiscal year, shall not exceed one-half of the Annual Salary for
such fiscal year.
<PAGE>
2.3 GRANT OF OPTION. The Company agrees to grant the Executive,
pursuant to the terms of its existing stock option plan or new or amended stock
option plans, options to acquire one hundred fifty thousand (150,000) shares of
the Company's common stock, at an exercise price equal to the fair market value
of such stock on the date of grant. The Company agrees to use all reasonable
efforts, consistent with the foregoing, to ensure that a portion of such stock
options meets all requirements for treatment as Incentive Stock Options under
the Internal Revenue Code of 1986, as amended, and that such stock option plan
meets the requirements of Rule 16b-3, promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended. Any such stock options shall vest
in five equal increments over a four-year period commencing on the date of
grant, and shall expire ten years after the date of grant. One fifth of the ISOs
shall vest on December 31, 1996, and on the first, second, third and fourth
anniversary of the date of grant.
2.4 VACATION POLICY. The Executive shall be entitled to a paid
vacation of three weeks during each year of the Term.
2.5 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Company agrees to
permit the Executive during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, similar benefit plan or other so-called "fringe
benefits" of the Company (collectively, "Benefits") which may be available to
other senior executives of the Company on terms no less favorable to the
Executive than the terms offered to such other executives. The Company agrees to
use its best efforts to obtain immediate coverage for the Executive upon the
commencement of the Term under its existing or newly adopted medical expense and
hospitalization plan for employees without premium surcharge and without
exclusions for disclosed preexisting conditions. The Executive shall cooperate
with the Company in applying for such coverage, including submitting to a
physical exam and providing all relevant health and personal data.
2.6 GENERAL BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of such documentation as
the Company customarily requires of its senior executive employees prior to
making such payments or reimbursements.
2.7 COMPANY CAR, CELLULAR TELEPHONE. The Company shall provide an
automobile, of the Executive's choice, to be used by the Executive during the
Term hereof or until his employment hereunder is terminated. The purchase price
of the automobile shall not exceed $35,000 unless increased by the Board. If
requested by the Executive, the Company will replace the automobile with a new
automobile no less frequently than every three years during the Term hereof. The
Company shall, at its expense, pay any and all expenses associated with the
operation of such company car, including but not limited to, collision and
liability insurance, maintenance and repair costs, replacement parts, tires,
fuel and oil. The Executive may use the automobile for personal purposes and, to
the extent of the value of such personal usage, the value thereof shall be
deemed to be additional compensation.
The Company shall also furnish the Executive with a cellular telephone of
his choice and the Company shall pay all charges in connection with the use
thereof, other than charges
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<PAGE>
for calls not related to executive's duties hereunder.
3. NON-COMPETITION.
3.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges that (i)
the Company is currently engaged in the business of owning, managing and
operating onshore drilling and workover rigs for its own account or for others
which are contracted or hired for the purpose of drilling and/or workover of oil
or natural gas wells and from time to time acquiring working or carried
interests in oil and gas wells in connection with, or incident to, such drilling
or workover activities (the "Company Business"); (ii) his work for the Company
will give him access to trade secrets of and confidential information concerning
the Company; and (iii) the agreements and covenants contained in this Agreement
are essential to protect the business and goodwill of the Company. Accordingly,
the Executive covenants and agrees as follows:
3.1.1 NON-COMPETE. The Executive shall not during the Restricted
Period (as defined below) in the United States or any other place where the
Company and its affiliates conduct operations related to the Company business,
directly or indirectly (except in the Executive's capacity as an officer of the
Company), (i) engage or participate in the Company Business; (ii) enter the
employ of, or render any other services to, any person engaged in the Company
business except as permitted hereunder; or (iii) become interested in any such
person in any capacity, including, without limitation, as an individual,
partner, shareholder, lender, officer, director, principal, agent or trustee
except as permitted hereunder; provided, however, that the Executive may own,
directly or indirectly, solely as an investment, securities of any person traded
on any national securities exchange or listed on the National Association of
Securities Dealers Automated Quotation System if the Executive is not a
controlling person of, or a member of a group which controls, such person and
the Executive does not, directly or indirectly, own 1% or more of any class of
equity securities, or securities convertible into or exercisable or exchangeable
for 1% or more of any class of equity securities, of such person. As used
herein, the "Restricted Period" shall mean a period commencing on the date
hereof and terminating upon the first to occur of (a) the date on which the
Company terminates or is deemed to terminate the Executive's employment without
Cause, (b) the date the Executive terminates or is deemed to terminate his
employment pursuant to Section 4.6 hereof, or (c) the date of termination of
this Agreement; provided, however, that if the company shall have terminated the
Executive's employment for Cause and such Cause in fact exists or if the
Executive shall have terminated his employment with the Company in breach of the
terms of this Agreement, the Restricted Period shall end twelve months following
the termination of the Executive's employment hereunder.
3.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS. The
Executive acknowledges that the Company has a legitimate and continuing
proprietary interest in the protection of its confidential information and that
it has invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that, during and after the Restricted Period, the Executive shall keep secret
and retain in strictest confidence, and shall not use for the benefit of himself
or others all confidential matters directly relating to the Company business
including, without limitation, financial information, trade secrets, customer
lists, details of client or consultant contracts, pricing policies, operational
methods, marketing plans or strategies, product development techniques or plans,
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<PAGE>
business acquisition plans, new personnel acquisition plans, technical
processes, designs and design projects, inventions and research projects of the
Company, its affiliates, or any other entity which may hereafter become an
affiliate thereof, learned by the Executive heretofore or hereafter unless
otherwise in the public domain other than as a result of disclosure by the
Executive or unless independently obtained from third parties not under
disclosure restrictions in favor of the Company.
3.1.3 PROPERTY OF THE COMPANY. All memoranda, notes, lists, records,
engineering drawings, technical specifications and related documents and other
documents or papers (and all copies thereof) relating to the Company, including
such items stored in computer memories, microfiche or by any other means, made
or compiled by or on behalf of the Executive after the date hereof, or made
available to the Executive after the date hereof relating to the Company, its
affiliates or any entity which may hereafter become an affiliate thereof, shall
be the property of the Company, and shall be delivered to the Company promptly
upon the termination of the Executive's employment with the Company or at any
other time upon request; provided, however, that Executive's address books,
diaries, chronological correspondence files and rolodex files shall be deemed to
be property of the Executive.
3.1.4 ORIGINAL MATERIAL. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the Company Business, including without limitation computer
systems, programs and manufacturing techniques, whether or not protectable by
patent or copyright, that have been originated, developed or reduced to practice
by the Executive alone or jointly with others during the Executive's employment
with the Company shall be the property of and belong exclusively to the Company.
The Executive shall promptly and fully disclose to the Company the origination
or development by the Executive of any such material and shall provide the
Company with any information that it may reasonably request about such material.
3.1.5 EMPLOYEES OF THE COMPANY AND ITS AFFILIATES. During the
Restricted Period, the Executive shall not, directly or indirectly, hire or
solicit, or cause others to hire or solicit, for employment by any person other
than the Company or any affiliate or successor thereof, any employee of the
Company and its affiliates or successors or encourage any such employee to leave
his employment.
3.1.6 CUSTOMERS OF THE COMPANY. During the Restricted Period, the
Executive shall not, except by reason of and in his capacity as an officer of
the Company, directly or indirectly, request or advise a customer of the Company
or its subsidiaries to curtail or cancel such customer's business relationship
with the Company.
3.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches, or
threatens to commit a breach of, any of the provisions contained in Section 3.1
of this Agreement (the "Restrictive Covenants"), the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
3.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed
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<PAGE>
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company.
3.2.2 ACCOUNTING. The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Executive as
the result of any action constituting a breach of the Restrictive Covenants.
3.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in duration and
geographical scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect without regard to the invalid portions.
3.4 BLUE-PENCILLING. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope or such provision, such court shall have the
power to reduce the duration or scope of such provision, as the case may be,
and, in its reduced form, such provision shall then be enforceable.
3.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the Executive
intend to and hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the geographical scope of such
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company that such determination
not bar or in any way affect the right of the Company to the relief provided
above in the courts of any other jurisdiction within the geographical scope of
such Restrictive Covenants, as to breaches of such Restrictive Covenants in such
other respective jurisdictions, such Restrictive Covenants as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
4. TERMINATION.
4.1 TERMINATION UPON DEATH. If the Executive dies during the Term,
this employment Agreement shall terminate, provided, however, that in any such
event, the company shall pay to the Executive, or to his estate, any portion of
the Annual Salary that shall have been earned by the Executive prior to the
termination but not yet paid, any Benefits that have vested in the Executive at
the time of such termination as a result of his participation in any of the
Company's benefit plans shall be paid to the Executive, or to his estate or
designated beneficiary, in accordance with the provisions of such plan; and the
company shall reimburse the Executive, or his estate, for any expenses with
respect to which the Executive is entitled to reimbursement pursuant to Section
2.6 of this Agreement, and the Executive's right to indemnification, payment or
reimbursement pursuant to Section 6 of this Agreement shall not be affected by
such termination and shall continue in full force and effect, both with respect
to proceedings that are threatened, pending or completed at the date of such
termination and with respect to proceedings that are threatened, pending or
completed after that date.
4.2 TERMINATION WITH CAUSE. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by serving
notice, effective on
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<PAGE>
or after the date of service of such notice as specified therein, to terminate
the Executive's employment under this Agreement and discharge the Executive with
Cause. If such right is exercised, the Company's obligation to the Executive
shall be limited solely to the payment of unpaid Annual Salary accrued, together
with unpaid Incentive Bonus, if any, and Benefits vested up to the effective
date specified in the Company's notice of termination. As used in this
Agreement, the term "Cause" shall mean and include (i) chronic alcoholism or
controlled substance abuse as determined by a doctor mutually acceptable to the
Company and the Executive, (ii) an act of proven fraud or dishonesty on the part
of the Executive with respect to the Company or its subsidiaries; (iii) knowing
and material failure by the Executive to comply with material applicable laws
and regulations relating to the business of the Company or its subsidiaries;
(iv) the Executive's material and continuing failure to perform (as opposed to
unsatisfactory performance) his duties hereunder or a material breach by the
Executive of this Agreement except, in each case, where such failure or breach
is caused by the illness or other similar incapacity or disability of the
Executive; or (v) conviction of a misdemeanor involving moral turpitude or a
felony. Prior to the effectiveness of termination for Cause under subclause (i),
(ii), (iii) or (iv) above, the Executive shall be given 30 days' prior notice
from the Board specifically identifying the reasons which are alleged to
constitute cause from any termination hereunder and an opportunity to be heard
by the Board in the event Executive disputes such allegations.
4.3 TERMINATION WITHOUT CAUSE. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by serving
notice, effective on or after the date of service of such notice as specified
therein, to terminate the Executive's employment under this Agreement and
discharge the Executive without Cause. If the Executive is terminated during the
Term without Cause (including any termination which is deemed to be a
constructive termination without Cause under Section 4.6 hereof), the company's
obligation to the Executive shall be limited solely to the payment, at the times
and upon the terms provided for herein, of the greater of (i) the Executive's
Annual Salary and Incentive Bonus for the number of full months remaining in the
Term of this Agreement (assuming no automatic extension of the Term) had the
Executive not been so terminated and (ii) the Executive's Annual Salary for a
period of twelve months, in each case based on the Annual Salary of the
Executive in effect on the date of termination (or, if the Company has reduced
the Executive's Annual Salary in breach of this Agreement, the Executive's
Annual Salary before such reduction) and, in the case of clause (i), the average
Incentive Bonus received by the Executive for the immediately preceding two
fiscal years, together with all unpaid Incentive Bonus and Benefits awarded or
accrued up to the date of termination. If the Executive is terminated after he
has received one Incentive Bonus but before he has received two, the Incentive
Bonus in clause (i) shall be based on the amount of that one Incentive Bonus; if
he has not yet received an Incentive Bonus, it shall be based on the maximum
Incentive bonus (i.e., one half of the Annual Salary). In the event of a
termination by the Company without Cause within 180 days after the Change of
Control (as hereinafter defined), including a constructive termination without
Cause pursuant to Section 4.6, the amounts due to the Executive pursuant to this
Section 4.3 shall be due and payable in one lump-sum payment within 60 days
after such termination. In all other cases, any amounts due to the Executive
pursuant to this Section 4.3 shall be due and payable as and when they would
have become due and payable absent such termination.
4.4 TERMINATION BY THE EXECUTIVE. Any termination of this Agreement by
the Executive during the Term, except such termination as is deemed to be a
constructive
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<PAGE>
termination without Cause by the Company under Section 4.6 of this Agreement,
shall be deemed to be a breach of the terms of this Agreement for the purposes
of Section 3.1.1 hereof and shall entitle the Company to discontinue payment of
all Annual Salary, Incentive Bonuses and Benefits accruing from and after the
date of such termination.
4.5 TERMINATION UPON DISABILITY. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to practice
medicine in the United States who is mutually acceptable to the Company and the
Executive or his closest relative if he is not then able to make such a choice,
so that the Executive is unable substantially to perform his services hereunder
for (i) a period of four consecutive months, or (ii) for shorter periods
aggregating six months during any twelve-month period, the company may at any
time after the last day of the four consecutive months of disability or the day
on which the shorter periods of disability equal an aggregate of six months, by
written notice to the Executive, terminate the Executive's employment hereunder
and discontinue payments of the Annual Salary, Incentive Bonuses and Benefits
accruing from and after the date of such termination. The Executive shall be
entitled to the full compensation payable to him hereunder for periods of
disability shorter than the periods specified in clauses (i) and (ii) of the
previous sentence.
4.6 CONSTRUCTIVE TERMINATION WITHOUT CAUSE. Notwithstanding any other
provision of this Agreement, the Executive's employment under this Agreement may
be terminated during the Term by the Executive, which shall be deemed to be
constructive termination by the Company without Cause, if one of the following
events shall occur without the consent of the Executive: (i) a failure to elect
or reelect or to appoint or reappoint the Executive to the office of Vice
President -- International Operations of the Company or other material change by
the Company of the Executive's functions, duties or responsibilities which
change would reduce the ranking or level, dignity, responsibility, importance or
scope of the Executive's position with the Company from the position and
attributes thereof described in Section 1 above; (ii) the assignment or
reassignment by the Company of the Executive to another place of employment more
than 50 miles from the Executive's principal place of residence in the Houston,
Texas, metropolitan area; (iii) the liquidation, dissolution, consolidation or
merger of the Company, or transfer of all or substantially all of its assets,
other than a transaction in which a successor corporation with a net worth at
least equal to that of the Company assumes this Agreement and all obligations
and undertakings of the Company hereunder; (iv) a reduction in the Executive's
fixed salary; (v) a Change of Control as hereinafter defined; (vi) the failure
of the company to continue to provide the Executive with office space, related
facilities and secretarial assistance that are commensurate with the Executive's
responsibilities to and position with the Company; (vii) the notification by the
Company of the Company's intention not to observe or perform one or more of the
obligations of the Company under this Agreement; (viii) the failure by the
Company to indemnify, pay or reimburse the Executive at the time and under the
circumstances required by Section 6 of this Agreement; (ix) the occurrence of
any other material breach of this Agreement by the Company or any of its
subsidiaries; or (x) the delivery of notice by the Company in accordance with
Section 1.1 hereof that it desires to terminate the Agreement, but only if such
notice is given before the Term has been automatically extended three times. Any
such termination shall be made by written notice to the Company, specifying the
event relied upon for such termination and given within 60 days after such
event. Any constructive termination shall be effective 60 days after the date
the Company has been given such written notice setting forth the grounds of such
termination with
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specificity; provided, however, that Executive shall not be entitled to
terminate this Agreement in respect of any of the grounds set forth above if
within 60 days after such notice the action constituting such ground for
termination is no longer continuing. A constructive termination by the Company
without Cause shall terminate the Restrictive Period hereunder.
4.7 For the purpose hereof, a "Change of Control of the Company" shall
be deemed to have occurred if after the effective date (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in rule 13d-3 under the Securities Exchange Act
of 1934 (the "Act")), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least a majority of the
members of the Board in office immediately prior to such person attaining such
percentage interest; (ii) there occurs a proxy contest or a consent
solicitation, or the Company is a party to a merger, consolidation, sale of
assets, plan of liquidation or other reorganization not approved by at least a
majority of the members of the Board in office, as a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter; or (iii) during any
period of two consecutive years, other than as a result of an event described in
clause (ii) of this Section 4.7, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least a majority of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board.
5. INSURANCE. The Company may, from time to time, apply for and take out,
in its own name and at its own expense, naming itself or one or more of its
affiliates as the designated beneficiary (which it may change from time to
time), policies for life, health, accident, disability or other insurance upon
the Executive in any amount or amounts that it may deem necessary or appropriate
to protect its interest. The Executive agrees to aid the Company in procuring
such insurance by submitting to medical examinations and by filling out,
executing and delivery such applications and other instruments in writing as may
reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
6. INDEMNIFICATION.
6.1 The Company shall, to the extent not prohibited by law, indemnify
the Executive if he is made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Company to procure a judgment in its favor (hereinafter a
"Proceeding"), by reason of the fact that the Executive is or was a director or
officer of the Company, or is or was serving in any capacity at the request of
the Company for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, fines, penalties,
excise taxes, amounts paid in settlement and costs, charges and expenses
(including attorneys' fees and disbursements) paid or incurred in connection
with any such Proceeding.
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6.2 The Company shall, from time to time, reimburse or advance to the
Executive the funds necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceeding in advance of the
final disposition of such Proceeding; PROVIDED, HOWEVER, that, if required by
the Texas Business Corporation Act, such expenses incurred by or on behalf of
the Executive may be paid in advance of the final disposition of a Proceeding
only upon receipt by the Company of an undertaking, by or on behalf of the
Executive, to repay any such amount so advanced if it shall ultimately be
determined by final judicial decisions from which there is no further right of
appeal that the Executive is not entitled to be indemnified for such expenses.
6.3 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall not be deemed
exclusive of any other rights which the Executive may now or hereafter have
under any law, by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
6.4 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall continue as
to the Executive after he has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators of the Executive.
6.5 The Company shall purchase and maintain director and officer
liability insurance on such terms and providing such coverage as the Board
determines is appropriate, and the Executive shall be covered by such insurance
on the same basis as the other directors and executive officers of the Company.
6.6 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall be
enforceable by the Executive in any court of competent jurisdiction. The burden
of proving that such indemnification or reimbursement or advancement of expenses
is not appropriate shall be on the Company. Neither the failure of the Company
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Company
(including its board of directors, independent legal counsel, or its
stockholders) that the Executive is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that the Executive is not so entitled. The
Executive shall also be indemnified for any expenses incurred in connection with
successfully establishing his right to such indemnification or reimbursement or
advance of expenses, in whole or in part, in any such proceeding.
6.7 If the Executive serves (1) another corporation of which a
majority of the shares entitled to vote in the election of its directors is held
by the Company, or (2) any employee benefit plan of the company or any
corporation referred to in clause (1), in any capacity, then he shall be deemed
to be doing so at the request of the Company.
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6.8 The right to indemnification or reimbursement or advancement of
expenses shall be interpreted on the basis of the applicable law in the effect
at the time of the occurrence of the event or events giving rise to the
applicable Proceeding.
7. OTHER PROVISIONS.
7.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
(i) "affiliate" with respect to the Company means any other
person controlled by or under common control with the
Company but shall not include any stockholder or
director of the Company, as such.
(ii) "person" means any individual, corporation,
partnership, firm, joint Company, association,
joint-stock company, trust, unincorporated
organization, governmental or regulatory body or other
entity.
(iii) "subsidiary" means any corporation 50% or more of the
voting securities of which are owned directly or
indirectly by the Company.
7.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, on the date of actual receipt thereof, as follows:
(i) if to the Company, to:
DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attention:
with a copy to:
Parson & Brown
666 Third Avenue
New York, New York 10017
Attention: William R. Ziegler, Esq.
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<PAGE>
(ii) if to the Executive, to:
Forrest M. Conley, Jr.
2212 Amberly Court
Houston, Texas 77063
Any party may change its address for notice hereunder by notice to the other
party hereto.
7.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
7.4 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms and conditions hereof may be
waived, only by a written instrument signed by the parties or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. Nor shall any waiver on the part of any party of any such right, power
or privilege hereunder, nor any single or partial exercise of any right, power
or privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof) where the employment of the Executive shall be
deemed, in part, to be performed and enforcement of this Agreement or any action
taken or held with respect to this Agreement shall be taken in the courts of
appropriate jurisdiction in Houston, Texas.
7.6 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by the Executive and may be assigned by the
Company (subject to Section 4.6 (iii) hereof) only to a successor by merger or
purchasers of substantially all of the assets of the Company.
7.7 COUNTERPARTs. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
7.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
7.9 NO PRESUMPTION AGAINST INTERESt. This Agreement has been
negotiated, drafted, edited and reviewed by the respective parties, and
therefore, no provision arising directly or indirectly herefrom shall be
construed against any party as being drafted by said party.
7.10 VALIDITY CONTEST. The Company shall promptly pay any and all
legal fees and expenses incurred by the Executive from time to time as a direct
result of the Company's contesting the due execution, authorization, validity or
enforceability of this Agreement.
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7.11 BINDING AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon the Company and its respective successors and assigns and
the Executive and his legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DI INDUSTRIES, INC.
By /s/ T.P. RICHARDS
Name: T. P. Richards
Title: President and CEO
EXECUTIVE
/s/ FORREST M. CONLEY, JR.
Forrest M. Conley, Jr.
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DI INDUSTRIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") made as of
September 17, 1996 by and between DI INDUSTRIES, INC., a corporation organized
under the laws of the State of Texas (the "Corporation"), and FORREST M. CONLEY,
JR., an individual residing in the State of Texas (the "Optionee");
WITNESSETH:
WHEREAS, as an inducement to the Optionee to enter into a contract of
employment with the Corporation under the terms of an employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to provide Optionee with additional incentive to
further the business of the Corporation, the Corporation has agreed to grant the
Optionee options to purchase shares of common stock, $0.10 par value ("Common
Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement the Corporation intends to carry
out the purposes set forth in the 1996 Employee stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective as of July 29, 1996 and the shareholders of
the Corporation effective as of August 27, 1996; and
WHEREAS, it is intended that the options granted to Optionee pursuant to
this Agreement constitute incentive stock options under Section 422 of the
Internal Revenue code of 1986, as amended (the "Code"); and
WHEREAS, the Corporation and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option") to
purchase all or any part of an aggregate number of 150,000 shares of Common
Stock (such shares, as increased or decreased in accordance with Section 8
hereof, being referred to hereinafter as the "Option Shares") at an exercise
price of $1.750 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares on December 31, 1996, as to an
additional twenty percent (20%) of the Option Shares, one (1) year after the
date of this Agreement, as to an additional twenty percent (20%) of the Option
Shares, two (2) years after the date of this Agreement, as to an additional
twenty percent
<PAGE>
(20%) of the Option Shares, three (3) years after the date of this Agreement,
until the fourth anniversary of the date of this Agreement, after which time the
Option shall be exercisable in full. The Option shall expire and terminate as to
any Option Shares not purchased by the Optionee on or before the tenth
anniversary of the date of this Agreement (the "Expiration Date"), subject to
earlier termination as set forth herein.
Except as provided in Section 10 hereof, the Option may not be exercised at
any time unless the Optionee shall have been in the continuous employ of the
Corporation, or a parent or a subsidiary corporation, from the date hereof to
the date of the exercise of the Option.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to Annex I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the Optionee
is entitled to purchase, which Exercise Price must be in the form of (a) cash or
a cashier's or certified check payable to the order of the Corporation, or (b)
the tender to the Corporation of such number of shares of Common Stock owned by
the Optionee having an aggregate fair market value as of the date of exercise
that is not greater than the total Exercise Price for the shares of Common stock
with respect to which the Option is being exercised and by paying the remaining
amount of the Exercise Price.
4. TRANSFERABILITY OF OPTIOn. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 10
of this Agreement, the Option shall be exercisable (i) only by the Optionee
during his lifetime, or (ii) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
5. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.
6. SECURITIES LAW REQUIREMENTS; LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and
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<PAGE>
agrees that, unless issued pursuant to an effective registration statement under
the Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
BLUE SKY LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED OR
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY
THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE,
ASSIGNMENT OR TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY
THE TERMS OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE
CORPORATION, DATED JULY 29, 1996, WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND A COPY OF WHICH WILL
BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
7. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Corporation to the Optionee of a stock certificate representing such
Option Shares. Except as otherwise provided in Section 8 hereof, the Optionee
shall not be entitled to any dividends, cash or otherwise, or any adjustment of
the Option Share for such dividends, if the record date therefor is prior to the
date of issuance of such stock certificate. Upon valid exercise of the Option by
the Optionee, the Corporation agrees to cause a valid stock certificate for the
number of Option Shares then purchased to be issued and delivered to the
Optionee within seven (7) business days thereafter.
8. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way the right
of power of the corporation or its officers, directors and shareholders, as the
case may be, to (i) make or authorize any adjustments, recapitalization,
reorganization or other changes in the capital structure or business of the
Corporation, (ii) participate in any merger or consolidation of the corporation,
(iii) issue any Common stock, bonds, debentures, preferred or prior preference
stock or any other securities affecting the Common Stock or the rights of
holders thereof, (iv) dissolve or liquidate the Corporation, (v) sell or
transfer all or any part of the assets or business of the Corporation, or (vi)
perform any other corporate act or proceedings, whether of a similar character
or otherwise.
(b) If the Corporation merges into or with or consolidates with (such
events collectively referred herein as a "Merger") any corporation or
corporations and is not the
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<PAGE>
surviving corporation, then the surviving corporation may assume the Option or
substitute a new option of the surviving corporation for the Option, provided,
however, that the excess of the aggregate fair market value of the securities
subject to the Option immediately after such assumption, or the new option
immediately after such substitution, over the aggregate Exercise Price of such
shares must be, based upon a good faith determination by the Board of Directors
of the Corporation, not less than the excess of the aggregate fair market value
of the Common Stock subject to the Option immediately before such substitution
or assumption over the aggregate Exercise price of such Common Stock.
(c) In the event that the surviving corporation does not utilize the
provisions of (b) above, or in event of a dissolution or liquidation of the
Corporation, the Corporation shall cause written notice of such Merger or
dissolution or liquidation (and the material terms and conditions thereof) to be
delivered to the Optionee at least ten (10) days prior to the proposed effective
date (the "Effective Date") of such event. The Optionee shall be entitled to
exercise the Option until the Effective Date, or until the Expiration Date if
earlier. To the extent that the merger or liquidation is consummated after the
Effective Date, the Option shall terminate and the Corporation shall have no
further obligations of any type hereunder. The provisions of this paragraph
shall not apply to any merger or reorganization, the principal purpose of which
is to change the jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding, the Corporation shall effect
a subdivision or consolidation of the share of Common stock or other capital
readjustment, the payment of a common stock dividend, or other increase or
reduction of the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then (i) in the event of
an increase in the number of shares of Common Stock outstanding, the number of
Option Shares shall be proportionately increased, and the per share Exercise
Price shall be proportionately reduced, and (ii) in the event of a reduction in
the number of shares of Common Stock outstanding, the number of Option Shares
shall be proportionately reduced, and the per share Exercise Price shall be
proportionately increased. No fractional share of Common Stock shall be issued
upon any such exercise and the Exercise Price shall be appropriately reduced on
account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any class of
securities convertible into shares of stock of any class, including Common
Stock, for cash, property, labor or services rendered, either upon direct sale
or upon the exercise of rights, options, or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Corporation convertible into
such shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Option Shares or the
Exercise Price.
9. REGISTRATION RIGHTS. The Optionee shall have no registration rights with
respect to the Option Shares.
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<PAGE>
10. TERMINATION.
(a) If the Optionee for any reason whatsoever, other than death or
permanent and total disability, as defined in (b) below, ceases to be employed
by the Corporation, or a parent or subsidiary corporation of the Corporation,
and prior to such cessation, the Optionee was employed at all times from the
date of the granting of the Option until the date of such cessation, the Option
must be exercised by the Optionee (to the extent that the Optionee is entitled
to do so at the date of cessation) within three (3) months following the date of
cessation of employment, subject to the Expiration Date; provided, however, that
if the Optionee is terminated for cause (as defined in the Employment
Agreement), the Option will immediately terminate.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while employed by the Corporation or a parent or subsidiary
corporation of the Corporation, and prior to such disability the Optionee was
employed at all times from the date of the granting of the Option until the date
of disability, the Option must be exercised by the Optionee (to the extent that
the Optionee is entitled to do so at the date of disability) at any time within
one (1) year after the date of disability or the Expiration Date, whichever is
earlier.
"Permanently and totally disabled" means being unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months. Such determination of permanent and total disability must be made in
accordance with the requirements of Section 22(e)(3), and applicable
regulations, of the Code, or any other applicable method necessary for the
continued qualification of this Plan under Section 422 of the Code, or any
equivalent successor provision, if applicable. In the absence of any specific
requirements for this determination, the decision of the Corporation, as aided
by any physicians designated by the Corporation shall be conclusive and the
Corporation shall send written notice to the Optionee of the determination that
the Optionee has become permanently and totally disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the Corporation, and prior
to death the Optionee was employed at all times from the date of the granting of
the Option until the date of death, the Option must be exercised (to the extent
that the Optionee is entitled to do so at the date of death) by a legatee or
legatees of the Optionee under the Optionee's will, or by the Optionee's
personal representatives or distributes, at any time within one (1) year after
the date of death or the Expiration Date, whichever is earlier, and if no so
exercised, the Option shall thereupon terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising the
Option granted pursuant to this Agreement beyond the Expiration Date.
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<PAGE>
11. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agrees (i) not to dispose of any Option
Shares within two (2) years after the date of this Agreement nor within one (1)
year after the date of exercise of the Option and (ii) not to dispose of any
Option Shares thereafter without the prior approval of the Corporation unless
such shares have been registered under the Securities Act.
12. NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if earlier, and
regardless of whether actually received (except where receipt is specified in
this Agreement), four (4) days following deposit in a regularly maintained
receptacle for the United States mail, registered or certified, return receipt
requested, postage fully prepaid, addressed to the addressee at its address set
forth below or at such other address as such party may have specified
theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attn: President
If to Optionee: Forrest M. Conley, Jr.
2212 Amberly Court
Houston, Texas 77063
13. TRANSFERABILITY; BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit or, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and the
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
15. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean any present or future corporation which would be a
"parent corporation" or a "subsidiary corporation" of the Corporation, as such
term is defined in Section 425 of the Internal Revenue Code.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
18. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION
DI INDUSTRIES, INC.
By: /s/ T.P. RICHARDS
Name: T.P. Richards
Title: President & CEO
OPTIONEE:
/s/ FORREST M. CONLEY, JR.
Forrest M. Conley, Jr.
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<PAGE>
ACKNOWLEDGMENT OF SPOUSE TO
TERMS OF INCENTIVE STOCK OPTION AGREEMENT
I, Sherry Conley, am the spouse of Forrest M. Conley, Jr. ("Optionee"), and
I am fully aware of, understand, and fully consent and agree to the provisions
of the Incentive stock Option Agreement, dated September 17, 1996 executed by
Optionee and DI Industries, Inc. (The "Corporation"). I understand the binding
effect of this Agreement and its binding effect upon any interest, community or
otherwise, I may now or hereafter own, and I agree that the termination for any
reason of my marital relationship with Optionee shall not have the effect of
removing any stock of the Corporation otherwise subject to the terms of this
Agreement from the coverage hereof.
Signed this day of September 17, 1996.
/s/ SHERRY CONLEY
Sherry Conley
Spouse of Forrest M. Conley, Jr.
<PAGE>
ANNEX I
DI INDUSTRIES, INC.
EXERCISE NOTICE
DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Gentlemen:
I hereby acknowledge that I am acquiring shares ("Shares") of common stock,
$0.10 par value, of DI Industries, Inc. ("Corporation') pursuant to that certain
Incentive Stock Option Agreement dated September 17, 1996 (the "Agreement").
I understand that the Shares have not been registered under the Securities
Act of 1933 (the "Act") on the grounds that the transfer to me is exempt from
registration pursuant to Section 4(2) of the Act.
By executing this letter, I represent that I am acquiring the Shares for
investment for my own account and not as a nominee or agent or with a view to,
or for resale in connection with, any distribution of such Shares within the
meaning of the Act. I further represent that I do not have any contract,
undertaking, agreement, or arrangement with any person to sell, transfer or
grant participation in any of the Shares to any third persons.
By executing this letter, I also represent that, unless indicated
otherwise, as of the date of the Agreement I did not own, or was attributed as
owning under the Internal Revenue Code of 1986, stock of the Corporation
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Corporation or of its parent or any subsidiary
corporations.
I understand that I may experience adverse tax consequences if I dispose of
the Shares within two year after the date of the Agreement or dispose of the
Shares within one year from the date of receiving them.
I also understand that I may not dispose of the Shares within two years
after the date of receiving them and that, unless the Shares are then registered
under the Act, that I may only dispose of the Shares thereafter with the prior
written consent of the Corporation unless the Shares have been registered
pursuant to the Act.
<PAGE>
I also understand that, unless the Shares are issued pursuant to an
effective registration statement under the Act, a legend substantially in the
form set below shall be placed on each certificate representing the Shares and
on any substitutes thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
BLUE SKY LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED OR
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY
THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE,
ASSIGNMENT OR TRANSFER."
I also understand that the Corporation may issue stop transfer instructions
to the Corporation's transfer agent, if any, with respect to the Shares or, if
the Corporation transfers its own securities, it may make a notation in the
appropriate records that the Shares cannot be transferred without an opinion of
counsel in the form required by this paragraph.
I also understand that a legend as set forth below shall be placed on each
certificate representing the Shares or any substitutes thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY
THE TERMS OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE
CORPORATION, DATED JULY 29, 1996, WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND A COPY OF WHICH WILL
BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
I understand the nature of the Shares and the financial risks thereof. I do
not desire any further information or data concerning the Corporation.
Very truly yours,
Forrest M. Conley, Jr.
Date:
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 3, 1996, between DI INDUSTRIES,
INC., a Texas corporation (the "Company"), and RONNIE E. McBRIDE (the
"Executive").
The Company desires to employ the Executive and the Executive desires to
accept employment with the Company, on the terms and conditions of this
Agreement.
Accordingly, the parties agree as follows:.
1. EMPLOYMENT. DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY; DUTIES. The Company hereby agrees to
employ the Executive for a term commencing on September 3, 1996, and
expiring at the end of the day on September 2, 1998 (such date, or later
date to which this Agreement is extended in accordance with the terms
hereof, the "Termination Date"), unless earlier terminated as provided in
Article 4 or unless extended as provided herein (the "Term"). The Term
shall automatically be extended on the Termination Date and each
anniversary thereof for successive one-year periods unless either party
notifies the other on or before the date 90 days prior to the Termination
Date that he or it desires to terminate the Agreement. During the Term, the
Executive shall initially serve in the capacity of Vice President -
Operations of the Company and shall also serve in those offices and
directorships of subsidiary corporations or entities of the Company to
which he may from time to time be appointed or elected. During the Term,
the Executive shall devote all reasonable efforts and all of his business
time and services to the Company, subject to the direction of the Board.
The Executive shall not engage in any other business activities except for
passive investments in corporations or partnerships not engaged in the oil
or gas drilling or well servicing business.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive hereby
accepts such employment and shall render the services and perform the
duties described above.
2. COMPENSATION AND OTHER BENEFITS.
2.1 ANNUAL SALARY. The Company shall pay to the Executive an annual
salary at a rate of not less than one hundred fifty thousand dollars
(150,000) per year (the "Annual Salary"), subject to increase at the sole
discretion of the Board of Directors of the Company (the "Board"). The
Annual Salary shall be payable in accordance with the payroll policies of
the Company as from time to time in effect, but in no event less frequently
than once each month, less such deductions as shall be required to be
withheld by applicable law and regulations.
2.2 BONUSES. The Executive may receive, at the sole discretion of the
Board, an incentive bonus with respect to the fiscal years ending during
the term hereof (the "Incentive Bonus"), provided that an Incentive Bonus,
payable in respect of a fiscal year, shall not exceed one-half of the
Annual Salary for such fiscal year.
<PAGE>
2.3 GRANT OF 0PTION. The Company agrees to grant the Executive,
pursuant to the terms of its existing stock option plan or new or amended
stock option plans, options to acquire four hundred thousand (400,000)
shares of the Company's common stock, at an exercise price equal to the
lesser of $1.50 per share and the fair market value of such stock on the
date of grant. The Company agrees to use all reasonable efforts, consistent
with the foregoing, to ensure that a portion of such stock options meets
all requirements for treatment as Incentive Stock Options under the
Internal Revenue Code of 1986, as amended, and that such stock option plan
meets the requirements of Rule 16b-3, promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended. If, to qualify for ISO
treatment, the exercise price of the ISOs is greater than would otherwise
be provided for in this Section 2.3, the exercise price of the options not
eligible for ISO treatment ("NSOs") will be reduced so that the aggregate
exercise price of all such ISOs and NSOs shall equal $600,000 (i.e. $1.50
times 400,000). One-fifth of the ISOs and one-fifth of the NSOs shall vest
on December 31, 1996, and on the first, second, third and fourth
anniversary of the date of grant.
2.4 VACATION POLICY. The Executive shall be entitled to a paid
vacation of three weeks during each year of the Term.
2.5 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Company agrees to
permit the Executive during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance
plan, health program, pension plan, similar benefit plan or other so-called
"fringe benefits" of the Company (collectively, "Benefits") which may be
available to other senior executives of the Company on terms no less
favorable to the Executive than the terms offered to such other executives.
The Company agrees to use its best efforts to obtain immediate coverage for
the Executive upon the commencement of the Term under its existing or newly
adopted medical expense and hospitalization plan for employees without
premium surcharge and without exclusions for disclosed preexisting
conditions. The Executive shall cooperate with the Company in applying for
such coverage, including submitting to a physical exam and providing all
relevant health and personal data.
2.6 GENERAL BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the
Executive during the Term in the performance of the Executive's services
under this Agreement. Such payment shall be made upon presentation of such
documentation as the Company customarily requires of its senior executive
employees prior to making such payments or reimbursements.
2.7 COMPANY CAR, CELLULAR TELEPHONE. The Company shall provide an
automobile, of the Executive's choice, to be used by the Executive during
the Term hereof or until his employment hereunder is terminated. The
purchase price of the automobile shall not exceed $35,000 unless increased
by the Board. If requested by the Executive, the Company will replace the
automobile with a new automobile no less frequently than every three years
during the Term hereof. The Company shall, at its expense, pay any and all
expenses associated with the operation of such company car, including but
not limited to, collision and liability insurance, maintenance and repair
costs, replacement parts, tires, fuel and oil. The Executive may use the
automobile for personal purposes and, to the extent of the value of such
personal usage, the value thereof shall be deemed to be additional
compensation.
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The Company shall also furnish the Executive. with a cellular telephone of
his choice and the Company shall pay all charges in connection with the use
thereof, other than charges for calls not related to Executive's duties
hereunder.
3. NON-COMPETITION.
3.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges that (i)
the Company is currently engaged in the business of owning, managing and
operating onshore drilling and workover rigs for its own account or for
others which are contracted or hired for the purpose of drilling and/or
workover of oil or natural gas wells and from time to time acquiring
working or carried interests in oil and gas wells in connection with, or
incident to, such drilling or workover activities (the "Company Business");
(ii) his work for the Company will give him access to trade secrets of and
confidential information concerning the Company; and (iii) the agreements
and covenants contained in this Agreement are essential to protect the
business and goodwill of the Company. Accordingly, the Executive covenants
and agrees as follows:
3.1.1 NON-COMPLETE. The Executive shall not during the Restricted
Period (as defined below) in the United States or any other place
where the Company and its affiliates conduct operations related to the
Company Business, directly or indirectly (except in the Executive's
capacity as an officer of the Company), (i) engage or participate in
the Company Business; (ii) enter the employ of, or render any other
services to, any person engaged in the Company Business except as
permitted hereunder; or (iii) become interested in any such person in
any capacity, including, without limitation, as an individual,
partner, shareholder, lender, officer, director, principal, agent or
trustee except as permitted hereunder; PROVIDED, HOWEVER, that the
Executive may own, directly or indirectly, solely as an investment,
securities of any person traded on any national securities exchange or
listed on the National Association of Securities Dealers Automated
Quotation System if the Executive is not a controlling person of, or a
member of a group which controls, such person and the Executive does
not, directly or indirectly, own 1% or more of any class of equity
securities, or securities convertible into or exercisable or
exchangeable for 1% or more of any class of equity securities, of
such person. As used herein, the "Restricted Period" shall mean a
period commencing on the date hereof and terminating upon the first to
occur of (a) the date on which the Company terminates or is deemed to
terminate the Executive's employment without Cause, (b) the date the
Executive terminates or is deemed to terminate his employment pursuant
to Section 4.6 hereof, or (c) the date of termination of this
Agreement; PROVIDED, HOWEVER, that if the Company shall have
terminated the Executive's employment for Cause and such Cause in fact
exists or if the Executive shall have terminated his employment with
the Company in breach of the terms of this Agreement, the Restricted
Period shall end twelve months following the termination of the
Executive's employment hereunder.
3.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS. The
Executive acknowledges that the Company has a legitimate and
continuing proprietary interest in the protection of its confidential
information and that it has invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect
confidential information. The Executive agrees that, during and after
the Restricted Period, the Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of himself or
others all confidential matters directly relating to the Company
Business including, without limitation, financial
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information, trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing
plans or strategies, product development techniques or plans, business
acquisition plans, new personnel acquisition plans, technical
processes, designs and design projects, inventions and research
projects of the Company, its affiliates, or any other entity which may
hereafter become an affiliate thereof, learned by the Executive
heretofore or hereafter unless otherwise in the public domain other
than as a result of disclosure by the Executive or unless
independently obtained from third parties not under disclosure
restrictions in favor of the Company.
3.1.3 PROPERTY OF THE COMPANY. All memoranda, notes, lists,
records, engineering drawings, technical specifications and related
documents and other documents or papers (and all copies thereof)
relating to the Company, including such items stored in computer
memories, microfiche or by any other means, made or compiled by or on
behalf of the Executive after the date hereof, or made available to
the Executive after the date hereof relating to the Company, its
affiliates or any entity which may hereafter become an affiliate
thereof, shall be the property of the Company, and shall be delivered
to the Company promptly upon the termination of the Executive's
employment with the Company or at any other time upon request;
PROVIDED HOWEVER, that Executive's address books, diaries,
chronological correspondence files and rolodex files shall be deemed
to be property of the Executive.
3.1.4 ORIGINAL MATERIAL. The Executive agrees that any
inventions, discoveries, improvements, ideas, concepts or original
works of authorship relating directly to the Company Business,
including without limitation computer systems, programs and
manufacturing techniques, whether or not protectable by patent or
copyright, that have been originated, developed or reduced to practice
by the Executive alone or jointly with others during the Executive's
employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully
disclose to the Company the origination or development by the
Executive of any such material and shall provide the Company with any
information that it may reasonably request about such material.
3.1.5 EMPLOYEES OF THE COMPANY AND ITS AFFILIATES. During the
Restricted Period, the Executive shall not, directly or indirectly,
hire or solicit, or cause others to hire or solicit, for employment by
any person other than the Company or any affiliate or successor
thereof, any employee of the Company and its affiliates or successors
or encourage any such employee to leave his employment.
3.1.6 CUSTOMERS OF THE COMPANY. During the Restricted Period, the
Executive shall not, except by reason of and in his capacity as an
officer of the Company, directly or indirectly, request or advise a
customer of the Company or its subsidiaries to curtail or cancel such
customer's business relationship with the Company.
3.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches, or
threatens to commit a breach of, any of the provisions contained in Section
3.1 of this Agreement (the "Restrictive Covenants"), the Company shall have
the following rights and remedies, each of which rights and remedies shall
be independent of the others and severally enforceable, and each of which
is in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
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3.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the
Company and that money damages would not provide an adequate remedy to
the Company.
3.2.2 ACCOUNTING. The right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits derived or received by
the Executive as the result of any action constituting a breach of the
Restrictive Covenants.
3.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in duration and
geographical scope and in all other respects. If any court determines that
any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
portions.
3.4 BLUE-PENCILLING. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, such court shall have the
power to reduce the duration or scope of such provision, as the case may
be, and, in its reduced form, such provision shall then be enforceable.
3.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the Executive
intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope
of such Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company that
such determination not bar or in any way affect the right of the Company to
the relief provided above in the courts of any other jurisdiction within
the geographical scope of such Restrictive Covenants, as to breaches of
such Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
4. TERMINATION.
4.1 TERMINATION UPON DEATH. If the Executive dies during the Term,
this Employment Agreement shall terminate, provided, however, that in any
such event, the Company shall pay to the Executive, or to his estate, any
portion of the Annual Salary that shall have been earned by the Executive
prior to the termination but not yet paid, any Benefits that have vested in
the Executive at the time of such termination as a result of his
participation in any of the Company's benefit plans shall be paid to the
Executive, or to his estate or designated beneficiary, in accordance with
the provisions of such plan; and the Company shall reimburse the Executive,
or his estate, for any expenses with respect to which the Executive is
entitled to reimbursement pursuant to Section 2.6 of this Agreement and the
Executive's right to indemnification, payment or reimbursement pursuant to
Section 6 of this Agreement shall not be affected by such termination and
shall continue in full force and effect, both with respect to proceedings
that are threatened, pending or completed at the date of such termination
and with respect to proceedings that are threatened, pending or completed
after that date.
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4.2 TERMINATION WITH CAUSE. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective on or after the date of service of such notice as
specified therein, to terminate the Executive's employment under this
Agreement and discharge the Executive with Cause. If such right is
exercised, the Company's obligation to the Executive shall be limited
solely to the payment of unpaid Annual Salary accrued, together with unpaid
Incentive Bonus, if any, and Benefits vested up to the effective date
specified in the Company's notice of termination. As used in this
Agreement, the term "Cause" shall mean and include (i) chronic alcoholism
or controlled substance abuse as determined by a doctor mutually acceptable
to the Company and the Executive, (ii) an act of proven fraud or dishonesty
on the part of the Executive with respect to the Company or its
subsidiaries; (iii) knowing and material failure by the Executive to comply
with material applicable laws and regulations relating to the business of
the Company or its subsidiaries; (iv) the Executive's material and
continuing failure to perform (as opposed to unsatisfactory performance)
his duties hereunder or a material breach by the Executive of this
Agreement except, in each case, where such failure or breach is caused by
the illness or other similar incapacity or disability of the Executive; or
(v) conviction of a misdemeanor involving moral turpitude or a felony.
Prior to the effectiveness of termination for Cause under subclause (i),
(ii), (iii) or (iv) above, the Executive shall be given 30 days' prior
notice from the Board specifically identifying the reasons which are
alleged to constitute cause for any termination hereunder and an
opportunity to be heard by the Board in the event Executive disputes such
allegations.
4.3 TERMINATION WITHOUT CAUSE. The Company has the right at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective on or after the date of service of such notice as
specified therein, to terminate the Executive's employment under this
Agreement and discharge the Executive without Cause. If the Executive is
terminated during the Term without Cause (including any termination which
is deemed to be a constructive termination without Cause under Section 4.6
hereof), the Company's obligation to the Executive shall be limited solely
to the payment, at the times and upon the terms provided for herein of the
greater of (i) the Executive's Annual Salary and Incentive Bonus for the
number of full months remaining in the Term of this Agreement (assuming no
automatic extension of the Term) had the Executive not been so terminated
and (ii) the Executive's Annual Salary for a period of twelve months, in
each case based on the Annual Salary of the Executive in effect on the date
of termination (or, if the Company has reduced the Executive's Annual
Salary in breach of this Agreement, the Executive's Annual Salary before
such reduction) and, in the case of clause (i), the average Incentive Bonus
received by the Executive for the immediately preceding two fiscal years,
together with all unpaid Incentive Bonus and Benefits awarded or accrued up
to the date of termination. If the Executive is terminated after he has
received one Incentive Bonus but before he has received two, the Incentive
Bonus in clause (i) shall be based on the amount of that one Incentive
Bonus; if he has not yet received an Incentive Bonus, it shall be based on
the maximum Incentive Bonus (i.e., one half of the Annual Salary). In the
event of a termination by the Company without Cause within 180 days after a
Change of Control (as hereinafter defined), including a constructive
termination without Cause pursuant to Section 4.6 the amounts due to the
Executive pursuant to this Section 4.3 shall be due and payable in one
lump-sum payment within 60 days after such termination. In all other cases,
any amounts due to the Executive pursuant to this Section 4.3 shall be due
and payable as and when they would have become due and payable absent such
termination.
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4.4 TERMINATION BY THE EXECUTIVE. Any termination of this Agreement by
the Executive during the Term, except such termination as is deemed to be a
constructive termination without Cause by the Company under Section 4.6 of
this Agreement shall be deemed to be a breach of the terms of this
Agreement for the purposes of Section 3.1.1 hereof and shall entitle the
Company to discontinue payment of all Annual Salary, Incentive Bonuses and
Benefits accruing from and after the date of such termination.
4.5 TERMINATION UPON DISABILITY. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to
practice medicine in the United States who is mutually acceptable to the
Company and the Executive or his closest relative if he is not then able to
make such a choice, so that the Executive is unable substantially to
perform his services hereunder for (i) a period of four consecutive months,
or (ii) for shorter periods aggregating six months during any twelve-month
period, the Company may at any time after the last day of the four
consecutive months of disability or the day on which the shorter periods of
disability equal an aggregate of six months, by written notice to the
Executive, terminate the Executive's employment hereunder and discontinue
payments of the Annual Salary, Incentive Bonuses and Benefits accruing from
and after the date of such termination. The Executive shall be entitled to
the full compensation payable to him hereunder for periods of disability
shorter than the periods specified in clauses (i) and (ii) of the previous
sentence.
4.6. CONSTRUCTIVE TERMINATION WITHOUT CAUSE. Notwithstanding any other
provision of this Agreement, the Executive's employment under this
Agreement may be terminated during the Term by the Executive, which shall
be deemed to be constructive termination by the Company without Cause, if
one of the following events shall occur without the consent of the
Executive: (i) a failure to elect or reelect or to appoint or reappoint the
Executive to the office of Vice President - Operations of the Company or
other material change by the Company of the Executive's functions, duties
or responsibilities which change would reduce the ranking or level,
dignity, responsibility, importance or scope of the Executive's position
with the Company from the position and attributes thereof described in
Section 1 above; (ii) the assignment or reassignment by the Company of the
Executive to mother place of employment more than 50 miles from the
Executive's principal place of residence in the Houston, Texas,
metropolitan area; (iii) the liquidation, dissolution, consolidation or
merger of the Company, or transfer of all or substantially all of its
assets, other than a transaction in which a successor corporation with a
net worth at least equal to that of the Company assumes this Agreement and
all obligations and undertakings of the Company hereunder; (iv) a reduction
in the Executive's fixed salary; (v) a Change of Control as hereinafter
defined; (vi) the failure of the Company to continue to provide the
Executive with office space, related facilities and secretarial assistance
that are commensurate with the Executive's responsibilities to and position
with the Company; (vii) the notification by the Company of the Company's
intention not to observe or perform one or more of the obligations of the
Company under this Agreement; (viii) the failure by the Company to
indemnify, pay or reimburse the Executive at the time and under the
circumstances required by Section 6 of this Agreement; (ix) the occurrence
of any other material breach of this Agreement by the Company or any of its
subsidiaries; or (x) the delivery of notice by the Company in accordance
with Section 1.1 hereof that it desires to terminate the Agreement, but
only if such notice is given before the Term has been automatically
extended three times. Any such termination shall be made by written notice
to the Company, specifying
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the event relied upon for such termination and given within 60 days after
such event. Any constructive termination shall be effective 60 days after
the date the Company has been given such written notice setting forth the
grounds for such termination with specificity; provided, HOWEVER, that
Executive shall not be entitled to terminate this Agreement in respect of
any of the grounds set forth above if within 60 days after such notice the
action constituting such ground for termination is no longer continuing. A
constructive termination by the Company without Cause shall terminate the
Restrictive Period hereunder.
4.7 For the purposes hereof, a "Change of Control of the Company"
shall be deemed to have occurred if after the effective date (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Act")), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities without the prior
approval of at least a majority of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii)
there occurs a proxy contest or a consent solicitation, or the Company is a
party to a merger, consolidation, sale of assets, plan of liquidation or
other reorganization not approved by at least a majority of the members of
the Board in office, as a consequence of which members of the Board in
office immediately prior to such transaction or event constitute less than
a majority of the Board thereafter; or (iii) during any period of two
consecutive years, other than as a result of an event described in clause
(ii) of this Section 4.7, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of such period) cease for any
reason to constitute at least a majority of the Board.
5. INSURANCE. The Company may, from time to time, apply for and take out,
in its own name and at its own expense, naming itself or one or more of its
affiliates as the designated beneficiary (which it may change from time to
time), policies for life, health, accident, disability or other insurance upon
the Executive in any amount or amounts that it may deem necessary or appropriate
to protect its interest. The Executive agrees to aid the Company in procuring
such insurance by submitting to medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
6. INDEMNIFICATION.
6.1 The Company shall, to the extent not prohibited by law, indemnify
the Executive if he is made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Company to procure a judgment in its favor (hereinafter a
"Proceeding") by reason of the fact that the Executive is or was a director
or officer of the Company, or is or was serving in any capacity at the
request of the Company for any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against
judgments, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges
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and expenses (including attorneys' fees and disbursements) paid or incurred
in connection with any such Proceeding.
6.2 The Company shall, from time to time, reimburse or advance to the
Executive the funds necessary for payment of expenses, including attorneys'
fees and disbursements, incurred in connection with any Proceeding in
advance of the final disposition of such Proceeding; PROVIDED, HOWEVER, if
required by the Texas Business Corporation Act, such expenses incurred by
or on behalf of the Executive may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Company of an
undertaking, by or on behalf of the Executive, to repay any such amount so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right of appeal that the Executive is not
entitled to be indemnified for such expenses.
6.3 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall not be
deemed exclusive of any other rights which the Executive may now or
hereafter have under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
6.4 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall continue
as to the Executive after he has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of
the Executive.
6.5 The Company shall purchase and maintain director and officer
liability insurance on such terms and providing such coverage as the Board
determines is appropriate, and the Executive shall be covered by such
insurance on the same basis as the other directors and executive officers
of the Company.
6.6 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall be
enforceable by the Executive in any court of competent jurisdiction. The
burden of proving that such indemnification or reimbursement or
advancement of expenses is not appropriate shall be on the Company. Neither
the failure of the Company (including its board of directors, independent
legal counsel, or its stockholders) to have made a determination prior to
the commencement of such action that such indemnification or reimbursement
or advancement of expenses is proper in the circumstances nor an actual
determination by the Company (including its board of directors, independent
legal counsel, or its stockholders) that the Executive is not entitled to
such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that the
Executive is not so entitled. The Executive shall also be indemnified for
any expenses incurred in connection with successfully establishing his
right to such indemnification or reimbursement or advancement of expenses,
in whole or in art, in any such proceeding.
6.7 If the Executive serves (1) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held by the Company, or (2) any
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employee benefit plan of the Company or any corporation referred to in
clause (1), in any capacity, then he shall be deemed to be doing so at the
request of the Company.
6.8 The right to indemnification or reimbursement or advancement of
expenses shall be interpreted on the basis of the applicable law in effect
at the time of the occurrence of the event or events giving rise to the
applicable Proceeding.
7. OTHER; PROVISIONS.
7.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
(i) "affiliate" with respect to the Company means any other
person controlled by or under common control with the Company but
shall not include any stockholder or director of the Company, as such.
(ii) "person" means any individual, corporation, partnership,
firm, joint Company, association, joint-stock company, trust,
unincorporated organization, governmental or regulatory body or other
entity.
(iii) "subsidiary" means any corporation 50% or more of the
voting securities of which are owned directly or indirectly by the
Company.
7.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, on the date of actual receipt
thereof, as follows:
(i) if to the Company, to:
DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attention:
with a copy to:
Parson & Brown
666 Third Avenue
New York, New York 10017
Attention: William R. Ziegler, Esq.
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(ii) if to the Executive, to:
Ronnie E. McBride
1407 Pecan Trace Court
Sugarland, Texas 77479
Any party may change its address for notice hereunder by notice to the
other party hereto.
7.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
7.4 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms and conditions hereof may be
waived, only by a written instrument signed by the parties or, in the case
of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof. Nor shall any waiver on the part of any party of any
such right power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder, preclude any other or further
exercise thereof or the exercise of any other right power or privilege
hereunder.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to
the choice of law provisions thereof) where the employment of the Executive
shall be deemed, in part, to be performed and enforcement of this Agreement
or any action taken or held with respect to this Agreement shall be taken
in the courts of appropriate jurisdiction in Houston, Texas.
7.6 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by the Executive and may be assigned by the
Company (subject to Section 4.6 (iii) hereof) only to a successor by merger
or purchasers of substantially all of the assets of the Company.
7.7 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
7.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
7.9 NO PRESUMPTION AGAINST INTEREST. This Agreement has been
negotiated. drafted, edited and reviewed by the respective parties, and
therefore, no provision arising directly or indirectly herefrom shall be
construed against any party as being drafted by said party.
7.10 VALIDITY CONTEST. The Company shall promptly pay any and all
legal fees and expenses incurred by the Executive from time to time as a
direct result of the
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Company's contesting the due execution, authorization, validity or
enforceability of this Agreement
7.11 BINDING AGREEMENT. This Agreement shall inure to the benefit of a
and be binding upon the Company and its respective successors and assigns
and the Executive and his legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DI INDUSTRIES, INC.
By: /s/ IVAR SIEM
Name: Ivar Siem
Title: Chairman of the Board
EXECUTIVE
/s/ RONNIE E. MCBRIDE
Ronnie E. McBride
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DI INDUSTRIES INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREE (this "Agreement") made as of September
3, 1996 by and between DI INDUSTRIES, INC., a corporation organized under the
laws of the State of Texas (the "Corporation"), and RONNIE E. MCBRIDE, an
individual residing in the State of Texas (the "Optionee");
WITNESSETH
WHEREAS, as an inducement to the Optionee to enter into a contract of
employment with the Corporation under the terms of an Employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to provide Optionee with additional incentive to
further the business of the Corporation, the Corporation has agreed to grant the
Optionee options to purchase shares of common stock, $0.1O par value "Common
Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Corporation intends to carry
out the purposes set forth in the 1996 Employee Stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective as of July 29, 1996 and the shareholders of
the Corporation effective as of August 27, 1996; and
WHEREAS, it is intended that the options granted to Optionee pursuant to
this Agreement constitute incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Corporation and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option") to
purchase all or any part of an aggregate number of 300,000 shares of Common
Stock (such shares, as increased or decreased in accordance with Section 8
hereof, being referred to hereinafter as the "Option Shares") at an exercise
price of $1.625 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares on December 31, 1996, as to an
additional twenty percent (20%) of the Option Shares, one (1) year after the
date of this Agreement, as to an additional twenty percent
<PAGE>
(20%) of the Option Shares, two (2) years after the date of this Agreement, as
to an additional twenty percent (20%) of the Option Shares, three (3) years
after the date of this Agreement, until the fourth anniversary of the date of
ties Agreement, after which time the Option shall be exercisable in full. The
Option shall expire and terminate as to any Option $hares not purchased by the
Optionee on or before .the tenth anniversary of the date of this Agreement (the
"Expiration Date"), subject to earlier termination as set forth herein.
Except as provided in Section 10 hereof, the Option may not be exercised at
any time unless the Optionee shall have-been in the continuous employ of the
Corporation, or a parent or a subsidiary corporation, from the date hereof to
the date of the exercise of the Option.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee IS exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to ANNEX I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the Optionee
is entitled to purchase, which Exercise Price must be in the form of (a) cash or
a cashier's or certified check payable to the order of the Corporation, or (b)
the tender to the Corporation of such number of shares of Common Stock owned by
the Optionee having an aggregate fair market value as of the date of exercise
that is not greater than the total Exercise Price for the shares of Common Stock
with respect to which the Option is being exercised and by paying the remaining
amount of the Exercise Price.
4. TRANSFERABILITY OF OPTION. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 10
of this Agreement, the 0ption shall be exercisable (i) only by the Optionee
during his-lifetime, or (H) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
5. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with A view toward resale or distribution.
6. SECURITIES LAW REQUIREMENTS: LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities AS defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, AS now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and
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<PAGE>
agrees that, unless issued pursuant to an effective registration statement under
the Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY STATE, AND MAY
NOT BE SOLD, AS SIGNED OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON
RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE, ASSIGNMENT OR
TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS OF
THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY 29,
1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND A
COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
7. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Corporation to the Optionee of a stock certificate representing such
Option Shares. Except as otherwise provided in Section 8 hereof, the Optionee
shall not be entitled to any dividends, cash or otherwise, or any adjustment of
the Option Shares for such dividends, if the record date therefor is prior to
the date of issuance of such stock certificate. Upon valid exercise of the
Option by the Optionee, the Corporation agrees to cause a valid stock
certificate for the number of Option shares then purchased to be issued and
delivered to the Optionee within seven (7) business days thereafter.
8. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way the right
or power of the Corporation or its officers, directors and shareholders, as
the case may be, to (i) make or authorize any adjustments,
recapitalizations, reorganizations or other changes in the capital
structure or business of the Corporation (ii) participate in any merger or
consolidation of the Corporation, (iii) issue any Common Stock, bonds,
debentures, preferred or prior preference stock or any other securities
affecting the Common Stock or the rights of holders thereof, (iv) dissolve
or liquidate the Corporation, (v) sell or transfer all or any part of the
assets or business of the Corporation or (vi) perform any other corporate
act or proceedings, whether of a similar character or otherwise.
(b) If the Corporation merges into or with or consolidates with (such
events collectively referred herein as a "Merger") any corporation or
corporations and is not the
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<PAGE>
surviving corporation, then the surviving corporation may assume the Option
or substitute a new option of the surviving corporation for the Option;
provided, however, that the excess of the aggregate fair market value of
the securities subject to the Option immediately after such assumption, or
the new option immediately after such substitution, over the aggregate
Exercise Price of such shares must be, based upon a good faith
determination by the Board of Directors of the Corporation, not less than
the excess of the aggregate fair market value of the Common Stock subject
to the Option immediately before such substitution. or assumption over the
aggregate Exercise Price of such Common Stock.
(c) In the event that the surviving corporation does not utilize the
provisions of (b) above, or in the event of a dissolution or liquidation of
the Corporation, the Corporation shall cause written notice of such Merger
or dissolution or liquidation (and the material terms and conditions
thereof) to be delivered to the Optionee at least ten (10) days prior to
the proposed effective date (the "Effective Date") of such event. The
Optionee shall be entitled to exercise the Option until the Effective Date,
or until the Expiration Date if earlier. To the extent that the Merger or
liquidation is consummated after the Effective Date, the Option shall
terminate and the Corporation shall have no further obligations of any type
hereunder. The provisions of this paragraph shall not apply to any merger
or reorganization, the principal purpose of which is to change the
jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding the Corporation shall effect a
subdivision or consolidation of the shares of Common Stock or other capital
readjustment, the payment of a common stock dividend, or other increase or
reduction of the number of shares of Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (i) in
the event of an increase in the number of shares of Common Stock
outstanding, the number of Option Shares shall be proportionately
increased, and the per share Exercise Price shall be proportionately
reduced, and (ii) in the event of a reduction in the number of shares of
Common Stock outstanding, the number of Option Shares shall be
proportionately reduced, and the per share Exercise Price shall be
proportionately increased. No fractional share of Common Stock shall be
issued upon any such exercise and the Exercise Price shall be appropriately
reduced on account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any class of
securities convertible into shares of stock of any class, including Common
Stock, for cash, property, labor or services rendered, either upon direct
sale or upon the exercise of rights, options, or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of
Option Shares or the Exercise Price.
9. REGISTRATION RIGHTS. The Optionee shall have no registration rights with
respect to the Option Shares.
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<PAGE>
10. TERMINATION.
(a) If the Optionee for any reason whatsoever, other than death or
permanent and total disability, as defined in (b) below, ceases to be
employed by the Corporation, or a parent or subsidiary corporation of the
Corporation, and prior to such cessation, the Optionee was employed at all
times from the date of the granting of the Option until the date of such
cessation, the Option must be exercised by the 0ptionee (to the extent that
the Optionee is entitled to do so at the date of cessation) within three
(3) months following the date of cessation of employment, subject to the
Expiration Date; provided, however, that if the Optionee is terminated for
cause (as defined in the Employment Agreement), the Option option will
immediately terminate.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while employed by the, Corporation or a parent or
subsidiary corporation of the Corporation, and prior to such disability the
Optionee was employed at all times from the date of the granting of the
Option until the date of disability, the Option must be exercised by the
Optionee (to the extent that the Optionee is entitled to do so at the date
of disability) at any time within one (1) year after the date of disability
or the Expiration Date, whichever is earlier.
"Permanently and totally disabled" means being unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months. Such determination of permanent and total
disability must be made in accordance with the requirements of Section
22(e)(3), and applicable regulations, of the Code, or any other applicable
method necessary for the continued qualification of this Plan under Section
422 of the Code, or any equivalent successor provision, if applicable. In
the absence of any specific requirements for this determination, the
decision of the Corporation, as aided by any physicians designated by the
Corporation shall be conclusive Corporation shall send written notice to
the Optionee of the determination that the Optionee has become permanently
and totally disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the Corporation, and
prior to death the Optionee was employed at all times from the date of the
granting of the Option until the date of death, the Option must be
exercised (to the extent that the Optionee is entitled to do so at the date
of death) by a legatee or legatees of the Optionee under the Optionee's
will, or by the Optionee's personal representatives or distributes, at any
time within one (1) year after the date of death or the Expiration Date,
whichever is earlier, and if not so exercised, the Option shall thereupon
terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising the
Option granted pursuant to this Agreement beyond the Expiration Date.
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<PAGE>
11. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agrees (i) not to dispose of any Option
Shares within two (2) years after the date of this Agreement nor within one (1)
year after the date of exercise of the Option and (ii) not to dispose of any
Option Shares thereafter without the prior approval of the Corporation unless
such shares have been registered under the Securities Act.
12. NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if earlier, and
regardless of whether actually received (except where receipt is specified in
this Agreement), four (4) days following deposit in a regularly maintained
receptacle for the United States mail, registered or certified, return receipt
requested, postage fully prepaid, addressed to the addressee at its address set
forth below or at such other address as such party may have specified
theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attn: President
If to Optionee: Ronnie E. McBride
1407 Pecan Trace Court
Sugar Land, Texas 77479
13. TRANSFERABILITY: BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
15. PARENT AND SUBSIDIARY. As used herein the terms "parent" and
"subsidiary" shall mean any present or future corporation which would be a
"parent corporation" or a "subsidiary corporation" of the Corporation, as such
term is defined in Section 425 of the Internal Revenue Code.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
18. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION:
DI INDUSTRIES, INC.
By: /s/ THOMAS P. RICHARDS
Name: THOMAS P. RICHARDS
Title: PRESIDENT AND CEO
OPTIONEE:
/s/ RONNIE E. MCBRIDE
Ronnie E. McBride
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<PAGE>
ACKNOWLEDGMENT OF SPOUSE TO
TERMS OF INCENTIVE STOCK OPTION AGREEMENT
I, KATHY MCBRIDE am the spouse of Ronnie E. McBride, ("Optionee"), and I am
fully aware of, understand, and fully consent and agree to the provisions of the
Incentive Stock-Option Agreement, dated September 3, 1996 executed by Optionee
and DI Industries, Inc. (the "Corporation"). I understand the binding effect of
this Agreement and its binding effect upon any interest, community or otherwise,
I may now or hereafter own, and I agree that the termination for any reason of
any marital relationship with Optionee shall not have the effect of removing any
stock of the Corporation otherwise subject to the terms of this Agreement from
the coverage hereof.
Signed this 3rd day of September, 1996.
/s/ KATHY MCBRIDE
Spouse of Ronnie E. McBride
<PAGE>
ANNEX I
DI INDUSTRIES, INC.
EXERCISE NOTICE
______________, _______
DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Gentlemen:
I hereby acknowledge that I am acquiring ___________shares "Shares") of
common stock $0.10 par value, of DI Industries, Inc. "Corporation") pursuant to
that certain Incentive Stock Option Agreement dated September 3, 1996 (the
"Agreement").
I understand that the Shares have not been registered under the Securities
Act of 1933 (the "Act") on the grounds that the transfer to me is exempt from
registration pursuant to Section 4(2) of the Act.
By executing this letter, I represent that I am acquiring the Shares for
investment for my own account and not as a nominee or agent or with a view to,
or for resale in connection with, any distribution of such Shares,within the
meaning of the Act. I further represent that I do not have any contract,
undertaking, agreement, or arrangement with any person to sell, transfer or
grant participations in any of the Shares to any third persons.
By executing this letter, I also represent that, unless indicated
otherwise, as of the date of the Agreement I did not own, or was attributed as
owning under the Internal Revenue Code of 1986, stock of the Corporation
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Corporation or of its parent or any subsidiary
corporations.
I understand that I may experience adverse tax consequences if I dispose of
the Shares within two years after the date of the Agreement or dispose of the
Shares within one year from the date of receiving them.
I also understand that I may not dispose of the Shares within two years
after the date of receiving them and that, unless the Shares are then registered
under the Act, that I may only dispose of the Shares thereafter with the prior
written consent of the Corporation unless the Shares have been registered
pursuant to the Act.
<PAGE>
I also understand that, unless the Shares are issued pursuant to an
effective registration statement under the Act, a legend substantially in the
form set below shall be placed on each certificate representing the Shares and
on any substitutes thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY STATE, AND MAY
NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON
RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE ASSIGNMENT OR
TRANSFER."
I also understand that the Corporation may issue stop transfer instructions
to the Corporations transfer agent if any, with respect to the Shares or, if the
Corporation transfers its own securities, it may make a notation in the
appropriate records that the Shares cannot be transferred without an opinion of
counsel in the form required by this paragraph.
I also understand that a legend as set forth below shall be placed on each
certificate representing the Shares or any substitutes thereof:
"THE SHARES REPRESENTED BY THE CERTIFICATE ARE GOVERNED BY THE TERMS OF THE
1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY 29, 1996,
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND A COPY OF
WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
I understand the nature of the Shares and the financial risks thereof. I do
not desire any further information or data concerning the Corporation.
Very truly yours,
Ronnie E. McBride
Date:______________________
DI INDUSTRIES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPINION AGREEMENT (this "Agreement") made as of
September 3, 1996, by and between DI INDUSTRIES, INC., a corporation organized
under the laws of the State of Texas (the "Corporation"), and Ronnie E. McBride,
an individual (the "Optionee");
WITNESSETH:
WHEREAS, as an inducement to Optionee to enter into a contract of
employment with the Corporation under the terms of an Employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to further provide the Optionee with additional
incentive to further the business of the Corporation, the Corporation has agreed
to grant the Optionee options to purchase shares of common stock, $0.10 par
value ("Common Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Corporation intends to carry
out the purposes set forth in the 1996 Employee Stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective July 29, 1996 and the shareholders of the
Corporation effective as of August 27, 1996; and
WHEREAS, the Corporation and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option") to
purchase all or any part of an aggregate number of 100,000 shares of Common
Stock (such shares, as increased or decreased in accordance with Section 9
hereof, being referred to hereinafter as the "Option Shares") at an exercise
price of $1.125 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares on December 31, 1996, as to an
additional twenty percent (20%) of the Option Shares one (1) year after the date
of this Agreement, as to an additional twenty percent (20%) of the Option Shares
two (2) years after the date of this Agreement, as to an additional twenty
percent (20%) of the Option Shares three (3) years after the date of this
Agreement, until the fourth anniversary of the date of this Agreement, after
which time the Option shall be exercisable in full. The Option shall expire and
terminate as to any Option Shares not purchased by the Optionee on or before
<PAGE>
the tenth anniversary of the date of this Agreement (the "Expiration Date"),
subject to earlier termination as set forth herein.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to ANNEX I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the Optionee
is entitled to purchase, which Exercise Price must be in the form of (a) cash or
a cashier's or certified check payable to the order of the Corporation, or (b)
the tender to the Corporation of such number of shares of Common Stock owned by
the Optionee having an aggregate fair market value as of the date of exercise
that is not greater than the total Exercise Price for the shares of Common Stock
with respect to which the Option is being exercised and by paying the remaining
amount of the Exercise Price.
4. TRANSFERABILITY OF OPTION. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 11
of this Agreement, the Option shall be exercisable (i) only by the Optionee
during his lifetime, or (ii) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
5. PAYMENT OF TAXES UPON EXERCISE. The Optionee understands and
acknowledges that under currently applicable law, the Optionee may be required
to include in the Optionee's taxable income, at the time of exercise of the
Option, the amount by which the value of the Option Shares purchased (the
"Exercise Shares") exceeds the Exercise Price paid. The Optionee hereby
authorizes the Corporation to withhold Exercise Shares of a value equivalent to
the amount of tax required to be withheld by the Corporation out of any taxable
income derived by the Optionee upon exercise of the Option; provided however,
that the Optionee may, in the alternative, in order to satisfy such withholding
requirement, deliver to the Corporation cash or other shares of Common Stock
owned by the Optionee.
6. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.
7. SECURITIES LAW REQUIREMENTS; LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and agrees
that, unless issued pursuant to an effective registration statement under the
Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
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<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY STATE, AND MAY
NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON
RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE, ASSIGNMENT OR
TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS OF
THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY 29,
1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND A
COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
8. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Corporation to the Optionee of a stock certificate representing such
Option Shares. Except as otherwise provided in Section 9 hereof, the Optionee
shall not be entitled to any dividends, cash or otherwise, or any adjustment of
the Option Shares for such dividends, if the record date therefor is prior to
the date of issuance of such stock certificate. Upon valid exercise of the
Option by the Optionee, the Corporation agrees to cause a valid stock
certificate for the number of Option Shares then purchased to be issued and
delivered to the Optionee within seven (7) business days thereafter.
9. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way the right
or power of the Corporation or its officers, directors and shareholders, as
the case may be, to (i) make or authorize any adjustments,
recapitalizations, reorganizations or other changes in the capital
structure or business of the Corporation, (ii) participate in any merger or
consolidation of the Corporation, (iii) issue any Common Stock, bonds,
debentures, preferred or prior preference stock or any other securities
affecting the Common Stock or the rights of holders thereof, (iv) dissolve
or liquidate the Corporation, (v) sell or transfer all or any part of the
assets or business of the Corporation, or (vi) perform any other corporate
act or proceedings, whether of a similar character or otherwise.
(b) If the Corporation merges into or with or consolidates with (such
events collectively referred herein as a "Merger") any corporation or
corporations and is not the surviving corporation, then the surviving
corporation may assume the Option or substitute a new option of the
surviving corporation for the Option; provided, however, that the excess of
the aggregate fair market value of the securities subject to the Option
immediately after such assumption, or the new option immediately after such
substitution, over the aggregate
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<PAGE>
Exercise Price of such shares must be, based upon a good faith
determination by the Board of Directors of the Corporation, not less than
the excess of the aggregate fair market value of the Common Stock subject
to the Option immediately before such substitution or assumption over the
aggregate Exercise Price of such Common Stock.
(c) In the event that the surviving corporation does not utilize the
provisions of (b) above, or in the event of a dissolution or liquidation of
the Corporation, the Corporation shall cause written notice of such Merger
or dissolution or liquidation (and the material terms and conditions
thereof) to be delivered to the Optionee at least ten (10) days prior to
the proposed effective date (the "Effective Date") of such event. The
Optionee shall be entitled to exercise the Option until the Effective Date,
or until the Expiration Date if earlier. To the extent that the Merger or
liquidation is consummated after the Effective Date, the Option shall
terminate and the Corporation shall have no further obligations of any type
hereunder. The provisions of this paragraph shall not apply to any merger
or reorganization, the principal purpose of which is to change the
jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding, the Corporation shall effect
a subdivision or consolidation of the shares of Common Stock or other
capital readjustment, the payment of a common stock dividend, or other
increase or reduction of the number of shares of Common Stock outstanding,
without receiving compensation therefor in money, services or property,
then (i) in the event of an increase in the number of shares of Common
Stock outstanding, the number of Option Shares shall be proportionately
increased, and the per share Exercise Price shall be proportionately
reduced, and (ii) in the event of a reduction in the number of shares of
Common Stock outstanding, the number of Option Shares shall be
proportionately reduced, and the per share Exercise Price shall be
proportionately increased. No fractional share of Common Stock shall be
issued upon any such exercise and the Exercise Price shall be appropriately
reduced on account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any class of
securities convertible into shares of stock of any class, including Common
Stock, for cash, property, labor or services rendered, either upon direct
sale or upon the exercise of rights, options, or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of
Option Shares or the Exercise Price.
10. REGISTRATION RIGHTS. The Optionee shall have no registration rights
with respect to the Option Shares.
11. TERMINATION.
(a) Except as otherwise provided in this Section 11, if the Optionee
for any reason whatsoever, other than death or permanent and total
disability, as defined in (b) below, ceases to be employed by the
Corporation, or a parent or subsidiary corporation of the Corporation, and
prior to such cessation, the Optionee was employed at all times from the
date of the granting of the Option until the date of such cessation, the
Option must be exercised by the
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Optionee (to the extent that the Optionee is entitled to do so at the date
of cessation) within three (3) months following the date of cessation of
employment, subject to the Expiration Date; provided, however, that if the
Optionee is terminated for cause (as defined in the Employment Agreement),
the Option will immediately terminate. Notwithstanding the foregoing, the
Corporation may, in its sole discretion, extend for a reasonable period the
time in which the Optionee may exercise the Option after the date of
cessation of employment, subject to the Expiration Date.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while employed by the Corporation or a parent or
subsidiary corporation of the Corporation, and prior to such disability the
Optionee was employed at all times from the date of the granting of the
Option until the date of disability, the Option must be exercised by the
Optionee (to the extent that the Optionee is entitled to do so at the date
of disability) at any time within one (1) year after the date of disability
or the Expiration Date, whichever is earlier.
"Permanently and totally disabled" means being unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months. In the absence of any specific requirements
for this determination, the decision of the Corporation, as aided by any
physicians designated by the Corporation shall be conclusive and the
Corporation shall send written notice to the Optionee of the determination
that the Optionee has become permanently and totally disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the Corporation, and
prior to death the Optionee was employed at all times from the date of the
granting of the Option until the date of death, the Option must be
exercised (to the extent that the Optionee is entitled to do so at the date
of death) by a legatee or legatees of the Optionee under the Optionee's
will, or by the Optionee's personal representatives or distributes, at any
time within one (1) year after the date of death or the Expiration Date,
whichever is earlier, and if not so exercised, the Option shall thereupon
terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising the
Option granted pursuant to this Agreement beyond the Expiration Date.
12. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agrees not to dispose of any Option Shares
without the prior approval of the Corporation unless such shares have been
registered under the Securities Act.
13. NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if
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earlier, and regardless of whether actually received (except where receipt is
specified in this Agreement), four (4) days following deposit in a regularly
maintained receptacle for the United States mail, registered or certified,
return receipt requested, postage fully prepaid, addressed to the addressee at
its address set forth below or at such other address as such party may have
specified theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attn: President
If to Optionee: Ronnie E. McBride
1407 Pecan Trace Court
Sugar Land, Texas 77479
14. TRANSFERABILITY; BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
15. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION:
DI INDUSTRIES, INC.
By: /s/ T. P. RICHARDS
Name: T. P. RICHARDS
Title: PRESIDENT AND CEO
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OPTIONEE: /s/ RONNIE E. MCBRIDE
Ronnie E. McBride
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ACKNOWLEDGEMENT OF SPOUSE TO
TERMS OF NON-QUALIFIED STOCK OPTION AGREEMENT
I, KATHY MCBRIDE, am the spouse of Ronnie E. McBride ("Optionee"), and I am
fully aware of, understand, and fully consent and agree to the provisions of the
Non-Qualified Stock Option Agreement, dated September 3, 1996 executed by
Optionee and DI Industries, Inc. (the "Corporation"). I understand the binding
effect of this Agreement and its binding effect upon any interest community or
otherwise, I may now or hereafter own, and I agree that the termination for any
reason of my marital relationship with Optionee shall not have the effect of
removing any stock of the Corporation otherwise subject to the terms of this
Agreement from the coverage hereof.
Signed this 3rd day of September, 1996.
/s/ KATHY MCBRIDE
Spouse of Ronnie E. McBride.
<PAGE>
ANNEX I
DI INDUSTRIES, INC.
EXERCISE NOTICE
_________________, ________
DI Industries,Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Gentlemen:
I hereby acknowledge that I am acquiring ___________ shares ("Shares") of
common stock, $0.10 par value, of DI Industries, Inc. ("Corporation") pursuant
to that certain Non-Qualified Stock Option Agreement dated September , 1996 (the
"Agreement").
I understand that the Shares have not been registered under the Securities
Act of 1933 (the "Act") on the grounds that the transfer to me is exempt from
registration pursuant to Section 4(2) of the Act.
By executing this letter, I represent that I am acquiring the Shares for
investment for my own account and not as a nominee or agent or with a view to,
or for resale in connection with, any distribution of such Shares within the
meaning of the Act. I further represent that I do not have any contract,
undertaking, agreement, or arrangement with any person to sell, transfer or
grant participations in any of the Shares to any third persons.
I understand that, unless the Shares are then registered under the Act, I
may only dispose of the Shares with the prior written consent of the
Corporation.
I also understand that, unless the Shares are issued pursuant to an
effective registration statement under the Act, a legend substantially in the
form set below shall be placed on each certificate representing the Shares and
on any substitutes thereof.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY STATE, AND MAY
NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON
RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED FOR SUCH SALE, ASSIGNMENT OR
TRANSFER."
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I also understand that the Corporation may issue stop transfer instructions
to the Corporation's transfer agent, if any, with respect to the Shares or, if
the Corporation transfers its own securities, it may make a notation in the
appropriate records that the Shares cannot be transferred without an opinion of
counsel in the form required by this paragraph.
I also understand that a legend as set forth below will be placed on each
certificate representing the Shares or any substitutes thereof.
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS OF
THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY 29,
1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND A
COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN REQUEST."
I understand that I may be required to include in my taxable income the
amount by which the value of the Shares exceeds the exercise price paid and I
hereby authorizes the Corporation to withhold Shares of a value equivalent to
the amount of tax required to be withheld by the Corporation out of any taxable
income derived by me; provided, however, that I may, in the alternative, in
order to satisfy such withholding requirement, deliver to the Corporation cash
or other shares of the Corporation's common stock owned by me.
I understand the nature of the Shares and the financial risks thereof. I do
not desire any further information or data concerning the Corporation.
Very truly yours,
Ronnie E. McBride
Date: ____________________
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 01, 1996, between DI INDUSTRIES,
INC., a Texas corporation (the "Company"), and TERRELL L. SADLER (the
"Executive").
The Company desires to employ the Executive and the Executive desires to
accept employment with the Company, on the terms and conditions of this
Agreement.
Accordingly, the parties agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY; DUTIES. The Company hereby agrees to
employ the Executive for a term commencing on October 1, 1996, and expiring
at the end of the day on September 30, 1997 (such date, or later date to
which this Agreement is extended in accordance with the terms hereof, the
"Termination Date"), unless earlier terminated as provided in Article 4 or
unless extended as provided herein (the "Term"). The Term shall
automatically be extended on the Termination Date and each anniversary
thereof for successive one-year periods unless either party notifies the
other on or before the date 90 days prior to the Termination Date that he
or it desires to terminate the Agreement. During the Term, the Executive
shall initially serve in the capacity of Sr. Vice President - Domestic
Operations of the Company and shall also serve in those offices and
directorships of subsidiary corporations or entities of the Company to
which he may from time to time be appointed or elected. During the Term,
the Executive shall devote all reasonable efforts and all of his business
time and services to the Company, subject to the direction of the Board.
The Executive shall not engage in any other business activities except for
passive investments in corporations or partnerships not engaged in the oil
or gas drilling or well serving business.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive hereby
accepts such employment and shall render the services and perform the
duties described above.
2. COMPENSATION AND OTHER BENEFITS.
2.1 ANNUAL SALARY. The Company shall pay to the Executive an annual
salary at a rate of not less than one hundred forty thousand dollars
($140,000) per year (the "Annual Salary"), subject to increase at the sole
discretion of the Board of Directors of the Company (the "Board"). The
Annual Salary shall be payable in accordance with the payroll policies of
the Company as from time to time in effect, but in no event less frequently
than once each month, less such deductions as shall be required to be
withheld by applicable law and regulations.
2.2 BONUSES. The Executive may receive, at the sole discretion of he
Board, an incentive bonus with respect to the fiscal years ending during
the term hereof (the "Incentive Bonus"), provided that an Incentive Bonus,
payable in respect of a fiscal year, shall not exceed one-half of the
Annual Salary for such fiscal year.
2.3 GRANT OF OPTION. The Company agrees to grant the Executive,
pursuant to the terms of its existing stock option plan or new or amended
stock option plans, options to acquire four hundred thousand (400,000)
shares of the Company's common stock, at an exercise price equal to $1.50
per share. The Company agrees to use all reasonable efforts, consistent
with the foregoing, to ensure that a portion of such stock options meets
all requirements for treatment as Incentive Stock Options under the
Internal Revenue Code of 1986, as amended, and that such stock option plan
meets the requirements of Rule 16b-3, promulgated under Section
<PAGE>
16 of the Securities Exchange Act of 1934, as amended. Any such stock
options shall vest in five equal increments over a four-year period and
shall expire ten years after the date of grant. One fifth of the ISOs and
one-fifth of the NSOs shall vest on December 31, 1996, and on the first,
second, third and fourth anniversary of the date of grant.
2.4 VACATION POLICY. The Executive shall be entitled to a paid
vacation of three weeks during each year of the Term.
2.5 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Company agrees to
permit the Executive during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance
plan, health program, pension plan, similar benefit plan or other so-called
"fringe benefits" of the Company (collectively, "Benefits") which may be
available to other senior executives of the Company on terms no less
favorable to the Executive than the terms offered to such other executives.
The Company agrees to use its best efforts to obtain immediate coverage for
the Executive upon the commencement of the Term under its existing or newly
adopted medical expense and hospitalization plan for employees without
premium surcharge and without exclusions for disclosed preexisting
conditions. The Executive shall cooperate with the Company in applying for
such coverage, including submitting to a physical exam and providing all
relevant health and personal data.
2.6 GENERAL BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the
Executive during the Term in the performance of the Executive's services
under this Agreement. Such payment shall be made upon presentation of such
documentation as the Company customarily requires of its senior executive
employees prior to making such payments or reimbursements.
2.7 COMPANY CAR, CELLULAR TELEPHONE. The Company shall provide an
automobile, of the Executive's choice, to be used by the Executive during
the Term hereof or until his employment hereunder is terminated. The
purchase price of the automobile shall not exceed $35,000 unless increased
by the Board. If requested by the Executive, the Company will replace the
automobile with a new automobile no less frequently than every three years
during the Term hereof. The Company shall, at its expense, pay any and all
expenses associated with the operation of such company car, including but
not limited to, collision and liability insurance, maintenance and repair
costs, replacement parts, tires, fuel and oil. The Executive may use the
automobile for personal purposes and, to the extent of the value of such
personal usage, the value thereof shall be deemed to be additional
compensation.
The Company shall also furnish the Executive with a cellular telephone
of his choice and the Company shall pay all charges in connection with the
use thereof, other than charges for calls not related to Executive's duties
hereunder.
3. NON-COMPETITION.
3.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges that (i)
the Company is currently engaged in the business of owning, managing and
operating onshore drilling and workover rigs for its own account or for
others which are contracted or hired for the purpose of drilling and/or
workover of oil or natural gas wells and from time to time acquiring
working or carried interests in oil and gas wells in connection with, or
incident to, such drilling or workover activities (the "Company Business");
(ii) his work for the Company will give him access to trade secrets of and
confidential information concerning the Company; and (iii) the agreements
and covenants contained in this Agreement are essential to protect the
business and goodwill of the Company. Accordingly, the Executive covenants
and agrees as follows:
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3.1.1 NON-COMPETE. The Executive shall not during the Restricted
Period (as defined below) in the United States or any other place
where the Company and its affiliates conduct operations related to the
Company Business, directly or indirectly (except in the Executive's
capacity as an officer of the Company), (i) engage or participate in
the Company Business; (ii) enter the employ of, or render any other
services to, any person engaged in the Company Business except as
permitted hereunder; or (iii) become interested in any such person in
any capacity, including, without limitation, as an individual,
partner, shareholder, lender, officer, director, principal, agent or
trustee except as permitted hereunder; PROVIDED, HOWEVER, that the
Executive may own, directly or indirectly, solely as an investment,
securities of any person traded on any national securities exchange or
listed on the National Association of Securities Dealers Automated
Quotation System if the Executive is not a controlling person of, or a
member of a group which controls, such person and the Executive does
not, directly or indirectly, own 1% or more of any class of equity
securities, or securities convertible into or exercisable or
exchangeable for 1% or more of any class of equity securities, of such
person. As used herein, the "Restricted Period" shall mean a period
commencing on the date hereof and terminating upon the first to occur
of (a) the date on which the Company terminates or is deemed to
terminate the Executive's employment without Cause, (b) the date the
Executive terminates or is deemed to terminate his employment pursuant
to Section 4.6 hereof, or (c) the date of termination of this
Agreement; PROVIDED, HOWEVER, that if the Company shall have
terminated the Executive's employment for Cause and such Cause in fact
exists or if the Executive shall have terminated his employment with
the Company in breach of the terms of this Agreement, the Restricted
Period shall end twelve months following the termination of the
Executive's employment hereunder.
3.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS. The
Executive acknowledges that the Company has a legitimate and
continuing proprietary interest in the protection of its confidential
information and that it has invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect
confidential information. The Executive agrees that, during and after
the Restricted Period, the Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of himself or
others all confidential matters directly relating to the Company
Business including, without limitation, financial information, trade
secrets, customer lists, details of client or consultant contracts,
pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans,
new personnel acquisition plans, technical processes, designs and
design projects, inventions and research projects of the Company, its
affiliates, or any other entity which may hereafter become an
affiliate thereof, learned by the Executive heretofore or hereafter
unless otherwise in the public domain other than as a result of
disclosure by the Executive or unless independently obtained from
third parties not under disclosure restrictions in favor of the
Company.
3.1.3 PROPERTY OF THE COMPANY. All memoranda, notes, lists,
records, engineering drawings, technical specifications and related
documents and other documents or papers (and all copies thereof)
relating to the Company, including such items stored in computer
memories, microfiche or by any other means, made or compiled by or on
behalf of the Executive after the date hereof, or made available to
the Executive after the date hereof relating to the Company, its
affiliates or any entity which may hereafter become an affiliate
thereof, shall be the property of the Company, and shall be delivered
to the Company promptly upon the termination of the Executive's
employment with the Company or at any other time upon request;
PROVIDED, HOWEVER, that Executive's address books, diaries,
chronological correspondence files and rolodex files shall be deemed
to be property of the Executive.
3.1.4 ORIGINAL MATERIAL. The Executive agrees that any
inventions, discoveries, improvements, ideas, concepts or original
works of authorship relating directly to the Company Business,
including without limitation computer systems, programs and
manufacturing
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techniques, whether or not protectable by patent or copyright, that
have been originated, developed or reduced to practice by the
Executive alone or jointly with others during the Executive's
employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully
disclose to the Company the origination or development by the
Executive of any such material and shall provide the Company with any
information that it may reasonably request about such material.
3.1.5 EMPLOYEES OF THE COMPANY AND ITS AFFILIATES. During the
Restricted Period, the Executive shall not, directly or indirectly,
hire or solicit, or cause others to hire or solicit, for employment by
any person other than the Company or any affiliate or successor
thereof, any employee of the Company and its affiliates or successors
or encourage any such employee to leave his employment.
3.1.6 CUSTOMERS OF THE COMPANY. During the Restricted Period, the
Executive shall not, except by reason of and in his capacity as an
officer of the Company, directly or indirectly, request or advise a
customer of the Company or its subsidiaries to curtail or cancel such
customer's business relationship with the Company.
3.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches, or
threatens to commit a breach of, any of the provisions contained in Section
3.1 of this Agreement (the "Restrictive Covenants"), the Company shall have
the following rights and remedies, each of which rights and remedies shall
be independent of the others and severally enforceable, and each of which
is in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
3.2.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the
Company and that money damages would not provide an adequate remedy to
the Company.
3.2.2 ACCOUNTING. The right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits
monies, accruals, increments or other benefits derived or received by
the Executive as the result of any action constituting a breach of the
Restrictive Covenants.
3.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in duration and
geographical scope and in all other respects. If any court determines that
any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
portions.
3.4 BLUE-PENCILLING. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, such court shall have the
power to reduce the duration or scope of such provision, as the case may
be, and, in its reduced form, such provision shall then be enforceable.
3.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the Executive
intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope
of such Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company that
such determination not bar or in any way affect the right of the Company to
the relief provided above in the courts of any other jurisdiction within
the geographical scope of such Restrictive Covenants, as to breaches of
such
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Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
4. TERMINATION.
4.1 TERMINATION UPON DEATH. If the Executive dies during the Term,
this Employment Agreement shall terminate, provided, however, that in any
such event, the Company shall pay to the Executive, or to his estate, any
portion of the Annual Salary that shall have been earned by the Executive
prior to the termination but not yet paid, any Benefits that have vested in
the Executive at the time of such termination as a result of his
participation in any of the Company's benefit plans shall be paid to the
Executive, or to his estate or designated beneficiary, in accordance with
the provisions of such plan; and the Company shall reimburse the Executive,
or his estate, for any expenses with respect to which the Executive is
entitled to reimbursement pursuant to Section 2.6 of this Agreement, and
the Executive's right to indemnification, payment or reimbursement pursuant
to Section 6 of this Agreement shall not be affected by such termination
and shall continue in full force and effect, both with respect to
proceedings that are threatened, pending or completed at the date of such
termination and with respect to proceedings that are threatened, pending or
completed after that date.
4.2 TERMINATION WITH CAUSE. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective on or after the date of service of such notice as
specified therein, to terminate the Executive's employment under this
Agreement and discharge the Executive's with Cause. If such right is
exercised, the Company's obligation to the Executive shall be limited
solely to the payment of unpaid Annual Salary accrued, together with unpaid
Incentive Bonus, if any, and Benefits vested up to the effective date
specified in the Company's notice of termination. As used in this Agreement
the term "Cause" shall mean and include (i) chronic alcoholism or
controlled substance abuse as determined by a doctor mutually acceptable to
the Company and the Executive, (ii) an act of proven fraud or dishonesty on
the part of the Executive with respect to the Company or its subsidiaries;
(iii) knowing and material failure by the Executive to comply with material
applicable laws and regulations relating to the business of the Company or
its subsidiaries; (iv) the Executive's material and continuing failure to
perform (as opposed to unsatisfactory performance) his duties hereunder or
a material breach by the Executive of this Agreement except, in each case,
where such failure or breach is caused by the illness or other similar
incapacity or disability of the Executive; or (v) conviction of a
misdemeanor involving moral turpitude or a felony. Prior to the
effectiveness of termination for Cause under subclause (i), (ii), (iii) or
(iv) above, the Executive shall be given 30 days' prior notice from the
Board specifically identifying the reasons which are alleged to constitute
cause for any termination hereunder and an opportunity to be heard by the
Board in the event Executive disputes such allegations.
4.3 TERMINATION WITHOUT Cause. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective on or after the date of service of such notice as
specified therein, to terminate the Executive's employment under this
Agreement and discharge the Executive without Cause. If the Executive is
terminated during the Term without Cause (including any termination which
is deemed to be a constructive termination without Cause under Section 4.6
hereof), the Company's obligation to the Executive shall be limited solely
to the payment, at the times and upon the terms provided for herein of the
greater of (i) the
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Executive's Annual Salary and Incentive Bonus for the number of full months
remaining in the Term of this Agreement (assuming no automatic extension of
the Term) had the Executive not been so terminated and (ii) the Executive's
Annual Salary for a period of twelve months, in each case based on the
Annual Salary of the Executive in effect on the date of termination (or, if
the Company has reduced the Executive's Annual Salary in breach of this
Agreement the Executive's Annual Salary before such reduction) and, in the
case of clause (i), the average Incentive Bonus received by the Executive
for the immediately preceding two fiscal years, together with all unpaid
Incentive Bonus and Benefits awarded or accrued up to the date of
termination. If the Executive is terminated after he has received one
Incentive Bonus but before he has received two, the Incentive Bonus in
clause (i) shall be based on the amount of that one Incentive Bonus; if he
has not yet received an Incentive Bonus, it shall be based on the maximum
Incentive Bonus (I.E., one half of the Annual Salary). In the event of a
termination by the Company without Cause within 180 days after a Change of
Control (as hereinafter defined), including a constructive termination
without Cause pursuant to Section 4.6, the amounts due to the Executive
pursuant to this Section 4.3 shall be due and payable in one lump-sum
payment within 60 days after such termination. In all other cases, any
amounts due to the Executive pursuant to this Section 4.3 shall be due and
payable as and when they would have become due and payable absent such
termination.
4.4 TERMINATION BY THE EXECUTIVE. Any termination of this Agreement by
the Executive during the Term, except such termination as is deemed to be a
constructive termination without Cause by the Company under Section 4.6 of
this Agreement, shall be deemed to be a breach of the terms of this
Agreement for the purposes of Section 3.1.1 hereof and shall entitle the
Company to discontinue payment of all Annual Salary, Incentive Bonuses and
Benefits accruing from and after the date of such termination.
4.5 TERMINATION UPON DISABILITY. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to
practice medicine in the United States ' who is mutually acceptable to the
Company and the Executive or his closest relative if he is not then able to
make such a choice, so that the Executive is unable substantially to
perform his services hereunder for (i) a period of four consecutive months,
or (ii) for shorter periods aggregating six months during any twelve-month
period, the Company may at any time after the last day of the four
consecutive months of disability or the day on which the shorter periods of
disability equal an aggregate of six months, by written notice to the
Executive, terminate the Executive's employment hereunder and discontinue
payments of the Annual Salary, Incentive Bonuses and Benefits accruing from
and after the date of such termination. The Executive shall be entitled to
the full compensation payable to him hereunder for periods of disability
shorter than the periods specified in clauses (i) and (ii) of the previous
sentence.
4.6 CONSTRUCTIVE TERMINATION WITHOUT CAUSE. Notwithstanding any other
provision of this Agreement, the Executive's employment under this
Agreement may be terminated during the Term by the Executive, which shall
be deemed to be constructive termination by the Company without Cause, if
one of the following events shall occur without the consent of the
Executive: (i) a failure to elect or reelect or to appoint or reappoint the
Executive to the office of Sr. Vice President - Domestic Operations of the
Company or other material change by the Company of the Executive's
functions, duties or responsibilities which change would reduce the ranking
or level, dignity, responsibility, importance or scope of the Executive's
position with the Company from the position and attributes thereof
described in Section 1 above; (ii) the assignment or reassignment by the
Company of the Executive to another place of employment more than 50 miles
from the Executive's principal place of residence in the Houston, Texas,
metropolitan area; (iii) the liquidation, dissolution, consolidation or
merger of the Company, or transfer of all or substantially all of its
assets, other than a transaction in which a successor corporation with a
net worth at least equal to that of the Company assumes this Agreement and
all obligations and undertakings of the Company hereunder; (iv) a reduction
in the Executive's fixed salary; (v) a Change of Control as hereinafter
defined; (vi) the failure of the Company to continue to provide the
Executive with office space, related facilities and secretarial assistance
that are commensurate with the Executive's responsibilities to and position
with the Company; (vii) the notification by the Company of the Company's
intention not to observe or perform one or more of the obligations of
-6-
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the Company under this Agreement; (viii) the failure by the Company to
indemnify, pay or reimburse the Executive at the time and under the
circumstances required by Section 6 of this Agreement; (ix) the occurrence
of any other material breach of this Agreement by the Company or any of its
subsidiaries; or (x) the delivery of notice by the Company in accordance
with Section 1.1 hereof that it desires to terminate the Agreement, but
only if such notice is given before the Term has been automatically
extended three times. Any such termination shall be made by written notice
to the Company, specifying the event relied upon for such termination and
given within 60 days after such event. Any constructive termination shall
be effective 60 days after the date the Company has been given such written
notice setting forth the grounds for such termination with specificity;
PROVIDED, HOWEVER, that Executive shall not be entitled to terminate this
Agreement in respect of any of the grounds set forth above if within 60
days after such notice the action constituting such ground for termination
is no longer continuing. A constructive termination by the Company without
Cause shall terminate the Restrictive Period hereunder.
4.7 For the purposes hereof, a "Change of Control of the Company"
shall be deemed; to have occurred if after the effective date (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Act")), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities without the prior
approval of at least a majority of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii)
there occurs a proxy contest or a consent solicitation, or the Company is a
party to a merger, consolidation, sale of assets, plan of liquidation or
other reorganization not approved by at least a majority of the members of
the Board in office, as a consequence of which members of the Board in
office immediately prior to such transaction or event constitute less than
a majority of the Board thereafter; or (iii) during any period of two
consecutive years, other than as a result of an event described in clause
(ii) of this Section 4.7, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of such period) cease for any
reason to constitute at least a majority of the Board.
5. INSURANCE. The Company may, from time to time, apply for and take out,
in its own name and at its own expense, naming itself or one or more of its
affiliates as the designated beneficiary (which it may change from time to
time), policies for life, health, accident, disability or other insurance upon
the Executive in any amount or amounts that it may deem necessary or appropriate
to protect its interest. The Executive agrees to aid the Company in procuring
such insurance by submitting to medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
6. INDEMNIFICATION.
6.1 The Company shall, to the extent not prohibited by law, indemnify
the Executive if he is made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal administrative or investigative, including an action by or in the
right of the Company to procure a judgment in its favor (hereinafter a
"Proceeding"), by reason of the fact that the Executive is or was a
director or officer of the Company, or is or was serving in any capacity at
the request of the Company for any other
-7-
<PAGE>
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against judgments, fines, penalties, excise taxes,
amounts paid in settlement and costs, charges and expenses (including
attorneys' fees and disbursements) paid or incurred in connection with any
such Proceeding.
6.2 The Company shall, from time to time, reimburse or advance to the
Executive the funds necessary for payment of expenses, including attorneys'
fees and disbursements, incurred in connection with any Proceeding in
advance of the final disposition of such Proceeding; PROVIDED HOWEVER,
that, if required by the Texas Business Corporation Act such expenses
incurred by or on behalf of the Executive may be paid in advance of the
final disposition of a Proceeding only upon receipt by the Company of an
undertaking, by or on behalf of the Executive, to repay any such amount so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right of appeal that the Executive is not
entitled to be indemnified for such expenses.
6.3 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall not be
deemed exclusive of any other rights which the Executive may now or
hereafter have under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
6.4 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall continue
as to the Executive after he has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of
the Executive.
6.5 The Company shall purchase and maintain director and officer
liability insurance on such terms and providing such coverage as the Board
determines is appropriate, and the Executive shall be covered by such
assurance on the same basis as the other directors and executive officers
of the Company.
6.6 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article 6 shall be
enforceable by the Executive in any court of competent jurisdiction. The
burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Company. Neither the failure
of the Company (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Company (including its board of directors, independent
legal counsel, or its stockholders) that the Executive is not entitled to
such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that the
Executive is not so entitled. The Executive shall also be indemnified for
any expenses incurred in connection with successfully establishing his
right to such indemnification or reimbursement or advancement of expenses,
in whole or in part, in any such proceeding.
6.7 If the Executive serves (1) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held by the Company, or (2) any employee benefit plan of the Company or any
corporation referred to in clause (1), in any capacity, then he shall be
deemed to be doing so at the request of the Company.
6.8 The right to indemnification or reimbursement or advancement of
expenses shall be interpreted on the basis of the applicable law in effect
at the time of the occurrence of the event or events giving rise to the
applicable Proceeding.
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<PAGE>
7. OTHER PROVISIONS.
7.1 CERTAIN DEFINITIONS. As used in this Agreement the following terms
have the following meanings unless the context otherwise requires:
(i) "affiliate" with respect to the company means any other
person controlled by or under common control with the Company but
shall not include any stockholder or director of the Company, as such.
(ii) "person" means any individual, corporation, partnership,
joint Company, association, joint-stock company, trust, unincorporated
organization, governmental or regulatory body or other entity.
(iii) "subsidiary" means any corporation 50% or more of the
voting securities of which are owned directly or indirectly by the
Company.
7.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered
personally,.telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission or, if mailed, on the date of actual receipt
thereof, as follows:
(i) if to the Company, to:
DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attention:
with a copy to:
Parson & Brown
666 Third Avenue
New York, New York
Attention: William R. Ziegler, Esq.
(ii) if to the Executive, to:
Terrell L. Sadler
17307 Highland Canyon
Houston, Texas 77095
Any party may change its address for notice hereunder by notice to the
other party hereto.
7.3 ENTIRE AGREEMENT This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, written or oral, with respect thereto.
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<PAGE>
7.4 WAIVERS and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms and conditions hereof may be
waived, only by a written instrument signed by the parties or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. Nor shall any waiver on the part of any party of any such right, power
or privilege hereunder, nor any single or partial exercise of any right, power
or privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
7.5 GOVERNING Law. This Agreement shall be governed by. and construed in
accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof where the employment of the Executive shall be
deemed, in part to be performed and enforcement of this Agreement or any action
taken or held with respect to this Agreement shall be taken in the courts of
appropriate jurisdiction in Houston, Texas.
7.6 ASSIGNMENT This. Agreement and any rights and' obligations hereunder,
may not be assigned by the Executive and may be assigned by the Company (subject
to Section 4.6 (iii) hereof) only to a successor by merger or purchasers of
substantially all of the assets of the Company.
7.7 COUNTERPARTS. This Agreement may be executed in separate counterparts, each
'of which when so executed and delivered shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.8 HEADINGS. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
7.9 NO PRESUMPTION AGAINST Interest. This Agreement has been negotiated
drafted, edited and reviewed by the respective parties, and therefore, no
provision arising directly or indirectly herefrom shall be construed against any
party as being drafted by said party.
7.10 VALIDITY CONTEST. The Company shall promptly pay any and all legal
fees and expenses incurred by the Executive from time to time as a direct result
of the Company's contesting the due execution, authorization, validity or
enforceability of this Agreement.
7.11 BINDING AGREEMENT. This Agreement shall inure to the benefit of and be
binding upon the Company and its respective successors and assigns and the
Executive and his legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
DI INDUSTRIES, INC.
By /s/ T. P. RICHARDS
Name: T. P. Richards
Title: President and CEO
Executive
EXECUTIVE
/s/ TERRELL L. SADLER
Terrell L. Sadler
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DI INDUSTRIES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") made as of
October 1, 1996, by and between DI INDUSTRIES, INC., a corporation organized
under the laws of the State of Texas (the "Corporation"), and TERREL L.
SADLER, an individual (the "Optionee").
WITNESSETH:
WHEREAS, as an inducement to Optionee to enter into a contract of
employment with the Corporation under the terms of an Employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to further provide the Optionee with additional
incentive to further the business of the Corporation, the Corporation has agreed
to grant the Optionee options to purchase shares of common stock, $0.10 par
value ("Common Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Corporation intends to carry
out the purposes set forth in the 1996 Employee Stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective July 29, 1996 and the shareholders of the
Corporation effective as of August 27, 1996; and
WHEREAS, the Corporation and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTIONS. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option")
to purchase all or part of an aggregate number of 100,000 shares of Common Stock
(such shares, as increased or decreased in accordance with Section 9 hereof,
being referred to hereinafter as the "Option Shares") at an exercise price of
$1.50 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares on December 31, 1996, as to an
additional twenty percent (20%) of the Option Shares one (1) year after the date
of this Agreement, as to an additional twenty percent (20%) of the Option Shares
two (2) years after the date of this Agreement, as to an additional twenty
percent (20%) of the Option Shares three (3) years after the date of this
Agreement, until the fourth anniversary of the date of this Agreement, after
which time the Option shall be exercisable in full. The Option shall expire and
terminate as to any Option Shares not purchased by the Optionee on or before the
tenth anniversary of the date of this Agreement (the "Expiration Date"),
subject to earlier termination as set forth herein.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to ANNEX I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the
Optionee is entitled to purchase, which Exercise Price must be in the form of
(a) cash or a cashier's or certified check payable to the order of the
Corporation, or (b) the tender to the Corporation of such number of shares of
Common Stock owned by the Optionee having an aggregate fair market value as of
the date of exercise that is not greater than the total Exercise Price for the
shares of Common Stock with respect to which the Option is being exercised and
by paying the remaining amount of the Exercise Price.
4. TRANSFERABILITY OF OPTION. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 11
of this Agreement, the Option shall be exercisable (i) only by the Optionee
during his lifetime, or (ii) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
<PAGE>
5. PAYMENT OF TAXES UPON EXERCISE. The Optionee understands and
acknowledges that under currently applicable law, the Optionee may be required
to include in the Optionee's taxable income, at the time of exercise of the
Option, the amount by which the value of the Option Shares purchased (the
"Exercise Shares") exceeds the Exercise Price paid. The Optionee hereby
authorizes the Corporation to withhold Exercise Shares of a value equivalent to
the amount of tax required to be withheld by the Corporation out of any taxable
income derived by the Optionee upon exercise of the Option; provided, however,
that the Optionee may, in the alternative, in order to satisfy such withholding
requirement, deliver to the Corporation cash or other shares of Common Stock
owned by the Optionee.
6. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.
7. SECURITIES LAW REQUIREMENTS; LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and agrees
that, unless issued pursuant to an effective registration statement under the
Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY
STATE, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
COUNSEL FOR THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED FOR
SUCH SALE, ASSIGNMENT OR TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS
OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY
29, 1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION
AND A COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN
REQUEST."
8. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any
rights as a shareholder with respect to any of the Option Shares until
the date of issuance by the Corporation to the Optionee of a stock
certificate representing such Option Shares. Except as otherwise
provided in Section 9 hereof, the Optionee shall not be entitled to
any dividends, cash or otherwise, or any adjustment of the Option
Shares for such dividends, if the record date therefor is prior to the
date of issuance of such stock certificate. Upon valid exercise of the
Option by the Optionee, the Corporation agrees to cause a valid stock
certificate for the number of Option Shares then purchased to be
issued and delivered to the Optionee within seven (7) business days
thereafter.
9. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way
the right or power of the Corporation or its officers, directors
and shareholders, as the case may be, to (i) make or authorize any
adjustments, recapitalizations, reorganizations or other changes in
the capital structure or business of the Corporation, (ii)
participate in any merger or consolidation of the Corporation,
(iii) issue any Common Stock, bonds, debentures, preferred or prior
preference stock or any other securities affecting the Common Stock
or the rights of holders thereof, (iv) dissolve or liquidate the
Corporation, (v) sell or transfer all or any part of the assets or
2
<PAGE>
business of the Corporation, or (vi) perform any other corporate
act or proceedings, whether of a similar character or otherwise.
(b) If the Corporation merges into or with or consolidates
with (such events collectively referred herein as a "Merger") any
corporation or corporations and is not the surviving corporation,
then the surviving corporation may assume the Option or substitute
a new option of the surviving corporation for the Option; provided,
however, that the excess of the aggregate fair market value of the
securities subject to the Option immediately after such assumption,
or the new option immediately after such substitution, over the
aggregate Exercise Price of such shares must be, based upon a good
faith determination by the Board of Directors of the Corporation,
not less than the excess of the aggregate fair market value of the
Common Stock subject to the Option immediately before such
substitution or assumption over the aggregate Exercise Price of
such Common Stock.
(c) In the event that the surviving corporation does not
utilize the provisions of (b) above, or in the event of a
dissolution or liquidation of the Corporation, the Corporation
shall cause written notice of such Merger or dissolution or
liquidation (and the material terms and conditions thereof) to be
delivered to the Optionee at least ten (10) days prior to the
proposed effective date (the "Effective Date") of such event. The
Optionee shall be entitled to exercise the Option until the
Effective Date, or until the Expiration Date if earlier. To the
extent that the Merger or liquidation is consummated after the
Effective Date, the Option shall terminate and the Corporation
shall have no further obligations of any type hereunder. The
provisions of this paragraph shall not apply to any merger or
reorganization, the principal purpose of which is to change the
jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding, the Corporation
shall effect a subdivision or consolidation of the shares of Common
Stock or other capital readjustment, the payment of a common stock
dividend, or other increase or reduction of the number of shares of
Common Stock outstanding, without receiving compensation therefor
in money, services or property, then (i) in the event of an
increase in the number of shares of Common Stock outstanding, the
number of Option Shares shall be proportionately increased, and the
per share Exercise Price shall be proportionately reduced, and (ii)
in the event of a reduction in the number of shares of Common Stock
outstanding, the number of Option Shares shall be proportionately
reduced, and the per share Exercise Price shall be proportionately
increased. No fractional share of Common Stock shall be issued upon
any such exercise and the Exercise Price shall be appropriately
reduced on account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any
class of securities convertible into shares of stock of any class,
including Common Stock, for cash, property, labor or services
rendered, either upon direct sale or upon the exercise of rights,
options, or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Corporation convertible into such
shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of Option
Shares or the Exercise Price.
10. REGISTRATION RIGHTS. The Optionee shall have no registration
rights with respect to the Option Shares.
11. TERMINATION.
(a) Except as otherwise provided in this Section 11, if the
Optionee for any reason whatsoever, other than death or permanent
and total disability, as defined in (b) below, ceases to be
employed by the Corporation, or a parent or subsidiary corporation
of the Corporation, and prior to such cessation, the Optionee was
employed at all times from the date of the granting of the Option
until the date of such cessation, the Option must be exercised by
the Optionee (to the extent that the Optionee is entitled to do so
at the date of cessation) within three (3) months following the
date of cessation of employment, subject to
3
<PAGE>
the Expiration Date; provided, however, that if the Optionee is
terminated for cause (as defined in the Employment Agreement), the
Option will immediately terminate. Notwithstanding the foregoing,
the Corporation may, in its sole discretion, extend for a
reasonable period the time in which the Optionee may exercise the
Option after the date of cessation of employment, subject to the
Expiration Date.
(b) If the Optionee becomes permanently and totally disabled,
as hereinafter defined, while employed by the Corporation or a
parent or subsidiary corporation of the Corporation, and prior to
such disability the Optionee was employed at all times from the
date of the granting of the Option until the date of disability,
the Option must be exercised by the Optionee (to the extent that
the Optionee is entitled to do so at the date of disability) at any
time within one (1) year after the date of disability or the
Expiration Date, whichever is earlier.
"Permanently and totally disabled" means being unable to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12)
months. In the absence of any specific requirements for this
determination, the the decision of the Corporation, as aided by any
physicians designated by the Corporation shall be conclusive and
the Corporation shall send written notice to the Optionee of the
determination that the Optionee has become permanently and totally
disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the
Corporation, and prior to death the Optionee was employed at all
times from the date of the granting of the Option until the date of
death, the Option must be exercised (to the extent that the
Optionee is entitled to do so at the date of death) by a legatee or
legatees of the Optionee under the Optionee's will, or by the
Optionee's personal representative or distributes, at any time
within one (1) year after the date of death or the Expiration Date,
whichever is earlier, and if not so exercised, the Option shall
thereupon terminate.
Nothing in (a), (b) or (c) shall extend the time for
exercising the Option granted pursuant to this Agreement beyond the
Expiration Date.
12. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION.
Notwithstanding any other provision of this Agreement to the contrary,
in consideration of the granting of the Option, the Optionee agrees
not to dispose of any Option Shares without the prior approval of the
Corporation unless such shares have been registered under the
Securities Act.
12. NOTICES. All notices, demands, requests and other
communications required or permitted hereunder shall be in writing and
shall be deemed to be delivered when actually received through U.S.
Express Mail or any private express service (as evidenced by a written
receipt), or, if earlier, and regardless of whether actually received
(except where receipt is specified in this Agreement), four (4) days
following deposit in a regularly maintained receptacle for the United
States mail, registered or certified, return receipt requested,
postage fully prepaid, addressed to the addressee at its address set
forth below or at such other address as such party may have specified
theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attn: President
If to Optionee: Terrell L. Sadler
17307 Highland Canyon
Houston, Texas 77095
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<PAGE>
14. TRANSFERABILITY; BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
15. ENTIRE AGREEMENT. This agreement embodies the entire agreement and
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION:
DI INDUSTRIES, INC.
By: T. P. RICHARDS
Name: T. P. Richards
Title: President and CEO
OPTIONEE:
TERRELL L. SADLER
Terrell L. Sadler
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<PAGE>
ACKNOWLEDGEMENT OF SPOUSE TO
TERMS OF NON-QUALIFIED STOCK OPTION AGREEMENT
I, Kathy Sadler, am the spouse of Terrell L. Sadler ("Optionee"), and I
am fully aware of, understand, and fully consent and agree to the provisions of
the Non-Qualified Stock Option Agreement, dated October 1, 1996 executed by
Optionee and DI Industries, Inc. (the "Corporation"). I understand the binding
effect of this Agreement and its binding effect upon any interest, community or
otherwise, I may now or hereafter own, and I agree that the termination for any
reason of my marital relationship with Optionee shall not have the effect of
removing any stock of the Corporation otherwise subject to the terms of this
Agreement from the coverage hereof.
Signed this day of 10-30, 1996.
KATHY SADLER
Kathy Sadler,
Spouse of Terrell L. Sadler
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DI INDUSTRIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") made as of
October 1, 1996 by and between DI INDUSTRIES, INC., a corporation organized
under the laws of the State of Texas (the "Corporation"), and TERRELL L.
SADLER, an individual residing in the State of Texas (the "Optionee");
W I T N E S S E T H:
WHEREAS, as an inducement to the Optionee to enter into a contract of
employment with the Corporation under the terms of an Employment Agreement dated
of even date herewith by and between the Optionee and the Corporation (the
"Employment Agreement") and to provide Optionee with additional incentive to
further the business of the Corporation, the Corporation has agreed to grant the
Optionee options to purchase shares of common stock, $0.10 par value ("Common
Stock"), of the Corporation; and
WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Corporation intends to carry
out the purposes set forth in the 1996 Employee Stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective as of July 29, 1996 and the shareholders
of the Corporation effective as of August 27, 1996; and
WHEREAS, it is intended that the options granted to Optionee pursuant to
this Agreement constitute incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Corporation and the Optionee desire to set forth the terms and
conditions of such options to purchase Common Stock;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee an option (the "Option")
to purchase all or any part of an aggregate number of 300,000 shares of Common
Stock (such shares, as increased or decreased in accordance with Section 8
hereof, being referred to hereinafter as the "Option Shares") at an exercise
price of $1.50 per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. The Option shall be exercisable by Optionee as to
twenty percent (20%) of the Option Shares on December 31, 1996, as to an
additional twenty percent (20%) of the Option Shares, one (1) year after the
date of this Agreement, as to an additional twenty percent (20%) of the Option
Shares, two (2) years after the date of this Agreement, as to an additional
twenty percent (20%) of the Option Shares, three (3) years after the date of
this Agreement, until the fourth anniversary of the date of this Agreement,
after which time the Option shall be exercisable in full. The Option shall
expire and terminate as to any Option Shares not purchased by the Optionee on or
before the tenth anniversary of the date of this Agreement (the "Expiration
Date"), subject to earlier termination as set forth herein.
Except as provided in Section 10 hereof, the Option may not be exercised at
any time unless the Optionee shall have been in the continuous employ of the
Corporation, or a parent or a subsidiary corporation, from the date hereof to
the date of the exercise of the Option.
3. METHOD OF EXERCISING THE OPTION. The Option shall be exercised by the
Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to ANNEX I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the
Optionee is entitled to purchase, which
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Exercise Price must be in the form of (a) cash or a cashier's or certified check
payable to the order of the Corporation, or (b) the tender to the Corporation of
such number of shares of Common Stock owned by the Optionee having an aggregate
fair market value as of the date of exercise that is not greater than the total
Exercise Price for the shares of Common Stock with respect to which the Option
is being exercised and by paying the remaining amount of the Exercise Price.
4. TRANSFERABILITY OF OPTION. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 10
or this Agreement, the Option shall be exercisable (i) only by the Optionee
during his lifetime, or (ii) in the event of his death, by his heirs,
representatives, distributees, or legatees in accordance with his will or the
laws of descent and distribution (but only to the extent that the Option would
be exercisable by the Optionee under Section 2).
5. INVESTMENT REPRESENTATION. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.
6. SECURITIES LAW REQUIREMENTS; LEGENDS. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and agrees
that, unless issued pursuant to an effective registration statement under the
Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY
STATE, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
COUNSEL FOR THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED FOR
SUCH SALE, ASSIGNMENT OR TRANSFER."
In addition, the following legend shall be placed on each certificate
representing Option Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS
OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY
29, 1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION
AND A COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN
REQUEST."
7. NO RIGHTS AS SHAREHOLDER. The Optionee shall not have any rights as a
shareholder with respect to any of the Option Shares until the date of issuance
by the Corporation to the Optionee of a stock certificate representing such
Option Shares. Except as otherwise provided in Section 8 hereof, the Optionee
shall not shall not be entitled to any dividends, cash or otherwise, or any
adjustment of the Option Shares for such dividends, if the record date therefor
is prior to the date of issuance of such stock certificates. Upon valid exercise
of the Option by the Optionee, the Corporation agrees to cause a valid stock
certificate for the number of Option Shares then purchased to be issued and
delivered to the Optionee within seven (7) business days thereafter.
8. CORPORATE PROCEEDINGS OF THE CORPORATION.
(a) The existence of the Option shall not affect in any way the right
or power of the Corporation or its officers, directors and shareholders, as
the case may be, to (i) make or authorize any adjustments,
recapitalizations, reorganizations or other changes in the capital
structure or business of the Corporation, (ii) participate in any merger or
consolidation of the Corporation, (ii) issue any Common Stock, bonds,
debentures, preferred or prior preference stock or any other securities
affecting the Common Stock or the rights of holders thereof, (iv) dissolve
or liquidate the Corporation, (v) sell or transfer all
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or any part of the assets or business of the Corporation, or (vi) perform
any other corporate act or proceedings, whether of a similar character or
otherwise.
(b) If the Corporation merges into or with consolidates with (such
events collectively referred herein as a "Merger") any corporation or
corporations and is not the surviving corporation, then the surviving
corporation may assume the Option or substitute a new option of the
surviving corporation for the Option; provided, however, that the excess of
the aggregate fair market value of the securities subject to the Option
immediately after such assumption, or the new option immediately after such
substitution, over the aggregate Exercise Price of such shares must be,
based upon a good faith determination by the Board of Directors of the
Corporation, not less than the excess of the aggregate fair market value of
the Common stock subject to the Option immediately before such substitution
or assumption over the aggregate Exercise Price of such Common Stock.
(c) In the event that the surviving corporation does not utilize the
provisions of (b) above, or in the event of a dissolution or liquidation of
the Corporation, the Corporation shall cause written notice of such Merger
or dissolution or liquidation (and the material terms and conditions
thereof) to be delivered to the Optionee at least ten (10) days prior to
the proposed effective date (the "Effective Date") of such event. The
Optionee shall be entitled to exercise the Option until the Effective Date,
or until the Expiration Date if earlier. To the extent that the Merger or
liquidation is consummated after the Effective Date, the Option shall
terminate and the Corporation shall have no further obligations of any type
hereunder. The provisions of this paragraph shall not apply to any merger
or reorganization, the principal purpose of which is to change the
jurisdiction of the domicile of the Corporation.
(d) If, while the Option is outstanding, the Corporation shall effect
a subdivision or consolidation of the shares of Common Stock or other
capital readjustment, the payment of a common stock dividend, or other
increase or reduction of the number of shares of Common Stock outstanding,
without receiving compensation therefor in money, services or property,
then (i) in the event of an increase in the number of shares of Common
Stock outstanding, the number of Option Shares shall be proportionately
increased, and the per share Exercise Price shall be proportionately
reduced, and (ii) in the event of a reduction in the number of shares of
Common Stock outstanding, the number of Option Shares shall be
proportionately reduced, and the per share Exercise Price shall be
proportionately increased. No fractional share of Common Stock shall be
issued upon any such exercise and the Exercise Price shall be appropriately
reduced on account of any fractional share not issued.
(e) The issuance by the Corporation of shares of stock of any class
of securities convertible into shares of stock of any class, including
Common Stock, for cash, property, labor or services rendered, either upon
direct sale or upon the exercise of rights, options, or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Corporation convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number of Option Shares or the Exercise Price.
9. REGISTRATION RIGHTS. The Optionee shall have no registration rights
with respect to the Option Shares.
10. TERMINATION.
(a) If the Optionee for any reason whatsoever, other than death or
permanent and total disability, as defined in (b) below, ceases to be
employed by the Corporation, or a parent or subsidiary corporation of the
Corporation, and prior to such cessation, the Optionee was employed at all
times from the date of the granting of the Option until the date of such
cessation, the Option must be exercised by the Optionee (to the extent that
the Optionee is entitled to do so at the date of cessation) within three
(3) months following the date of cessation of employment, subject to the
Expiration Date; provided, however, that if the Optionee is terminated for
cause (as defined in the Employment Agreement), the Option will immediately
terminate.
(b) If the Optionee becomes permanently and totally disabled, as
hereinafter defined, while employed by the Corporation or a parent or
subsidiary corporation of the Corporation, and prior to
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such disability the Optionee was employed at all times from the date of the
granting of the Option until the date of disability, the Option must be
exercised by the Optionee (to the extent that the Optionee is entitled to
do so at the date of disability) at any time within one (1) year after the
date of disability or the Expiration Date, whichever is earlier.
"Permanently and totally disabled" means being unable to engage in
any substantial gainful activity by reason of any medically physical or
mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months. Such determination of permanent and total disability
must be made in accordance with the requirements of Section 22(e)(3), and
applicable regulations, of the Code, or any other applicable method
necessary for the continued qualification of this Plan under Section 422 of
the Code, or any equivalent successor provision, if applicable. In the
absence of any specific requirements for this determination, the decision
of the Corporation, as aided by any physicians designated by the
Corporation shall be conclusive and the Corporation shall send written
notice to the Optionee of the determination that the Optionee has become
permanently and totally disabled.
(c) In the event that the Optionee dies while employed by the
Corporation or a parent or subsidiary corporation of the Corporation, and
prior to death the Optionee was employed at all times from the date of the
granting of the Option until the date of death, the Option must be
exercised (to the extent that the Optionee is entitled to do so at the date
of death) by a legatee or legatees of the Optionee under the Optionee's
will, or by the Optionee's personal representative or distributes, at any
time within one (1) year after the date of death or the Expiration Date,
whichever is earlier, and if not so exercised, the Option shall thereupon
terminate.
Nothing in (a), (b) or (c) shall extend the time for exercising the
Option granted pursuant to this Agreement beyond the Expiration Date.
11. DISPOSITION OF STOCK AFTER EXERCISE OF OPTION. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agree (i) not to dispose of any Opinion
Shares within two (2) years after the date of this Agreement nor within one (1)
year after the date of exercise of the Option and (ii) not to dispose of any
Option Shares thereafter without the prior approval of the Corporation unless
such shares have been registered under the Securities Act.
12. NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if earlier, and
regardless of whether actually received (except where receipt is specified in
this Agreement), four (4) days following deposit in a regularly maintained
receptacle for the United States mail, registered or certified, return receipt
requested, postage fully prepaid, addressed to the addressee at its address set
forth below or at such other address as such party may have specified
theretofore by notice delivered in accordance with this Section:
If to the Corporation: DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Attn: President
If to Optionee: Terrell L. Sadler
17307 Highland Canyon
Houston, Texas 77095
13. TRANSFERABILITY; BINDING EFFECT. The Option shall be transferable only
as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
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15. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean any present or future corporation which would be a
"parent corporation" or a "subsidiary corporation" of the Corporation, as
such term is defined in Section 425 of the Internal Revenue Code.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
17. CAPTIONS. The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION:
DI INDUSTRIES, INC.
By: T.P. Richards
Name: T.P. Richards
Title: President and CEO
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OPTIONEE:
/s/ Terrell L. Sadler
Terrell L. Sadler
ACKNOWLEDGMENT OF SPOUSE TO
TERMS OF INCENTIVE STOCK OPTION AGREEMENT
I, Kathy Sadler, am the spouse of Terrell L. Sadler, ("Optionee"), and I
am fully aware of, understand, and fully consent and agree to the provisions of
the Incentive Stock Option Agreement, dated October 1, 1996 executed by Optionee
and DI Industries, Inc. (the "Corporation"). I understand the binding effect
of this Agreement and its binding effect upon any interest, community or
otherwise, I may now or hereafter own, and I agree that the termination for any
reason of my marital relationship with Optionee shall not have the effect of
removing any stock of the Corporation otherwise subject to the terms of this
Agreement from the coverage hereof.
Signed this day of 10-30-1996.
/s/ Kathy Sadler
Kathy Sadler,
Spouse of Terrell L. Sadler
6
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
DI Industries, Inc. on Form S-3 of our report dated March 28, 1996 (June 10,
1996 as to Note 13), appearing in the Definitive Proxy Statement for the 1996
Annual Meeting of Shareholders. We also consent to the reference to us under the
headings "Experts" in this Prospectus, which is a part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
December 13, 1996
