As filed with the Securities and Exchange Commission on October 24, 1996.
Registration No. _____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
DI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1381 74-2144774
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) 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)
---------------
Thomas P. Richards, President and Chief Executive 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:
John R. Boyer, Jr. Casey W. Doherty
Boyer, Ewing & Harris Incorporated Cokinos, Bosien & Young
Nine Greenway Plaza, Suite 3100 1500 Liberty Tower
Houston, Texas 77046 2919 Allen Parkway
(713) 871-2025 Houston, Texas 77019
(713) 535-5500
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
---------------
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 (the "Securities Act"), 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 Securties 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. [ ]
---------------
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Aggregate Registration
to be Registered Registered Price Per Share(1) Offering Price (1) Fee
- --------------------------------------------------------------------------------
Common Stock 7,500,000 $1.8125 $13,593,750.00 $4,119.32
================================================================================
(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee and based upon the average of the high and low
prices reported on the American Stock Exchange on October 17, 1996.
<PAGE>
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>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED OCTOBER ____, 1996
PRELIMINARY PROSPECTUS
7,500,000 SHARES
DI INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
------------------------
The 7,500,000 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 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. The Shares have been approved for
listing on the American Stock Exchange (the "AMEX").
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 admitted
for trading (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.
To the extent required, specific additional information regarding the Shares
will be set forth in an accompanying Prospectus. 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 $18,120.
The Common Stock is listed on the AMEX under the symbol "DRL." On November
___, 1996, the closing sales price of the Common Stock as reported on the AMEX
was $_______ per share.
------------------------
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<PAGE>
Investors should review the information contained or incorporated by
reference herein. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS
SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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 November ____, 1996.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The 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
the Commissioner's 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 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. Such additional information may be
obtained from the Commission's principal office in Washington, D.C. 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, 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 Definitive Proxy Statement for the 1996 Annual Meeting
of Shareholders.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
5. The Company's Current Report on Form 8-K dated June 24, 1996.
6. The Company's Current Report on Form 8-K dated October 2, 1996.
7. The description of the Common Stock, contained in the Company's
Registration Statement on Form 8-A dated June 26, 1981.
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. All information
appearing in this Prospectus or in any document incorporated herein by reference
is not necessarily complete and is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated herein by reference and should be read together with such
information and 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,
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<PAGE>
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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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE.
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 Venezuela, Argentina and
Mexico. 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.
On October 3, 1996, the Company entered into an Asset Purchase Agreement
(the "Asset Purchase Agreement") with Meritus, Inc., a Texas corporation, Mesa
Rig 4 L.L.C., a Texas limited liability company, and Mesa Venture, a Texas
general partnership (collectively, the "Sellers"), and Mesa Drilling, Inc., a
Texas corporation ("Mesa"), pursuant to which the Company agreed to purchase
from the Sellers certain of the assets owned by the Sellers (the "Asset
Purchase"). Of the Shares, 5,500,000 have been issued in connection with or by
reason of the consummation of the Asset Purchase.
RISK FACTORS
See "Risk Factors" for certain considerations relevant to an investment
in the Common Stock.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling Shareholders ........ 7,500,000 shares
Common Stock to be outstanding after the offering
(excluding 2,000,000 shares registered hereby
issuable upon exercise of options) .................. 123,269,534 shares
Use of Proceeds.......................................... The Company will not receive any of the proceeds of
the Offering.
Dividends................................................ The Company has never paid dividends on the Common
Stock and has no plans to pay dividends on the
Common Stock in the foreseeable future.
AMEX Ticker Symbol....................................... DRL
</TABLE>
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<PAGE>
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.
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 resources than the Company.
The Company's operations are materially dependent upon the levels of
activity in the exploration, development and production of oil and 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 revenues and
profitability.
LOSSES FROM OPERATIONS
The historical financial data for the Company reflect net losses of
$13,447,000 and $3,502,000 (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
applicable to common stock of $1,267,000 for the six months ended June 30, 1996.
There can be no assurance that any capital needed for the future will be
available on acceptable terms.
LEVERAGE AND LIQUIDITY
The Company currently has approximately $16,000,000 of debt obligations.
The Company requires 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.
Certain loan agreements governing the Company's term loan with
NorlandsBanken ASA (the "NorlandsBanken Loan Agreement") and an ancillary
guaranty by Norex Drilling Ltd., a Bermuda corporation, 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 NorlandsBanken Loan Agreement prohibits the
payment of dividends by the Company and requires the Company to maintain a
minimum working capital balance of $7,000,000 and a minimum adjusted net worth
of $50,000,000. These restrictions could limit the Company's flexibility in
responding to changing market conditions.
INTERNATIONAL OPERATIONS
A major portion of the Company's revenues has been attributable to
international operations. Revenues from international sources accounted for
approximately 43.2 percent and 52.7 percent of the Company's operating revenues
for the six-month period ended June 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,
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<PAGE>
renegotiation or modification of existing contracts, taxation policies, foreign
exchange restrictions, international monetary fluctuations and other hazards
arising out of foreign operations.
ABSENCE OF DIVIDENDS ON THE COMMON STOCK
The Company has not 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 debt covenants of the Company prohibit
the Company from paying dividends.
LIMITATIONS ON THE AVAILABILITY OF THE COMPANY'S NET OPERATING LOSS
CARRYFORWARDS
As a result of the Mergers (as defined hereinafter), the Company has
undergone an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended. As a result, 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 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. 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 million of NOLs, a significant portion of which are already
subject to a Section 382 Limitation resulting from ownership changes in years
prior to the year of the Mergers.
RIG FLEET AGE AND DEFERRED MAINTENANCE
The majority of the Company's existing drilling rigs were built during the
years 1979 - 1981, the period of the industry's most recent rig building cycle.
Some maintenance on its stacked rigs has been deferred. Through its programs of
rig upgrades and refurbishment, the Company believes that it will be able to
maintain its rig operations over time to meet its future needs; however, such
upgrading and refurbishment may require increasing amounts of capital and, to
the extent the Company is unable to continue such programs, it will have fewer
rigs available for service.
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.
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<PAGE>
It has been the Company's experience that the environmental laws, rules
and regulations of the United States are more stringent than those found in
foreign jurisdictions, and therefore the requirements of foreign jurisdictions
do not, in general, impose an additional compliance burden on the Company.
RECENT CHANGES/DEPENDENCE ON KEY PERSONNEL
The Company began a management restructuring in April, 1996 with the
termination of its 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.
The Company believes that its operations are dependent to some degree upon
a relatively small group of its management personnel, the loss of any of whom
could have a material adverse effect on the Company.
On August 29, 1996, the Company completed the transactions contemplated by
(1) that certain Agreement and Plan of Merger, as amended (the "Rig Merger
Agreement"), dated as of May 7, 1996, by and among the Company, DI Merger Sub,
Inc., a newly formed Delaware corporation and a wholly owned subsidiary of the
Company ("Merger Sub"), Roy T. Oliver, Jr., Mike L. Mullen, R.T. Oliver, Inc.,
an Oklahoma corporation ("RTO"), and Land Rig Acquisition Corporation, a
Delaware corporation ("LRAC"), pursuant to which RTO and Merger Sub were merged
with and into LRAC, which was the surviving corporation and a wholly owned
subsidiary of the Company (the "Rig Merger"), and (2) that certain Agreement and
Plan of Merger, as amended (the "Somerset Merger Agreement"), dated as of May 7,
1996, by and between the Company and Somerset Investment Corp., a Texas
corporation ("Somerset"), pursuant to which Somerset was merged with and into
the Company, which was the surviving corporation (the "Somerset Merger") (the
Rig Merger and the Somerset Merger collectively, the "Mergers"). The Rig Merger
Agreement, Somerset Merger Agreement and the Mergers were adopted and approved
by the shareholders of the Company on August 27, 1996.
On August 27, 1996, the shareholders of the Company elected Ivar Siem, Roy
T. Oliver, Steven A. Webster, William R. Ziegler and Peter M. Holt to the Board
of Directors of the Company.
CONTROL CONSIDERATIONS
On May 7, 1996, certain shareholders of the Company entered into a
Shareholders' Agreement (the "Shareholders' Agreement"), which shareholders
beneficially owned 74.2% of the issued and outstanding shares of Common Stock as
of the effective date of the Mergers. The Shareholders' Agreement provides that
all of the parties thereto 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 will each exercise considerable influence over the Company and will be
able to collectively control all of its business and affairs for the foreseeable
future.
USE OF PROCEEDS
The Company will not receive any of the net proceeds from the sale of any
of the Shares offered pursuant to this Prospectus, all of which will be sold by
the Selling Shareholders.
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and has no plans
to pay dividends on the Common Stock in the foreseeable future. Additionally,
certain debt covenants prohibit the payment of dividends by the Company on the
Common Stock without the consent of the lender.
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<PAGE>
THE 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. The Company is filing with the Commission a
Registration Statement under the Securities Act on Form S-3, of which this
Prospectus forms a part, with respect to the secondary trading of the Shares.
See "Plan of Distribution."
Shares Beneficially Owned Number of
------------------------- Shares
Offered
Name of Beneficial Owner Number* Percent Hereby
- ------------------------------------------- ------------ -----------
Meritus, Inc. 4,534,516(1) 3.68% 4,534,516
Spencer Finance Corp. 3,297,436(1) 2.68% 3,297,436
Scan Atlantic, Inc. 618,540(1) ** 618,540
B.F. Interests, Inc. 618,540 ** 618,540
Mesa Rig 4 L.L.C. 422,581 ** 422,581
Mesa Venture 542,903 ** 542,903
Vantage Industry Partners, Inc. 542,903(2) ** 542,903
Gilbo Invest A/S 422,581(3) ** 422,581
Thomas P. Richards 2,000,000(4) 1.60% 2,000,000
- ------------
* Unless otherwise noted, all Shares reflected are owned
beneficially and of record.
** Number of Shares beneficially owned represents less than one
percent of all of the outstanding shares of the Common Stock.
(1) Spencer Finance Corp., Scan Atlantic, Inc. and B. F. Interests,
Inc. are the sole shareholders of Meritus, Inc. The number of Shares
listed reflects the number of Shares that Meritus, Inc. anticipates it
will distribute to such shareholders.
(2) All of the 542,903 shares are owned beneficially through Mesa
Venture, a general partnership controlled by Vantage Industry Partners,
Inc.
(3) All of the 422,581 shares are owned beneficially through Mesa
Rig 4 L.L.C., a limited liability company controlled by Gilbo Invest A/S.
(4) All shares reflected have not been issued as of the date hereof
but may be issued upon the exercise of certain options. See "Plan of
Distribution - Original Issuance of the Shares."
- ------------
Thomas P. Richards is the President and Chief Executive Officer of the
Company. None of the other Selling Shareholders have held any position or office
or had any other material relationship with the Company.
PLAN OF DISTRIBUTION
GENERAL
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
-9-
<PAGE>
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. To the extent required, specific additional
information regarding the Shares will be set forth in a Prospectus Supplement.
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.
ORIGINAL ISSUANCE OF THE SHARES
Of the Shares, 5,500,000 have been issued directly to certain of the
Selling Shareholders in a private placement in connection with the consummation
of the Asset Purchase and the other transactions contemplated by the Asset
Purchase Agreement.
Of the Shares, 2,000,000 may be issued to Thomas P. 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.
EXPERTS
The financial statements and the related financial statement schedules
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports with respect
thereto, and are incorporated by reference herein 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 MADE, 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 ..................................................... 3
Incorporation of Certain Documents by Reference ........................... 3
Prospectus Summary ........................................................ 5
Risk Factors .............................................................. 6
Use of Proceeds ........................................................... 8
Dividend Policy ........................................................... 8
The Selling Shareholders .................................................. 9
Plan of Distribution ...................................................... 9
Experts ................................................................... 10
Legal Matters ............................................................. 10
7,500,000 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*............... $ 0
Legal fees and expenses*.................. $ 7,000
Printing expenses*........................ $ 1,000
Accounting fees and expenses*............. $ 1,000
Miscellaneous*............................ $ 5,000
Total Expenses................ $ 18,120
----------------
* Estimated.
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 Corporation Act
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 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 may 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 person 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 directors, (ii) indemnify
and advance expenses to directors and such other persons 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 against any liability
asserted against him and incurred by him in such a capacity or arising out of
his status as such a
<PAGE>
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.
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 -- 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.
5.1* -- Opinion of Cokinos, Bosien & Young.
10.1 -- Employment Agreement dated September 3, 1996 by and between the
Company and Thomas P. Richards.
10.2 -- Stock Option Agreement dated September 3, 1996 by and between the
Company and Thomas P. Richards.
23.1* -- Consent of Deloitte & Touche LLP .
23.2* -- Consent of Cokinos, Bosien & Young contained in their opinion
filed as Exhibit 5.1.
24.1 -- Powers of Attorney (included as part of signature page
filed herewith).
- ------------------------
* To be filed in an amendment to this registration statement.
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 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.
<PAGE>
(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 of 1933, 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 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.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT ON FORM S-3 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON OCTOBER 24, 1996.
DI INDUSTRIES, INC.
By: /s/ THOMAS P. RICHARDS
Thomas P. Richards,
President and Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas P. Richards with power to act as his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all subsequent pre- and post-effective amendments and
supplements to this Registration Statement, and to file the same, or cause to be
filed the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that any said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-3 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 October 24, 1996
(THOMAS P. RICHARDS) Executive Officer
/s/ T. SCOTT O'KEEFE Senior Vice President and October 24, 1996
(T. SCOTT O'KEEFE) Chief Financial Officer
/s/ DAVID W. WEHLMANN Vice President and October 24, 1996
(DAVID W. WEHLMANN) Controller
/s/ IVAR SIEM Director October 24, 1996
(IVAR SIEM)
/s/ ROY T. OLIVER, JR. Director October 22, 1996
(ROY T. OLIVER, JR.)
/s/ STEVEN A. WEBSTER Director October 22, 1996
(STEVEN A. WEBSTER)
/s/ WILLIAM R. ZIEGLER Director October 24, 1996
(WILLIAM R. ZIEGLER)
Director October ___, 1996
- ------------------------------
(PETER M. HOLT)
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into
as of the 3rd day of October, 1996, by and among Drillers, Inc., a Texas
corporation (the "Buyer"), DI Industries, Inc., a Texas corporation ("DI"),
Meritus, Inc., a Texas corporation ("Meritus"), Mesa Rig 4 L.L.C., a Texas
limited liability company (the "LLC"), Mesa Venture, a Texas general partnership
(the "Partnership") (Meritus, the LLC, and the Partnership are sometimes
collectively referred to herein as the "Sellers" or singularly as a "Seller")
and Mesa Drilling, Inc., a Texas corporation ("Mesa"; Mesa and the Sellers are
sometimes referred to herein collectively as the "Seller Parties" or singularly
as a "Seller Party").
WITNESSETH:
WHEREAS, Sellers desire to sell to the Buyer, and the Buyer desires to
purchase from the Sellers, the Assets (as hereinafter defined) on the terms and
subject to the conditions of this Agreement in exchange for the consideration
stated herein;
WHEREAS, Mesa is managing the Assets on behalf of the Sellers; and
WHEREAS, DI owns 100% of the stock of the Buyer and therefore would
benefit from the consummation of the acquisition of the Assets by the Buyer;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, and the benefits to be derived herefrom, the parties
hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.01 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and the
conditions set forth in this Agreement, at the Closing (as defined in Article
II), the Sellers will sell to the Buyer, and the Buyer will purchase from the
Sellers, all of the right, title, and interest of the Sellers in and to the
drilling rigs and auxiliary engines, systems, tanks, pipe, collars, blowout
preventers and other equipment described on Schedule 1.01 (collectively, the
"Assets").
1.02 PURCHASE CONSIDERATION. As consideration for the transfer and sale of
the Assets, at the Closing the Buyer will cause DI to issue, and DI shall issue,
in the amounts indicated on Schedule 1.02, 5,500,000 shares of the Common Stock,
$0.10 par value per share, of DI (the "DI Shares").
1.03 DRILLING CONTRACTS. At the Closing, the Sellers shall assign to the
Buyer all of their rights and interests in and to the Drilling Contracts (as
defined in Section 4.01(g)) from and after
<PAGE>
the Closing and the Buyer shall assume the obligations of the Sellers under the
Drilling Contracts from and after the Closing.
1.04 EFFECTIVE TIME. The transfer of the ownership of the Assets shall be
effective as of 12:00 a.m. Central Daylight Time on the date immediately
subsequent to the date the Closing occurs (the "Effective Time").
1.05 MANAGEMENT AGREEMENTS. At the Closing, the Sellers and Mesa will
terminate and cancel the Management Agreement dated May 24, 1994 between Meritus
and Mesa.
1.06 EXCLUDED ASSETS. The parties agree that the Excluded Assets (defined
below) shall not be included as part of the Assets and shall be retained by each
of the respective Sellers. The term "Excluded Assets" shall mean with respect to
each of the Sellers all cash and accounts receivables owned by it as of the
Closing.
1.07 PLAN OF REORGANIZATION OF MERITUS. The acquisition of the Assets of
Meritus by Buyer in exchange for DI Shares pursuant to this Agreement is
intended to be a "reorganization" as defined in section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and each of Meritus, the Buyer
and DI is intended to be a party to such reorganization, within the meaning of
section 368(b) of the Code.
ARTICLE II
CLOSING
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Cokinos, Bosien & Young, Houston,
Texas on October 4, 1996, at 2:00 p.m., Houston time. The date the Closing is to
occur may be extended past October 4, 1996 if any of the conditions precedent
set forth in Article IX have not been satisfied so long as the parties hereto
are using diligent efforts to satisfy such conditions precedent. The date the
Closing occurs is referred to herein as the "Closing Date."
ARTICLE III
ACTIONS TAKEN AT THE CLOSING
3.01 ACTIONS TAKEN BY THE SELLERS. At the Closing the Sellers shall
execute and deliver a bill of sale substantially identical in form and content
to Exhibit 3.01 (the "Bill of Sale") and any other instruments reasonably
necessary to transfer all of the right, title, and interest of the Sellers in
the Assets to the Buyer, free and clear of all Liens other than Permitted Liens.
All tangible Assets shall be delivered to Buyer at their location at the time of
Closing.
- 2 -
<PAGE>
As used in this Agreement, (i) the term "Liens" shall mean any lien,
pledge, claim, charge, purchase option, preferential purchase right or other
right of any third party, security interest, mortgage or encumbrance of any
nature whatsoever, and (ii) the term "Permitted Liens" shall mean (a) Liens for
current taxes and assessments not yet due and payable, (b) materialmen's,
mechanics', workers', repairmen's or other similar Liens arising in the ordinary
course of the operation of the Assets for amounts not due and payable, (c) all
rights to, consents by, required notices to, filings with, or other actions by
governmental entities disclosed on Schedule 3.01 if the same are customarily
obtained subsequent to sale or conveyance; and (d) Liens disclosed on Schedule
3.01 to be released at or before Closing.
3.02 ACTIONS TAKEN BY THE BUYER AND DI. At the Closing, the Buyer shall
cause DI to deliver, and DI shall deliver, to each of the Sellers certificates
representing the number of DI Shares set forth next to such Seller's name on
Schedule 1.02 hereof, each bearing such legends as shall be required by
applicable securities laws and Section 8.05.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES
4.01 REPRESENTATIONS AND WARRANTIES. Meritus and Mesa jointly and
severally represent and warrant, and each of the other Seller Parties severally,
and not jointly, as to itself, represents and warrants, to the Buyer and DI as
set forth below:
(a) ORGANIZATION AND POWERS. Meritus and Mesa are each corporations
duly organized, validly existing, and in good standing under the laws of
the state of Texas. The LLC is a limited liability company duly organized,
validly existing, and in good standing under the laws of the state of
Texas. The Partnership is a general partnership duly formed, validly
existing and in good standing under the laws of the state of Texas. The
Seller Parties have all power and authority necessary to conduct their
business as presently conducted, and to own, lease, or operate all
properties now owned, leased, or operated by any of the Seller Parties,
including the Assets.
(b) AGREEMENTS AND CONSENTS. Neither the execution, delivery, nor
performance of this Agreement and/or the Bill of Sale will: (i) conflict
with or result in any breach of any provisions of the charter or bylaws of
Meritus or Mesa, the articles of organization or regulations of the LLC,
or the partnership agreement of the Partnership; (ii) to such Seller
Party's knowledge, require the consent, approval, authorization or
permission of, or filing with or notification to, any governmental or
regulatory authority, (iii) violate, effect acceleration of, or result in
the termination,
- 3 -
<PAGE>
cancellation, or modification of any material agreement, indenture,
instrument, lease, or contract to which any Seller Party is a party or is
bound, (iv) violate any order, writ, or injunction or decree to which the
Seller Party is bound or may be bound, or (v) to the knowledge of the
Seller Party, violate any decree, statute, rule, or regulation to which
the Seller Party is bound or may be bound.
(c) LITIGATION; ORDERS. There is no action, suit, investigation,
inquiry, or proceeding, including any arbitration proceeding
("Litigation"), pending, or to the knowledge of any of the Seller Parties,
threatened, to which a Seller Party is or, to its knowledge, would be a
party. There is no Litigation, judgment or outstanding order, writ,
injunction, decree, stipulation, or award (whether rendered by a court or
administrative agency, or by arbitration), pending or, to the knowledge of
any of the Seller Parties, threatened, to which a Seller Party or any of
the Assets are bound that, in each case, would have an adverse effect on
the ability of the Seller Parties to consummate the transactions
contemplated hereby, that would prevent or delay in any material respect
the consummation of the transactions contemplated hereby or that could
otherwise be reasonably expected to materially adversely affect the
Assets.
(d) VALIDITY AND ENFORCEABILITY. The Seller Parties have the power
and authority to execute and deliver this Agreement and the Bill of Sale.
The execution and delivery by the Seller Parties of this Agreement and the
Bill of Sale and the consummation by the Seller Parties of the
transactions and performance of the terms and conditions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate, limited liability company, or partnership action, as the case
may be. This Agreement has been, and at the Closing the Bill of Sale will
be, duly and validly executed and delivered by the Seller Parties and this
Agreement constitutes, and at the Closing and the Bill of Sale will
constitute, valid and binding obligations of the Seller Parties,
enforceable against the Seller Parties in accordance with their respective
terms (except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, bank moratorium, fraudulent conveyance, or
similar laws affecting creditors' rights generally, general principles of
equity, and laws restricting the availability of equitable remedies).
(e) OWNERSHIP OF ASSETS. Each Seller is the owner of and has title
to the Assets which are owned by it as shown on Schedule 1.01, free and
clear of all Liens other than Permitted Liens.
(f) COMPLIANCE WITH LAWS. To such Seller Party's knowledge, the
Seller Parties are operating the Assets in
- 4 -
<PAGE>
compliance with all laws, rules and regulations of federal, state, or
local entities which have jurisdiction over the Seller Parties or the
ownership, operation, and maintenance of the Assets. The Seller Parties
are not charged or, to the knowledge of any of the Seller Parties,
threatened with or under investigation with respect to, any violation of
any applicable law relating to any aspect of the ownership or operation of
the Assets.
(g) DRILLING CONTRACTS. The Seller Parties have made available to
the Buyer accurate and complete copies of the agreements to which any
Seller Party is a party pursuant to which one or more of the Seller
Parties have agreed to provide services utilizing any of the Assets which
relate to periods subsequent to the Effective Time, each of which is
listed on Schedule 4.01(g) (the "Drilling Contracts"). With respect to
each Drilling Contract, (i) such Drilling Contract is a valid, binding and
enforceable agreement of Mesa, and to the knowledge of the Seller Parties,
the other parties thereto; (ii) there has not occurred any breach or
default under such Drilling Contract on the part of Mesa, and to the
knowledge of the Seller Parties, the other parties thereto, (iii) no event
has occurred which with the giving of notice or the lapse of time, or
both, would constitute a default of Mesa, and to the knowledge of the
Seller Parties, the other parties thereto, under the Drilling Contract,
and (iv) neither Mesa nor, to the knowledge of the Seller Parties, the
other parties to the Drilling Contract have assigned or delegated any of
their rights or obligations under the Drilling Contracts.
(h) EMPLOYEE BENEFITS AND WAGES. Except as set forth in Schedule
4.01(h), and except for any applicable Worker's Compensation policies, no
Seller Party is a party to any written contract with or with respect to
any of its employees who are engaged in the operation of the Assets in the
field (the "Employees"). Schedule 4.01(h) sets forth a complete and
accurate list of (i) the Employees, (ii) employee benefits plans (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended) that any Seller Party maintains for the benefit of
any of the Employees, and (iii) the wages (within the meaning of section
3401(a) of the Internal Revenue Code of 1986, as amended for purposes of
Federal income tax withholding at the source) paid to each such Employee
by such Seller Party from January 1, 1996 through August 31, 1996. No
Seller Party has agreed to pay to any of the Employees any compensation
which is not described on Schedule 4.01(h), except for compensation for
services rendered to Seller Party after August 31, 1996, in amounts based
upon the compensation rates in effect prior to September 1, 1996, as
disclosed on Schedule 4.01(h). The Buyer agrees to hold in confidence the
financial information listed on Schedule 4.01(h). The Seller Parties have
no knowledge or information of any intention of any of the
- 5 -
<PAGE>
Employees to sever employment relations with his or her employer.
(i) NO CHANGE; LOCATION. Except as indicated on Schedule 4.01(i),
since September 6, 1996, the Assets have been operated only in the
ordinary course of business and there has been no material casualty or
loss with respect to any of the Assets; provided, however, that the Buyer
and DI understand and acknowledge that Rigs Nos. 5, 10 and 12 are stacked
and have not been operated during Meritus' ownership thereof. The Seller
Parties have not modified or altered in any material respect any of the
Assets since their inspection by the Buyer. The locations at which any of
the Assets have been located during the 12 month period ending on the date
hereof, and their location on the date hereof, are set forth on Schedule
4.01(i).
(j) INVESTOR STATUS. Each Seller: (i) is acquiring the DI Shares for
investment for its own account, and not with a view to, or for resale in
connection with, any distribution thereof (other than distributions to the
respective Ultimate Owners of each Seller, as defined in Section 4.01(k)),
(ii) understands that the issuance of the DI Shares pursuant to Section
1.02 has not been registered under the Securities Act or applicable state
securities laws, and that such DI Shares may not be transferred except in
compliance with the Securities Act and applicable state securities laws,
(iii) acknowledges that it has had the opportunity to review the SEC
Documents (as defined in Section 5.02(g)) and other information filed by
DI with the Securities and Exchange Commission under the Securities and
Exchange Act of 1934, (iv) has had an opportunity to discuss DI's
business, management and financial affairs with its management and has
received all information deemed necessary by it to make the investment in
the DI Shares pursuant to Section 1.02, and (v) is able to bear the
economic risk and lack of liquidity inherent in holding the DI Shares.
Meritus and the LLC are each "accredited investors" as defined in Rule
501(a) promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). The Partnership is a sophisticated investor with
knowledge and experience in business and financial matters.
(k) APPROVAL BY SHAREHOLDERS/MEMBERS/PARTNERS. All of the
shareholders, members, or partners of the Sellers are listed on Schedule
4.01(k) (the "Ultimate Owners"). Each of the Ultimate Owners have approved
the execution by the Sellers of this Agreement. The Seller Parties will
cause each Ultimate Owner of the Sellers to execute and deliver to DI at
the Closing a written acknowledgment concerning the investor status of
such Ultimate Owner substantially to the effect of Section 4.01(j) in a
form which is reasonably satisfactory to DI.
- 6 -
<PAGE>
(l) MANAGEMENT AGREEMENTS. None of the Seller Parties are in default
under the terms of the Management Agreements.
(m) INSURANCE COVERAGE. The Sellers have provided to the Buyer
complete and accurate copies of the policies of insurance which are in
force on the date hereof which are applicable to the Assets, the
operations of the Assets, and the Employees.
(n) SALES TAX. None of the Sellers are engaged in the business of
selling tangible personal property at retail, hold a sales and use tax
permit issued by the state of Texas, or have made any retail sale of
tangible personal property during the twelve month period ending on the
Closing Date. With respect to each Seller, the Assets to be sold by such
Seller pursuant to this Agreement constitutes the entire operating assets
of a business or of a separate division, branch, or identifiable segment
of a business for purposes of Section 151.304 of the Texas Tax Code.
(o) TAXES. Meritus has filed all Tax (as defined in Section 7.02)
returns, estimates and statements which are required to be filed by it and
has paid all taxes, governmental assessments and charges that are
currently due and payable. All of said Tax returns and statements
correctly set forth and report the entire liability of Meritus for such
Taxes and contain accurate and complete information in the form, manner
and content as required by relevant taxing authorities. The basis of the
Sellers with respect to the Assets for federal income tax purposes as of
the date hereof are set forth on Schedule 4.01(o).
(p) FINANCIAL STATEMENT. The financial statements of Spencer Finance
Corp., a Liberian corporation ("Spencer"), provided to the Buyer and DI by
Mesa have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved and
fairly present the financial position of Spencer.
(q) BROKERAGE. No investment banker, broker, finder or other person
is entitled to any brokerage or finder's fee or similar commission in
respect of this Agreement or the transactions contemplated hereby based in
any way on agreements, arrangements or understandings made by or on behalf
of any of the Seller Parties.
4.02 DISCLAIMER OF CERTAIN WARRANTIES. The Assets are being transferred
hereunder and will be delivered to Buyer on an "AS IS, WHERE IS" basis (WITH ALL
FAULTS). EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE SELLER PARTIES
DISCLAIM ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, AND THE SELLER PARTIES MAKE
NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE REGARDING
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SUITABILITY, UTILITY, CONDITION, CAPABILITIES OR CAPACITIES OF THE ASSETS, WHICH
ARE BEING SOLD WITH ALL FAULTS.
4.03 KNOWLEDGE. The term "knowledge", when used in this Article IV with
respect to a Seller Party, shall mean the actual present knowledge of Asbjorn
Vavik, Chairman of Mesa, Don Bockhorn, President of Mesa, and Erik Ostbye, in
each case based only on such investigation as would normally occur within the
scope of their normal duties.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND DI
5.01 REPRESENTATIONS AND WARRANTIES OF BUYER. The Buyer and DI jointly and
severally represent and warrant to the Seller Parties as set forth below:
(a) ORGANIZATION AND POWERS. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
state of Texas. The Buyer has all power and authority necessary to conduct
its business as presently conducted, and to own, lease, or operate all
properties now owned, leased, or operated by the Buyer.
(b) AGREEMENTS AND CONSENTS. Neither the execution, delivery, nor
performance of this Agreement and/or the Bill of Sale by the Buyer will
(i) conflict with or result in any breach of any provisions of the charter
or bylaws of the Buyer, (ii) to the Buyer's knowledge, require the consent
or approval, authorization, or permit of, or filing with or notification
to, any governmental or regulatory authority, (iii) violate, effect
acceleration of, or result in termination, cancellation, or modification
of any material agreement, indenture, instrument, lease, or contract to
which the Buyer is a party or by which it is bound, except for such
defaults (or rights of termination, cancellation, or acceleration) as to
which requisite waivers or consents have been obtained or will be obtained
prior to the Closing, (iv) violate any order, writ, or injunction or
decree to which the Buyer is bound or may be bound, or (v) to the
knowledge of the Buyer, violate any decree, statute, rule, or regulation
to which the Buyer is bound or may be bound.
(c) LITIGATION; ORDERS. There is no Litigation, judgment or
outstanding order, writ, injunction, decree, stipulation or award (whether
rendered by a court or administrative agency, or by arbitration) pending
or, to Buyer's knowledge, threatened to which Buyer is bound that would
have an adverse effect on the ability of the Buyer to consummate the
transactions contemplated hereby or that would prevent or delay in any
material respect the consummation of the transactions contemplated hereby.
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(d) VALIDITY AND ENFORCEABILITY. Buyer has the power and authority
to execute and deliver this Agreement and the Bill of Sale. The execution
and delivery by Buyer of this Agreement and the Bill of Sale and the
consummation by the Buyer of the transactions and performance of the terms
and conditions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on behalf of Buyer. This
Agreement has been, and at the Closing the Bill of Sale will be, duly and
validly executed and delivered by the Buyer and this Agreement
constitutes, and at the Closing the Bill of Sale will constitute, valid
and binding obligations of the Buyer, enforceable against the Buyer in
accordance with their respective terms (except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, bank
moratorium, fraudulent conveyance or similar laws affecting creditors'
rights generally, general principles of equity and laws restricting the
availability of equitable remedies).
(e) BROKERAGE. No investment banker, broker, finder or other person
is entitled to any brokerage or finder's fee or similar commission in
respect of this Agreement or the transactions contemplated hereby based in
any way on agreements, arrangements or understandings made by or on behalf
of the Buyer.
5.02 REPRESENTATIONS AND WARRANTIES OF DI. DI represents and warrants to
the Seller Parties as set forth below:
(a) ORGANIZATION AND POWERS. DI is a corporation duly organized,
validly existing, and in good standing under the laws of the state of
Texas. DI has all power and authority necessary to conduct its business as
presently conducted, and to own, lease, or operate all properties now
owned, leased, or operated by DI.
(b) AGREEMENTS AND CONSENTS. Neither the execution, delivery, nor
performance of this Agreement will: (i) conflict with or result in any
breach of any provisions of the charter or bylaws of DI; (ii) to DI's
knowledge, require the consent, approval, authorization or permission of,
or filing with or notification to, any governmental or regulatory
authority; (iii) violate, effect acceleration of, or result in
termination, cancellation, or modification of any material agreement,
indenture, instrument, lease, or contract to which DI is a party or is
bound; (iv) violate any order, writ, or injunction or decree to which DI
is bound or may be bound, or (v) to the knowledge of DI, violate any
decree, statute, rule, or regulation to which DI is bound or may be bound.
(c) LITIGATION; ORDERS. There is no Litigation, judgment or
outstanding order, writ, injunction, decree, stipulation or award (whether
rendered by a court or
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administrative agency, or by arbitration) pending or, to DI's knowledge,
threatened to which DI is bound that would have an adverse effect on the
ability of DI to consummate the transactions contemplated hereby or that
would prevent or delay in any material respect the consummation of the
transactions contemplated hereby.
(d) VALIDITY AND ENFORCEABILITY. DI has the power and authority to
execute and deliver this Agreement. The execution and delivery by DI of
this Agreement and the consummation by DI of the transactions and
performance of the terms and conditions contemplated hereby have been duly
and validly authorized by all necessary corporate action on behalf of DI.
This Agreement has been duly and validly executed and delivered by DI and
this Agreement constitutes a valid and binding obligation of DI,
enforceable against DI in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, bank moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, general principles of equity and
laws restricting the availability of equitable remedies).
(e) BROKERAGE. No investment banker, broker, finder or other person
is entitled to any brokerage or finder's fee or similar commission in
respect of this Agreement or the transactions contemplated hereby based in
any way on agreements, arrangements or understandings made by or on behalf
of DI.
(f) AUTHORIZATION FOR DI SHARES. DI has taken all necessary action
to permit it to issue the DI Shares. The DI Shares will, when issued, be
validly issued, fully paid and nonassessable and not subject to preemptive
rights.
(g) DI DOCUMENTS. DI has provided to the Sellers its Annual Report
on Form 10-K for the year ended December 31, 1995, its Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, its Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, and its proxy statement
with respect to the Annual Meeting of Shareholders of DI held on August
27, 1996 (such documents collectively referred to herein as the "SEC
Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder applicable
to such SEC Documents. None of the SEC Documents contained any untrue
statements of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of DI included in the SEC Documents comply as to
form in all material respects with applicable
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accounting requirements and the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved. Since June 30, 1996, other than as discussed
in the SEC Documents, there has been no material adverse change in the
business of DI and its subsidiaries, taken as a whole.
5.03 KNOWLEDGE. The term "knowledge", when used in this Article V with
respect to DI or the Buyer, shall mean the actual present knowledge of Ivar
Siem, Chairman of the Board of Directors of DI and the Buyer, Thomas P.
Richards, President and Chief Executive Officer of DI and the Buyer, and T.
Scott O'Keefe, Chief Financial Officer of DI and the Buyer, in each case based
only on such investigation as would normally occur within the scope of their
normal duties.
5.04 TAX MATTERS. Notwithstanding anything herein to the contrary, neither
DI, the Buyer, or any of their affiliates or representatives have made any
representation or warranty, express or implied, relating to the Tax consequences
to the Seller Parties which may accrue from the consummation of the transactions
contemplated in this Agreement; PROVIDED, HOWEVER, that DI and the Buyer,
jointly and severally, covenant and agree that (i) DI and the Buyer shall report
for all tax purposes the acquisition of the Assets of Meritus as a
"reorganization" described in section 368(a)(1)(C) of the Code, (ii) neither DI
nor the Buyer has any plan or intention to reacquire any of its stock issued in
the transactions contemplated by this Agreement, (iii) the Buyer has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code, (iv) following the transaction, the Buyer will
continue the historic business of Meritus or use a significant portion of
Meritus' historic business assets in a business, and (v) neither DI nor the
Buyer are "investment companies" as defined in section 368(a)(2)(F)(iii) and
(iv) of the Code.
ARTICLE VI
CONDUCT OF BUSINESS
Except as expressly provided in this Agreement, during the period from the
date hereof to the Closing, the Seller Parties shall operate the Assets only in
the ordinary course of business consistent with past practice and use their
commercially reasonable efforts to operate such Assets in compliance with all
applicable laws, and the Sellers shall use their commercially reasonable efforts
to (i) preserve, maintain, and protect the Assets, (ii) preserve intact their
respective business organizations and work force, (iii) maintain in effect any
of their respective authorizations or similar rights, (iv) maintain and keep the
Assets in as good a repair and condition as presently exists, and (v)
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maintain in full force and effect insurance with respect to the Assets
comparable in amounts and scope of coverage to that currently maintained by
them. Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Closing, no Seller Party
shall, without the prior written consent of the Buyer:
(a) make any material change in the ongoing operations of the Assets
or amend or agree to terminate any of the Drilling Contracts;
(b) mortgage or pledge any of the Assets or create any
Lien thereon, other than any Permitted Lien;
(c) sell, lease, transfer, or otherwise dispose of,
directly or indirectly, any of the Assets;
(d) terminate the employment of any of the Employees or hire any
additional Employees, or change or agree to change the compensation
payable to the Employees or the benefits to which any of such Employees
are entitled; or
(e) enter into any agreement to provide services
utilizing any of the Assets.
Notwithstanding the foregoing, the Buyer and DI agree that (i) the Partnership
and the LLC shall be permitted to distribute to Meritus an undivided interest in
their respective Assets to allow Meritus to be in a position to transfer
substantially all of its assets to the Buyer as contemplated by Section
368(a)(1)(C) of the Code, and (ii) Mesa shall be permitted to sell its one
percent general partnership interest in the Partnership to Meritus.
ARTICLE VII
ADDITIONAL COVENANTS
7.01 PUBLIC ANNOUNCEMENTS. Without the prior written approval of the other
parties hereto, which approval shall not be unreasonably withheld, no party
hereto will issue, or permit any agent or affiliate to issue, any press releases
or otherwise make or cause any agent or affiliate to make, any public statements
with respect to this Agreement or the transactions contemplated hereby except
where such release or statement is deemed in good faith by the releasing party
to be required by applicable law or any national securities exchange. Any party
or parties issuing such a release or statement will use its or their reasonable
efforts to provide a copy to the other parties prior to the issuance of such
release or statement.
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7.02 TAX MATTERS.
(a) The term "Taxes" shall mean all income, gross receipts, profits,
franchise, sales, use, occupation, property (including in lieu-of-taxes),
ad valorem, capital, wealth, environmental, employment, severance,
production, excise, stamp, transfer, workers' compensation, social
security, value added, withholding or similar taxes, customs or import
duties, and all other taxes or other governmental fees or charges imposed
by any country or political subdivision thereof, together with any
interest, additions or penalties with respect thereto.
(b) The Buyer and the Seller Parties, collectively, shall each pay
fifty percent (50%) of any transfer taxes, including without limitation,
sales, use, excise, value added, stamp, documentary, filing, recording,
permit, license, authorization, and other similar Taxes, customs or import
duties, filing fees and similar charges ("Transfer Taxes"), incurred or
imposed in connection with or as a result of the transactions effected
pursuant to this Agreement regardless of upon whom such Transfer Tax is
levied or imposed by law.
(c) The Sellers shall be liable for all income and similar Taxes
incurred in connection with the sale of the Assets and all Taxes with
respect to the ownership and operation of the Assets for tax reporting
periods ending on or before the Effective Time. The Buyer shall be liable
for all Taxes imposed with respect to the ownership and operation of the
Assets for tax reporting periods beginning after the Effective Time. With
respect to any tax reporting period which includes the Effective Time (i)
property and other ad valorem Taxes accruing with respect to the Assets
shall be apportioned between the Sellers, on the one hand, and the Buyer,
on the other hand, based on the daily proration of such Taxes, and (ii)
any other Taxes accruing during such period shall be equitably apportioned
among the parties. The Sellers shall pay the Buyer at the Closing the
amount which the Buyer estimates in good faith to reflect the property and
other ad valorem Tax liability allocated to the Sellers pursuant to this
Section 7.02(c).
(d) The Seller Parties and the Buyer agree that the DI Shares shall
be allocated among the Assets for tax reporting and other purposes in the
manner set forth in Schedule 7.02(d). Each party agrees to complete IRS
Form 8594 and any other forms or reports required by the Internal Revenue
Service or any other taxing authority in a manner which is consistent with
the agreed allocation and to furnish the other parties hereto with a draft
copy of such form within a reasonable period before the filing due date of
such form.
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7.03 FURTHER ASSURANCES. After the Closing, the Seller Parties and the
Buyer shall, and shall cause their affiliates to, execute, acknowledge, and
deliver all such further conveyances, notices, assumptions, releases, and
acquittances, and such other instruments, and shall take such further actions,
as may be necessary or appropriate more fully to assure to the Buyer, and its
successors or assigns, all of the properties, rights, titles, interests,
estates, remedies, powers, and privileges intended to be conveyed to the Buyer
pursuant to this Agreement and to assure fully to the Sellers, their affiliates
and successors and assigns, the assumption of the liabilities and obligations
intended to be assumed by the Buyer pursuant to this Agreement.
7.04 CASUALTY LOSS AND CONDEMNATION. In the event that there exists prior
to the Effective Time any casualty loss or condemnation proceeding with respect
to the Assets, the Sellers shall assign to the Buyer at and as of the Closing
any rights it may have to claims against any governmental entity or third party
with respect to such casualty loss or condemnation proceeding. If a casualty
loss has occurred subsequent to the execution of this Agreement but prior to the
Effective Time, the Sellers will cause such Assets to be repaired as soon as may
be reasonably practicable, in which event the claims described in the
immediately preceding sentence, if any, shall be retained by the Sellers. To the
extent it is impractical or uneconomical to repair the damage caused by such
casualty loss, the amount of DI Shares shall be proportionately reduced to
reflect the value of such damage to the Assets, net of (i) insurance proceeds
assigned to Buyer under this Section, and (ii) the value of any of the claims
described in the first sentence of this Section that are assigned to Buyer under
this Section. The Buyer and DI shall negotiate in good faith to determine the
amount of the reduction of DI Shares required pursuant to this Section.
7.05 SATISFACTION OF CONDITIONS. All of the parties hereto agree to use
their reasonable efforts to cause each of the conditions precedent set forth in
Article IX to be satisfied before October 31, 1996. The Sellers or the Buyer and
DI shall use their respective reasonable efforts to obtain all consents,
approvals, orders, authorizations, and waivers of, and to effect all
declarations, filings, and registrations with, all third parties (including
governmental entities) that are necessary or required to enable the Sellers to
transfer the Assets to the Buyer as contemplated by this Agreement and to
otherwise consummate the transactions contemplated hereby.
7.06 EMPLOYEES. On the Closing Date, and effective as of and conditioned
on the occurrence of the Closing, (i) Seller Parties shall terminate the
employment of the Employees and shall pay any severance or other obligation owed
by Seller Parties to them, and shall not within six months of the Closing Date
directly or indirectly encourage or solicit any of the Employees to accept
employment with any party other than the Buyer, and (ii) the Buyer
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shall make an offer of employment at will to all of the Employees, with such
offers being contingent upon the Employees passing appropriate physical and drug
testing, and, upon acceptance of such offer by any such Employee, enter into an
at will employer-employee relationship with the Employee. Notwithstanding the
foregoing, Mesa shall be free to offer employment to Ben Blackburn to continue
with Mesa following the Closing.
7.07 INQUIRIES AND NEGOTIATIONS. The Seller Parties, their affiliates, and
their respective officers, directors, partners, managers, employees,
representatives and agents, shall immediately cease any existing discussions or
negotiations with respect to any acquisition of any portion of the Assets.
Unless and until this Agreement is terminated in accordance with Section 9.03
hereof, none of the foregoing shall, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to any person relating to or in connection with any proposed
acquisition of any of the Assets.
7.08 VICTORIA LOCATION. Mesa hereby grants to the Buyer the right to store
free of charge the Assets at the premises of Mesa in Victoria, Texas during any
period that Mesa holds leasehold rights with respect to the premises. At such
time as Mesa acquires ownership of such premises, Mesa will grant to the Buyer
the right to store the Assets at such premises pursuant to such lease terms as
shall be reasonably acceptable to both the Buyer and Mesa. All risk of loss and
taxes on such Assets shall be for the account of the Buyer. DI and the Buyer
shall promptly remove the Assets from the Victoria, Texas location if Mesa no
longer has an ownership or leasehold interest in such location or is prohibited
by the landlord from continuing the storage of the Assets on behalf of the Buyer
pursuant to this Section.
7.09 HEALTH BENEFITS. Buyer and DI agree that, with respect to any
Employees who are hired as new employees of Buyer or DI in connection with the
transactions contemplated in this Agreement (the "New Employees"), Buyer and DI
shall take all actions necessary or appropriate to permit the New Employees and
their dependents who were participating in a group health plan maintained by any
Seller Party immediately prior to the Closing Date to immediately, effective as
of the Closing Date, participate in a group health plan maintained by Buyer or
DI, modified to the extent necessary to (i) provide medical and dental benefits
to such New Employees and such dependents effective immediately upon the
cessation of coverage of such individuals under the Seller Party's group health
plan, (ii) credit to such New Employees with any deductible payments made by
them under the Seller Party's group health plan, and (iii) waive any preexisting
condition restrictions except to the extent such New Employees were subject to a
preexisting condition limitation under the Seller Parties' health plans.
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ARTICLE VIII
REGISTRATION RIGHTS
8.01 REGISTRATION. Within 20 days after the Effective Time, DI will file a
registration statement under the Securities Act to register the sale by the
Sellers and Ultimate Owners (the Sellers and the Ultimate Owners are
collectively referred to herein as "Shareholders" or individually as a
"Shareholder") of the DI Shares (references in this Article VIII to "DI Shares"
shall be deemed to include any shares of common stock received by the
Shareholders on account of any stock split, stock dividend or merger of DI)
pursuant to an "at the market" non-underwritten distribution and will use its
commercially reasonable efforts to cause such registration statement to become
effective as promptly as practicable. Prior to or contemporaneously with such
registration statement becoming effective, DI will list the DI Shares with the
American Stock Exchange, Inc.
8.02 PROCEDURE. With respect to such registration statement,
DI will,
(a) as expeditiously as reasonably practicable, prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with
the provisions of the Securities Act with respect to the disposition of
such DI Shares covered by such registration statement in accordance with
the intended method of distribution set forth in such registration
statement;
(b) as expeditiously as reasonably practicable, furnish to each of
the Shareholders such number of copies of a prospectus and preliminary
prospectus in conformity with the requirements of the Securities Act, and
such other documents as the Shareholders may reasonably request, in order
to facilitate the public sale or other disposition of such DI Shares owned
by the Shareholders; PROVIDED, HOWEVER, that the obligation of DI to
deliver copies of prospectuses or preliminary prospectuses to the
Shareholders shall be subject to the receipt by DI of reasonable
assurances from the Shareholders that they will comply with the applicable
provisions of the Securities Act and of such other securities laws as may
be applicable in connection with any use by them of any prospectuses or
preliminary prospectuses;
(c) as expeditiously as practicable, use its commercially reasonable
efforts to register or qualify the DI Shares covered by such registration
statement under such other securities laws of such United States
jurisdictions as the Shareholders making such request shall reasonably
request
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(considering the nature and size of the offering) and do any and all other
acts and things which may be necessary or desirable to enable the
Shareholders making such request to consummate the public sale or other
disposition in such jurisdictions of the DI Shares owned by such
Shareholders, provided, however, that the Company shall not be required to
qualify to transact business as a foreign corporation in any jurisdiction
in which it would otherwise not be required to be so qualified or to take
any action which would subject it to general service of process in any
jurisdiction in which it is not then so subject;
(d) bear all Registration Expenses (as defined below) in connection
with all registrations hereunder; provided, however, that all Selling
Expenses (as defined below) of the DI Shares held by the Shareholders and
all fees and disbursements of counsel for the Shareholders in connection
with each registration pursuant to this Agreement shall be borne by such
Shareholders pro rata in proportion to the number of DI Shares or in such
proportion as they may agree. For purposes of this Section 8.02, expenses
incurred by DI in complying with this Article VIII, including, without
limitation: (i) all registration and filing fees; (ii) all printing
expenses; (iii) all fees and disbursements of counsel for DI; (iv) all
blue sky fees and expenses; and (v) all fees and expenses of accountants
for DI, are herein referred to as "Registration Expenses". All discounts
and brokerage and selling commissions applicable to the sales in
connection with any such registration are herein referred to as "Selling
Expenses"; and
(e) keep such registration effective for a period of two years or
such shorter period of time until the transfer or sale by the Shareholders
of all DI Shares so registered has been completed.
8.03 INDEMNIFICATION. In connection with the registration of any DI Shares
under the Securities Act pursuant to this Agreement, DI will indemnify and hold
harmless each selling Shareholder and any other person, if any, who controls
such selling Shareholder within the meaning of Section 15 of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such selling Shareholder or such controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities or actions in respect thereof arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such DI
Shares were registered under the Securities Act, any preliminary prospectus
distributed with the consent of DI or final prospectus contained therein, or any
amendment thereof or supplement thereto, including all documents incorporated by
reference therein, or arise out of or are based upon the omission
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or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each such Shareholder and each such controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that DI will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, such preliminary prospectus, such final
prospectus or such amendment or supplement, including all documents incorporated
by reference therein, in reliance upon and in conformity with information
furnished in writing to DI by or on behalf of any of the Shareholders or a
controlling person of any of the Shareholders specifically for use in the
preparation thereof.
In connection with the registration of any DI Shares under the Securities
Act pursuant to this Agreement, each Seller will severally, as to such Seller,
indemnify and hold harmless DI and each person, if any, who controls DI within
the meaning of Section 15 of the Securities Act, each officer of DI who signs
the registration statement and each director of DI, against any and all such
losses, claims, damages, liabilities or actions which DI or such officer,
director or controlling person may become subject under the Securities Act or
otherwise, and will reimburse DI, each such officer, director and controlling
person for any legal or any other expenses reasonably incurred by such party in
connection with investigating or defending any such loss, claim, damage,
liability or action, if (a) such loss, claim, damage, liability or action in
respect thereof arises out of or is based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement or any such prospectus, or any amendment thereof or supplement
thereto, or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading and (b) any such statement or omission of
a material fact was made in reliance upon and in conformity with information
furnished in writing to DI by or on behalf of the Seller specifically for use in
connection with the preparation of such registration statement or prospectus.
Prior to the filing of the registration statement which covers the DI Shares of
any Ultimate Owner, DI shall be entitled to require such Ultimate Owner to
execute an agreement pursuant to which such Ultimate Owner agrees to indemnify
DI to the same extent that the Sellers are required to indemnify DI pursuant to
this paragraph.
Promptly after receipt by any indemnified person of notice of any claim or
commencement of any action in respect of which indemnity is to be sought against
an indemnifying person pursuant to this Agreement, such indemnified person shall
notify the indemnifying person in writing of such claim or of the commencement
of such action, and, subject to provisions hereinafter stated, in
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case any such action shall be brought against an indemnified person and such
indemnifying person shall have been notified of the same, such indemnifying
person shall be entitled to participate therein, and, to the extent it shall
wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified person, and after notice from the indemnifying person to such
indemnified person of its election to assume the defense thereof, such
indemnifying person shall not be liable to such indemnified person in connection
with the defense thereof; provided, however, if there exists or will exist a
conflict of interest which would make it inappropriate in the reasonable
judgment of the indemnified person for the same counsel to represent both the
indemnified person and such indemnifying person then such indemnifying person
shall be entitled to retain its own counsel at the expense of such indemnifying
person.
8.04 VOLUME LIMITATIONS. On three business days prior written notice by DI
to the Shareholders that, in the good faith judgment of the Board of Directors
of DI expressed by resolution specifying the reason therefor, DI reasonably
believes that the sale or distribution of the DI Shares at the time requested
would materially and adversely affect a pending or proposed offering of
securities of DI, an acquisition, merger, recapitalization, consolidation,
reorganization or similar transaction relating to DI or its affiliates or
negotiations, discussions or pending proposals with respect thereto or would
require premature disclosure of information not otherwise required to be
disclosed to the potential detriment of DI, the Shareholders agree that no sale
or transfer by any of them or their Assigns (as hereinafter defined) of any of
the DI Shares shall be permitted to the extent such sale or transfer would cause
the amount of DI Shares so sold or disposed of by the Shareholders and their
Assigns on that trading day to exceed ten percent (10%) of the average daily
reported volume of trading in the Common Stock of DI on the national securities
exchange and/or the automated quotation system on which the Common Stock of DI
is then traded during the thirty (30) trading days preceding such date. Sales or
transfers which are effected as "brokers transactions" (as defined under Rule
144 of the Securities Act) shall be the only sales or transfers subject to the
restrictions of this Section. A legend placing third parties on notice of the
restrictions of this Section shall be placed on the certificates representing
the DI Shares. The term "Assigns" shall mean any person who acquired DI Shares
directly or indirectly from a Seller and who directly or indirectly through its
affiliates is the beneficial owner of more than One Hundred Thousand (100,000)
DI Shares.
ARTICLE IX
CONDITIONS TO CLOSING; TERMINATION
9.01 CONDITIONS TO THE BUYER'S AND DI'S OBLIGATION TO CLOSE. The
obligation of the Buyer and DI to consummate the transactions
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contemplated hereby is subject to the satisfaction or waiver at or prior to the
Closing of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Seller Parties contained in this Agreement shall be true
and correct in all material respects at and as of the Closing with the
same effect as though such representations and warranties had been made at
and as of the Closing, except for the representations and warranties that
speak as of a specific date or time other than the date of this Agreement,
which need only be true and correct as of such date or time.
(b) COMPLIANCE WITH COVENANTS. The Seller Parties shall have
performed in all material respects the covenants and agreements to be
performed by the Seller Parties on or before the Closing in accordance
with this Agreement.
(c) OFFICER'S CERTIFICATE. The Buyer shall have received at the
Closing a certificate confirming the matters referred to in Section 9.01
(a) and (b) dated the Closing Date and validly executed on behalf of the
Seller Parties by duly authorized officers, managers, or general partners
thereof.
(d) NO INJUNCTION. At and as of the Closing, there shall be no
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect or
is threatened that restrains or prohibits the Closing.
(e) ALL NECESSARY CONSENTS AND APPROVALS. All material consents and
approvals of third parties (including governmental entities) necessary or
required in connection with the consummation of the transactions
contemplated to occur at the Closing shall have been obtained.
(f) OPINION OF COUNSEL. The Buyer shall have received opinion of
counsel to the Seller Parties, dated the Closing Date, in the form of
Exhibit 9.01(f)A and the opinion of counsel to Advantage Income Fund Ltd.,
in the form of Exhibit 9.01(f)B.
9.02 CONDITIONS TO THE OBLIGATION OF THE SELLER PARTIES TO CLOSE. The
obligation of the Seller Parties to consummate the transactions contemplated
hereby is subject to the satisfaction or waiver at or prior to the Closing of
all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Buyer and DI contained in this Agreement shall be true
and correct in all material respects at and as of the Closing with the
same effect as though such representations and warranties had been made at
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and as of the Closing, except for the representations and warranties that
speak as of a specific date or time other than the date of this Agreement,
which need only be true and correct as of such date or time.
(b) COMPLIANCE WITH COVENANTS. The Buyer and DI shall have performed
in all material respects the covenants and agreements to be performed by
such parties at or before the Closing in accordance with this Agreement.
(c) OFFICER'S CERTIFICATE. The Sellers shall have received at the
Closing a certificate confirming the matters referred to in Section 9.02
(a) and (b) dated the Closing Date and validly executed on behalf of the
Buyer and DI by duly authorized officers thereof.
(d) NO INJUNCTION. At and as of the Closing, there shall be no
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect or
is threatened that restrains or prohibits the Closing.
(e) ALL NECESSARY CONSENTS AND APPROVALS. All material consents and
approvals of third parties (including governmental entities) necessary or
required in connection with the consummation of the transactions
contemplated to occur at the Closing shall have been obtained.
(f) OPINION OF COUNSEL. The Seller Parties shall have received an
opinion of Cokinos, Bosien & Young, legal counsel to the Buyer and DI,
dated the Closing Date, in the form of Exhibit 9.02(f).
9.03 TERMINATION.
(a) TERMINATION OF AGREEMENT. Prior to the Closing the parties
hereto may terminate this Agreement as provided below:
(i) The Buyer, DI, and the Seller Parties may terminate this
Agreement by mutual written consent at any time;
(ii) the Buyer or DI may terminate this Agreement by giving
written notice to the Seller Parties at any time prior to the Closing (A)
in the event any of the Seller Parties have breached any representation,
warranty, or covenant contained in this Agreement in any material respect,
the Buyer or DI has notified the Seller Parties of the breach, and the
breach has continued without cure for a period of 15 days after the notice
of breach or (B) if the Closing shall not have occurred on or before
October 31, 1996, by reason of the failure of any condition precedent
under Section 9.01 (unless the failure results primarily from either of
the Buyer or DI breaching any
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representation, warranty, or covenant contained in this Agreement); and
(iii) the Seller Parties may terminate this Agreement by
giving written notice to DI and the Buyer at any time prior to the Closing
(A) in the event DI or the Buyer has breached any representation,
warranty, or covenant contained in this Agreement in any material respect,
the Seller Parties have notified DI and the Buyer of the breach, and the
breach has continued without cure for a period of 15 days after the notice
of breach or (B) if the Closing shall not have occurred on or before
October 31, 1996, by reason of the failure of any condition precedent
under Section 9.02 (unless the failure results primarily from any of the
Sellers breaching any representation, warranty, or covenant contained in
this Agreement).
(b) EFFECT OF TERMINATION. If any party terminates this Agreement
pursuant to the preceding Section (a), all rights and obligations of the
parties hereunder shall terminate without any liability of any party to
any other party (except for any liability of any party then in breach);
provided, however, that the provisions contained in Section 7.01 shall
survive termination.
ARTICLE X
INDEMNIFICATION
10.01 INDEMNIFICATION BY THE SELLERS. Meritus and Mesa shall jointly and
severally indemnify, defend, and hold harmless the Buyer and DI (and their
respective directors, officers, employees, affiliates, successors, and assigns)
from and against any duties, obligations, and liabilities ("Obligations") based
upon, arising out of or otherwise in respect of (a) any inaccuracy in or breach
of any representation, warranty, or covenant of any of the Seller Parties
contained in this Agreement; (b) any Obligations arising out of, in connection
with, or otherwise in respect to the ownership or operation of the Assets before
the Effective Time, including any Permitted Liens, (c) any liability for Taxes
the responsibility for the payment of which is retained by the Sellers pursuant
to Section 7.02(b) or Section 7.02(c); (d) any liability with respect to the
Employees relating to periods prior to the Effective Time relating to their
employment by the Seller Parties; and (e) the activities of the Seller Parties
prior to the Effective Time; provided, however, that the aggregate liability of
Meritus and Mesa under this Section 10.01 shall be limited to the value of the
DI Shares (based on the closing price thereof on the Closing Date as reported by
the American Stock Exchange, Inc.).
10.02 INDEMNIFICATION BY THE DI AND BUYER. DI and the Buyer shall jointly
and severally indemnify, defend, and hold harmless each of the Seller Parties
(and their respective directors,
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officers, employees, partners, affiliates, successors, and assigns) from and
against any Obligations based upon, arising out of or otherwise in respect of
(a) any inaccuracy in or breach of any representation, warranty, or covenant of
the Buyer or DI contained in this Agreement, (b) any liability for Taxes the
responsibility for the payment of which is assumed by the Buyer pursuant to
Section 7.02(b) or Section 7.02(c), (c) any Obligations arising out of, in
connection with, or otherwise in respect to the ownership or operation of the
Assets after the Effective Time, and (d) any Obligation relating to the
employment of any of the Employees by the Buyer subsequent to the Effective
Time, including liabilities arising thereby under the Worker Adjustment and
Retraining Notification Act or the Consolidated Omnibus Budget Reconciliation
Act of 1995; provided, however, that the aggregate liability of DI and the Buyer
under this Section 10.02 shall be limited to the value of the DI Shares (based
on the closing price thereof on the Closing Date as reported by the American
Stock Exchange, Inc.).
10.03 NOTICE OF ASSERTED LIABILITY. Promptly after receipt by any party
hereto (the "Indemnitee") of notice of any demand, claim, or circumstance which,
with the lapse of time, would give rise to a claim or the commencement (or
threatened commencement), or any action, proceeding, or investigation (an
"Asserted Liability") that may result in an Obligation, the Indemnitee shall
give notice thereof (the "Claims Notice") to the other party hereto (the
"Indemnifying Party"). The Claims Notice shall describe the Asserted Liability
in reasonable detail, and shall indicate the amount (estimated, if necessary) of
the Obligation that has been or may be suffered by the Indemnitee.
10.04 OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability and if it does so the Indemnifying Party shall have the right to make
all judgments and decisions in respect of the handling of the defense of such
Asserted Liability and the settlement or compromise of the Asserted Liability,
subject to the provisions of this Section 10.04. If the Indemnifying Party
elects to defend such Asserted Liability, it shall within 30 days of the Claims
Notice (or sooner, if the nature of the Asserted Liability so requires) notify
the Indemnitee of its intent to do so, and the Indemnitee shall cooperate, as
requested by and at the expense of the Indemnifying Party, in the compromise of,
or defense against, such Asserted Liability. If the Indemnifying Party elects
not to defend the Asserted Liability, fails to notify the Indemnitee of its
election as herein provided or contests its obligation to indemnify under this
Agreement, the Indemnitee may pay, compromise, or defend such Asserted
Liability. Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnitee may settle or compromise any claim subject to indemnification over
the objection of the other; provided, however, that consent to settlement or
compromise shall not be unreasonably withheld. In any event, the Indemnitee and
the Indemnifying Party may participate, at their own expense, in the defense of
such
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Asserted Liability. If the Indemnifying Party chooses to defend any claim, the
Indemnitee shall make available to the Indemnifying Party any books, records, or
other documents within its control that are necessary or appropriate for such
defense.
10.05 NEGLIGENCE AND STRICT LIABILITY WAIVER. The indemnification provided
for in this Article X shall be applicable regardless of whether Obligations in
question arose solely or in part from the ACTIVE, PASSIVE, OR CONCURRENT
NEGLIGENCE OF ANY INDEMNITEE (OR UNDER ANY THEORY OF STRICT LIABILITY) prior to
the Effective Time or after the Effective Time, as the case may be.
10.06 EXCLUSIVE REMEDY. After the Closing, and to the extent permitted by
applicable law, the rights and remedies expressly set forth in this Agreement
shall be the exclusive rights and remedies of the parties hereto with respect to
or which concern the sale of the Assets and the issuance of the DI Shares
pursuant to the terms hereof.
10.07 SURVIVAL. The several representations and warranties of the parties
to this Agreement shall survive the Closing Date and shall remain in full force
and effect for a period of eighteen (18) months following the Closing Date;
provided, however that the representations and warranties contained in Sections
4.01(e), (j), (k), or (q), 5.01(e) and 5.02(e), and (f) shall survive the
Closing Date without limitation. The representations and warranties set forth in
Section 4.01(n) and (o) shall expire upon the lapse of the applicable statute of
limitations. The covenants and agreements entered into pursuant to this
Agreement shall survive the Closing Date without limitation.
ARTICLE XI
MISCELLANEOUS
11.01 INSPECTION AND DUE DILIGENCE REVIEW. At any time subsequent to the
date hereof and prior to Closing, during normal business hours with a minimum of
disruption to the activities of the Sellers, the Buyer shall be provided access
to the Assets and the opportunity to conduct such inspection of the Assets and
other due diligence relating to the Assets and this Agreement as it shall
determine in its sole discretion to be appropriate.
11.02 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
11.03 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without reference to the
conflicts of law principles thereof.
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<PAGE>
11.04 ENTIRE AGREEMENT. The Agreements and the Schedules and Exhibits
hereto supersede all prior agreements between the parties (written or oral) and,
except as aforesaid, is intended as a complete and exclusive statement of the
terms of the agreement between the parties. This Agreement may be amended only
by a written instrument duly executed by the parties.
11.05 EXPENSES. Except as expressly set forth in this Agreement, whether
the transactions contemplated hereby are or are not consummated, all legal and
other costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses.
11.06 NOTICES. All notices hereunder shall be sufficiently given (and
deemed made) for all purposes hereunder if in writing and (a) delivered
personally, (b) sent by documented overnight delivery service, (c) to the extent
receipt is confirmed, sent by telecopy, telefax, or other electronic
transmission service to the appropriate address or number as set forth below, or
(d) sent by United States mail, postage prepaid with return receipt requested.
Notices to DI or the Buyer shall be transmitted or addressed to:
450 Gears Road, Suite 625
Houston, Texas 77067
Attention: President
Telecopier No.: (713) 874-0195
with a copy to:
Cokinos, Bosien & Young
1500 Liberty Tower
2919 Allen Parkway
Houston, Texas 77019
Attention: Mr. Casey W. Doherty
Telecopier No.: (713) 535-5533
or at such other addresses or telefax numbers and to the attention of such other
person as Buyer or DI may designate by written notice to each of the other
parties.
Notices to Seller Parties shall be transmitted or addressed to:
Mesa Drilling, Inc.
Three Riverway, Suite 720
Houston, Texas 77056
Attention: President
Telecopier No.: (713) 993-7084
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<PAGE>
with a copy to:
Fulbright & Jaworski, L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Mr. Henry W. Hope
Telecopier No.: (713) 651-5246
or at such other addresses or telefax numbers and to the attention of such other
person as each of the Seller Parties may designate by written notice to each of
the other parties.
11.07 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that no party hereto may assign its rights or
delegate its obligations under this Agreement without the express prior written
consent of each other party hereto. Notwithstanding anything contained in this
Agreement to the contrary, the Buyer and DI understand and consent to the fact
that, following the Closing, the Sellers will liquidate and distribute all of
the Assets to the Ultimate Owners; provided, however, that prior to such
distribution, (i) the Sellers notify DI and the Buyer of such distribution, (ii)
with respect to the liquidation of, and the distribution by, Meritus, the
shareholders of Meritus deliver to DI and the Buyer a written undertaking to
jointly and severally assume the obligations of Meritus in the form of Exhibit
11.07(a), and (iii) DI and the Buyer receive in such form as shall be reasonably
acceptable to DI and the Buyer an opinion of counsel for Spencer Finance Corp.
regarding the matters set forth in this Section 11.07 to the effect of Exhibit
11.07(b).
11.08 HEADINGS. The section and article headings contained in this
Agreement are inserted for convenience of reference only and will not affect the
meaning or interpretation of this Agreement.
11.09 SEVERABILITY. If any term or provision of this Agreement is invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any material adverse manner
to any party. Upon such determination that any term or other provision is
invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
11.10 CONSENT TO JURISDICTION. Any legal action, suit, or
proceeding in law or equity arising out of this Agreement and the
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transactions contemplated hereby shall be brought exclusively in a federal or
state court situated in Harris County, Texas, and with respect to any such claim
the parties irrevocably waive, to the fullest extent permitted by law, any
claim, or any objection that it may now or hereafter have, that venue is not
proper with respect to any such suit, action, or proceeding brought in such a
court, including any claim that such suit, action, or proceeding brought in such
court has been brought in an inconvenient forum, that its property is exempt or
immune from attachment or execution, that venue of the action, suit, or
proceeding is improper, that this Agreement or the subject matter thereof may
not be enforced in or by such court, or that it is not subject to personal
jurisdiction or service of process in such Harris County forum. Each party
further irrevocably submits to the jurisdiction of any such court in any such
action, suit, or proceeding. any and all service of process and any other notice
in any such action, suit, or proceeding shall be effective against any party if
given by registered or certified mail, return receipt requested or by any other
means of mail which requires a signed receipt, postage prepaid, mailed to such
party at the address listed in Section 11.07. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner permitted
by law.
11.11 NO THIRD PARTY BENEFICIARIES. Except as provided in Article IX,
nothing in this Agreement shall entitle any person to any claim, cause of
action, remedy or right of any kind, other than (i) the Seller Parties, (ii) the
Buyer and DI, (iii) their respective successors and assigns permitted hereby,
and (iv) in the event of the distribution of the DI Shares by a Seller Party to
the Ultimate Owners, the Ultimate Owners of such Seller Party.
11.12 CROSS-REFERENCES. References in this Agreement to Articles,
Sections, Exhibits, or Schedules shall be deemed to be references to Articles,
Sections, Exhibits, and Schedules of this Agreement unless the context
specifically and expressly requires otherwise.
11.13 RULES OF CONSTRUCTION. The normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
applicable to the interpretation of the terms or provisions of this Agreement or
any agreement, instrument, or document executed or delivered in connection
herewith.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties as of the date first above written.
The Buyer: The Seller Parties:
DRILLERS, INC., MERITUS, INC., a
a Texas corporation Texas corporation
BY:/s/ IVAR SIEM BY:/s/ ERIK OSTBYE
NAME: Ivar Siem NAME: Erik Ostbye
TITLE:_____________________ TITLE: Treasurer
DI:
DI INDUSTRIES, INC., a Texas MESA RIG 4 L.L.C., a
corporation Texas limited liability
company
BY: /s/ IVAR SIEM BY: /s/ ASBJORN VAVIK
NAME: Ivar Siem NAME: Asbjorn Vavik
TITLE:_____________________ TITLE: Manager
MESA VENTURE, a
Texas general partnership
BY: /s/ ERIK OSTBYE
NAME: Erik Ostbye
TITLE: Treasurer
MESA DRILLING, INC., a
Texas corporation
BY:/s/ ASBJORN VAVIK
NAME: Asbjorn Vavik
TITLE: Managing Director
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 3, 1996, between DI
INDUSTRIES, INC., a Texas corporation (the "Company"), and THOMAS P. RICHARDS
(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, 1999 (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 President and Chief Executive Officer 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. The Company acknowledges that the Executive
has farming and ranching interests, holds working and royalty interests, owns an
interest in a family corporation which may engage in oil and gas servicing
business and may own working, carried or royalty interests in oil and gas wells,
none of which are or will be in competition with Company Business (as
hereinafter defined); provided, however, that the Executive (or his family
partnership or corporation) may own royalties with respect to mineral interests
owned by them prior to becoming part of Company 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 two hundred seventy-five thousand
dollars ($275,000) 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
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<PAGE>
each month, less such deductions as shall be required to be withheld by
applicable law and regulations.
2.2 BONUSES. The Executive shall receive an incentive bonus,
if earned, 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. The amount of the Incentive Bonus for the fiscal year ending December 31,
1996, shall be determined by the Board, in its sole discretion. The criteria for
determining the amount of the Incentive Bonus for each fiscal year thereafter
shall be set forth in a formalized plan which is prepared by the Board and
approved by the Compensation Committee of the Board and the Executive in advance
of such fiscal year included within the Term of this Agreement (including any
extension thereof). The Board shall use reasonable guidelines for establishing
such criteria, based upon the performance of the Executive, as measured by the
extent to which the Company achieves its business plan and with due regard to
eliminating any positive or negative effect on performance attributable solely
to drilling market conditions. The approval of the Executive to his bonus plan
shall not be unreasonably withheld or delayed.
2.3 GRANT OF OPTION. The Company agrees to grant the
Executive, in part pursuant to the terms of its existing stock option plan or to
newly adopted or amended stock option plans, options to acquire two million
(2,000,000) 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 that portion of such stock options designated by
the Executive to the Company on the date hereof 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 $3,000,000 (i.e.
$1.50 times 2,000,000). Contemporaneously with the execution of this Agreement,
the Company and the Executive shall enter into an NSO agreement for the benefit
of the Executive in the form attached hereto as Exhibit A. The NSOs may be
transferred by the Executive to a trust or partnership, the beneficiaries or
partners of which shall be and remain members of the Executive's immediate
family and lineal descendants. Any transferee of the NSOs shall be subject to
the terms of the NSOs, and no transfer of NSOs by such trust or partnership
shall be permitted without the consent of the Company; provided, however, that
such transfer limitations shall not apply to any stock issued upon the exercise
of any of the NSOs. The Company and the Executive acknowledge that the Executive
plans to transfer or assign all or substantially all of the NSOs to such a
family-owned limited partnership promptly after the date of grant. The 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 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. The
Company hereby agrees to use all reasonable efforts, at its expense, to register
with the Securities and Exchange Commission and under applicable state blue sky
laws, and to list with the American Stock Exchange or such other exchange on
which the Company shares are listed from time to time, the
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shares of Company common stock which will be delivered to the Executive and the
Executive's permitted assigns upon the exercise of the options granted to the
Executive pursuant to this Section 2.3, but only to the extent that such
registration can be accomplished on Form S-8 or Form S-3 (or similar or
successor forms). The Company agrees to use all reasonable efforts to file the
registration statement covering such registration and the listing application
covering such listing on or before December 31, 1996. The Executive shall be
consulted with regard to options granted to other senior executives of the
Company.
2.4 VACATION POLICY. The Executive shall be entitled to a paid
vacation of four 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. The Company shall
reimburse the Executive for 70% of his reasonable legal expenses incurred in
connection with the negotiation and preparation of this Agreement.
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 $45,000 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.
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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. The Executive
shall not during the Restricted Period acquire any interest in any oil or gas
wells that the Company is drilling or intends to drill. 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
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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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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 36 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 Chief Executive Officer 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 a location outside an area of metropolitan Houston,
Texas, designated on the map attached as Exhibit B to this Agreement; (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 or change by the
Company without the consent of the Executive in the method of determining
Executive's annual bonus that results in a reduction of such annual bonus,
calculated on the assumption that any objectives for full payment are attained
but not exceeded; (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
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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 each
member of the Board, 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 each member of the Board 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
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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.
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
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 part, in any such proceeding.
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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.
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.
(ii) if to the Executive, to:
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Thomas P. Richards
1318 Forest Brook
Sugarland, Texas 77478
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.
7.12 RELOCATION OF OFFICE. The Board shall, after consulting
with the Executive, select the location and office space for the Company's
corporate offices in the Houston, Texas, area in the area designated on the map
attached as Exhibit B to this Agreement.
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:
EXECUTIVE
/s/ THOMAS P. RICHARDS
Thomas P. Richards
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EXHIBIT 10.2
DI INDUSTRIES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION 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 THOMAS P.
RICHARDS, an individual (the "Optionee");
W I T N E S S E T H:
WHEREAS, as an inducement to Optionee's agreement to enter into a contract
of employment with the Corporation and to 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 under the terms of an Employment
Agreement dated as of even date herewith (the "Employment Agreement"); 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 two million (2,000,000)
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 $[the lesser of $1.50 or market at effective date of grant]
per share (hereinafter the "Exercise Price").
2. EXERCISE PERIOD. Subject to Sections 8(c) and 9, 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.
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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 in cash. If Optionee has transferred all or a
portion of the Options to the Partnership as contemplated by Section 4 below,
the Partnership shall be treated as the Optionee for purposes of the option
exercise provisions of this Section 3. For purposes of this Agreement, the fair
market value of a share of common stock on any particular date shall be the last
sales price of the Common Stock on that date as reported on a national
securities exchange or on the NASDAQ National Market System or, if last sale
reporting quotation is not available for the common stock, the average of the
bid and ask prices for the common stock at the end of the trading day, as
reported by NASDAQ or in the National Quotation Bureau, Inc.'s "Pink Sheets" or,
if such quotations are not available, such fair market value will be determined
by the mutual agreement of the Corporation and the holder of the Options,
without regard to any restriction other than a restriction that, by its terms,
will never lapse.
4. TRANSFERABILITY OF OPTION. Except as set forth below in this Section,
the Option shall not be transferable or assignable, in whole or in part, and
except as otherwise provided in this Section 4 or Section 9 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). The Corporation and Optionee acknowledge that Optionee plans
to transfer or assign some or all of the Options to a limited partnership owned
by members of the Optionee's immediate family (the "Partnership") promptly after
the date of this Agreement. Optionee agrees to ensure that no person obtains any
beneficial interest in the Partnership who is not a member of his immediate
family. The Corporation and the Optionee agree that the Optionee shall have the
right, upon written request to the Corporation, to designate a priority vesting
schedule as between the Options retained by Optionee and those Options
transferred to the Partnership. By way of illustration only, the Optionee may
determine that those Options retained by him shall vest first and those
transferred to the Partnership shall begin vesting only after the Options
retained by the Optionee have completely vested.
5. PAYMENT OF TAXES UPON EXERCISE. The Optionee understands and
acknowledges that under currently applicable law, at least as relates to the
options other than those options sold to the Partnership, 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 (to the extent that
the Corporation determines in good faith that such withholding is
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required under applicable law) out of any taxable income to be realized 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. SECURITIES LAW REQUIREMENTS; REGISTRATION The Corporation shall use all
reasonable efforts to ensure that the Options meet the requirements of Rule
16b-3, promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended. The Corporation , at the Corporation's expense, register with the
Securities and Exchange Commission and under applicable blue sky laws, and list
with the American Stock Exchange or such other exchange on which Corporation
shares are listed from time to time, the Option Shares, as such Option Shares
may be modified by Section 8 hereof, which will be delivered to Optionee (and
Optionee's transferees) upon the exercise of the Options. The Corporation shall
use all reasonable efforts to cause a registration statement covering such
registration and the listing application covering such listing on to be ordered
effective or approved on or before December 31, 1996. It is the intent of the
parties to this Agreement that Optionee (and Optionee's transferees) may sell
the shares of common stock of the Corporation immediately after the exercise of
the Options.
7. NO RIGHTS AS SHAREHOLDER. The Optionee (and Optionee's transferees)
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 (and
Optionee's transferees) of a stock certificate representing such Option Shares.
Except as otherwise provided in Section 8 hereof, the Optionee (and Optionee's
transferees) 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 (and Optionee's transferees), 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 (and Optionee's
transferees) as soon as practicable thereafter and in any event no later than
five (5) business days after receipt of the applicable Notice and Payment from
the Optionee (and/or Optionee's transferees).
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 surviving corporation, then the surviving
corporation may assume the Option or substitute
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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 a description of the material
terms and conditions thereof to be delivered to the Optionee (and
Optionee's transferees) at least thirty (30) days prior to the proposed
effective date (the "Effective Date") of such event. The Optionee (and
Optionee's transferees) shall be entitled to exercise the Option (as to
all Option Shares, whether or not the Option is not then otherwise
exercisable under Section 2) until the earlier of the Effective Date or
the Expiration Date. Notwithstanding the foregoing, in the event that
Optionee (and/or Optionee's transferees) is precluded from immediately
selling the Option Shares received upon the exercise of the Options by
applicable state or federal securities laws, the Corporation agrees to
loan to Optionee (and/or Optionee's transferees, if applicable) amounts
necessary to fund the Payments to the Corporation pursuant to Section 3
hereof upon the exercise of the Options. The loans contemplated by this
Section shall bear interest (at the average borrowing rate charged from
time to time on the Company's indebtedness to its principal lender or
lenders), shall be secured by the Option Shares issued upon the exercise
of the applicable Options and shall be repayable promptly after the lapse
of the securities laws restrictions which precluded the sale of the Option
Shares by Optionee (and Optionee's transferees, if applicable) immediately
after exercise of the Options. To the extent that the Merger, dissolution
or liquidation is consummated after the Expiration 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.
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(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. TERMINATION.Except as otherwise provided in this Section 9, if the
Optionee for any reason whatsoever 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 four years following the date of cessation of employment,
subject to the Expiration Date. Notwithstanding the foregoing:
(a) If the Optionee is terminated for cause (as defined in the
Employment Agreement), the Option will terminate as to all of the
unexercised Option Shares on the thirtieth day following such termination,
during which thirty days the Optionee may exercise the option as to the
Option Shares exercisable on or prior to the date of such termination for
cause.
(b) If the Optionee is terminated without cause (as defined in the
Employment Agreement), including a constructive termination without cause
(as described in Section 4.6 of the Employment Agreement), the Optionee
may exercise the Option as to all of the Option Shares (whether previously
vested or not); provided that any such exercise shall occur on or before
four years after the termination of Optionee's employment.
(c) If the Optionee becomes physically or mentally 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 two years year after the date of
disability or the Expiration Date, whichever is earlier.
" Physically or mentally disabled" shall have the meaning provided
in Section 4.5 of the Employment Agreement.
(d) 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 two (2) years after the date of
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death or the Expiration Date, whichever is earlier, and if not so
exercised, the Option shall thereupon terminate.
Nothing in (a), (b), (c) or (d) shall extend the time for exercising
the Option granted pursuant to this Agreement beyond the Expiration Date.
10. 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 disposition is
permissible under applicable state and federal securities laws.
11. 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: Thomas P. Richards
1318 Forest Brook
Sugar Land, Texas 77478
12. 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.
13. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Corporation and the Optionee relating to the subject
matter hereof.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
15. 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.
16. 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.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CORPORATION:
DI INDUSTRIES, INC.
By: /s/ IVAR SIEM
Name: Ivar Siem
Title: Chairman of the Board
OPTIONEE:
/s/ THOMAS P. RICHARDS
Thomas P. Richards
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ACKNOWLEDGMENT OF SPOUSE TO
TERMS OF NON-QUALIFIED STOCK OPTION AGREEMENT
I, Anita R. Richards, am the spouse of Thomas P. Richards ("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 day of September 3, 1996.
/s/ ANITA R. RICHARDS
Anita R. Richards
Spouse of Thomas P. Richards
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ANNEX I
DI INDUSTRIES, INC.
EXERCISE NOTICE
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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 agree that the shares purchased will only be transferable in compliance
with applicable securities laws.
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,
--------------------------------
(Signature)
--------------------------------
(Name)
Date:___________________________
