<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
DI INDUSTRIES, INC.
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(Name of Issuer)
Common Stock, $0.10 par value
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(Title of Class of Securities)
232909 10 1
----------------------------------------
(CUSIP Number)
Woods Mathews
Flournoy Drilling Company
1909 East Main Street
Alice, Texas 78332
(512) 664-8989
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(Name, Address and Telephone Number of
Person Authorized to Receive Notices and Communications)
January 31, 1997
----------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
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SCHEDULE 13D
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CUSIP NO. 232909 10 1
- -----------------------
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Flournoy Drilling Company
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
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SOURCE OF FUNDS (See Instructions)
4
00
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e)
Not Applicable
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Texas
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
12,426,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
12,426,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,426,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.0%
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TYPE OF REPORTING PERSON (See Instructions)
14
CO
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SCHEDULE 13D
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CUSIP NO. 232909 10 1
- -----------------------
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Lucien Flournoy
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
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SOURCE OF FUNDS (See Instructions)
4
00
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e)
Not Applicable
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Texas
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
12,426,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
12,426,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,426,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.0%
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TYPE OF REPORTING PERSON (See Instructions)
14
IN
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SCHEDULE 13D
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CUSIP NO. 232909 10 1
- -----------------------
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Maxine E. Flournoy
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
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SOURCE OF FUNDS (See Instructions)
4
00
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e)
Not Applicable
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Texas
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
12,426,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
12,426,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,426,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.0%
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TYPE OF REPORTING PERSON (See Instructions)
14
IN
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<PAGE>
SCHEDULE 13D
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CUSIP NO. 232909 10 1
- -----------------------
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Byron W. Fields
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
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SOURCE OF FUNDS (See Instructions)
4
00
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e)
Not Applicable
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Texas
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
12,426,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
12,426,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,426,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.0%
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TYPE OF REPORTING PERSON (See Instructions)
14
IN
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SCHEDULE 13D
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CUSIP NO. 232909 10 1
- -----------------------
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
F.C. West
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
2 (a) [_]
(b) [_]
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SEC USE ONLY
3
- -------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e)
Not Applicable
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Texas
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
12,426,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
12,426,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
12,426,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.0%
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TYPE OF REPORTING PERSON (See Instructions)
14
IN
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Item 1. Security and Issuer.
This statement relates to shares of common stock, par value $0.10 per share
(the "Common Stock"), of DI Industries, Inc., a Texas corporation ("DI"). The
principal executive office of DI is located at 450 Gears Road, Suite 625,
Houston, Texas 77067.
Item 2. Identity and Background.
The persons filing this statement are (i) Lucien Flournoy, Maxine E.
Flournoy, F.C. West, and Byron W. Fields, as directors (the "Directors") of
Flournoy Drilling Company ("FDC") and (ii) FDC. The Directors are also
shareholders of FDC. Lucien Flournoy and Maxine E. Flournoy are married, and
together they own beneficially approximately 57.4% of the issued and outstanding
stock of FDC. This Schedule 13D is filed on behalf of the Directors and FDC
pursuant to (i) Rule 13d-1(f)(1) promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and (ii) the Joint Filing Agreement dated effective February
6, 1997, between the Directors and FDC (the "Filing Agreement"). A copy of the
Filing Agreement is attached as an Exhibit to this Schedule 13D.
FDC's place of organization is the United States, its principal business is
drilling oil and gas wells, and the address of its principal business and office
is 1909 East Main Street, Alice, Texas 78332. All of the Directors are United
States citizens. The business address for Lucien Flournoy, Maxine E. Flournoy,
and Byron W. Fields is 1909 East Main Street, Alice, Texas 78332. The business
address for F. C. West is 1907 East Main Street, Alice, Texas 78332. Lucien
Flournoy is president and a director of both FDC and Flournoy Production
Company, which are located at 1909 East Main Street, Alice, Texas 78332. He is
also a director of DI. Maxine E. Flournoy is a director, and also serves as
executive vice president, secretary, and treasurer, of both FDC and Flournoy
Production Company. Byron W. Fields is vice president and a director of both FDC
and Flournoy Production Company. F. C. West is vice president and a director of
FDC, and also serves as Vice President of Drillers, Inc., a subsidiary of DI.
Neither FDC nor any of the Directors has, during the last five (5) years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction which (i) resulted in FDC or any
of the Directors being subject to a judgment, decree, or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws, or (ii) resulted in a finding of a violation with
respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
On January 31, 1997, FDC acquired 12,426,000 shares of the Common Stock in
a transaction in which Drillers, Inc. purchased the drilling company assets of
FDC in exchange for such Common Stock and the assumption by Drillers, Inc. of
approximately $800,000 of FDC bank debt. The highest price at which such Common
Stock was traded on the American Stock Exchange on January 31, 1997 was $3.1875
per share. By this measure, the aggregate value of the consideration paid for
such Common Stock was approximately $39,607,875.
2
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Item 4. Purpose of Transaction.
The Common Stock was acquired as consideration for the sale by FDC of
substantially all its drilling company assets to Drillers, Inc., as described in
Item 3 above.
Except as indicated otherwise in the next paragraph of this Item, neither
FDC nor the Directors have at this time any plans or proposals which relate to
or would result in:
(a) The acquisition by any person of additional securities of, or the
disposition of securities of, DI;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving DI or any of its subsidiaries;
(c) A sale or transfer of a material amount of assets of DI or any of its
subsidiaries;
(d) Any change in the present board of directors or management of DI,
including any plans or proposals to change the number or term of directors or to
fill any existing vacancies on the board;
(e) Any material change in the present capitalization or dividend policy of
DI;
(f) Any other material change in DI's business or corporate structure;
(g) Changes in DI's charter, bylaws, or instruments corresponding thereto
or other actions which may impede the acquisition of control of DI by any
person;
(h) Causing a class of securities of DI to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system or a registered or national securities association;
(i) A class of equity securities of DI becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the 1934 Act; or
(j) Any action similar to any of those enumerated above.
As noted in Item 2 above, Lucien Flournoy currently serves as a director of
DI. It is contemplated that, within the next 30 days, FDC will distribute the
Common Stock held by it to its shareholders, pro rata in accordance with their
ownership of FDC's stock. Each of the shareholders of FDC has signed a
Shareholder's Agreement with Drillers, Inc. and DI pursuant to which one-half of
the shares to be received by them in the contemplated dissolution of FDC
3
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shall be subject to an obligation on the part of DI to issue additional shares
if the shareholders hold value less than $2.00 per share on January 31, 1998.
See Item 6 below.
Item 5. Interest in Securities of the Issuer.
(a) The Directors and FDC are the beneficial owners of 12,426,000 shares
of the Common Stock. Such number of shares constitutes approximately 9.0% of the
outstanding shares of the Common Stock.
(b) FDC and the Directors, as directors of FDC, have shared power to
direct the voting and disposition of such shares.
(c) Other than FDC's January 31, 1997 acquisition of the 12,426,000
shares of Common Stock described above, during the past 60 days neither FDC nor
any of the Directors has acquired any shares of the Common Stock.
(d) No person other than FDC and the Directors is known to have the
right to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, any such shares.
(e) Non-applicable.
Item 6. Contracts, Arrangements, Understandings, or Relationships with Respect
to Securities of the Issuer.
1. Joint Filing Agreement.
On February 6, 1997, FDC and the Directors entered into a Filing
Agreement in which each party agreed that this Schedule 13D is to be filed on
behalf of each of them. Under the Filing Agreement, each party warranted that
(i) it is eligible to use this Schedule 13D and (ii) it is responsible for the
timely filing of this Schedule 13D, and any amendments thereon, and for the
completeness and accuracy of the information concerning it contained in this
Schedule 13D. Neither FDC nor any of the Directors are responsible for the
completeness or accuracy of the information concerning any other party making
this filing, unless such person knows or has reason to believe that such
information is inaccurate. A copy of the Filing Agreement is attached as an
Exhibit to this Schedule 13D, and this summary is qualified in its entirety by
reference to the Exhibit.
2. Shareholders' Agreements.
Each of the Directors, in their capacities as shareholders of FDC, is a
party to a Shareholder's Agreement with DI and Drillers, Inc. The other
shareholders of FDC are also parties to Shareholder's Agreements with DI and
Drillers, Inc. The Shareholder's Agreements are all substantially identical,
except as discussed below.
4
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Each Shareholder's Agreement contains a provision under which
each shareholder of FDC personally guarantees FDC's covenants, agreements,
obligations, and liabilities under the indemnity provisions of the asset
purchase agreement pursuant to which FDC sold substantially all of its drilling
company assets to Drillers, Inc. Each shareholder's obligations under these
provisions are capped at a dollar amount equal to the percentage which his
shares of FDC common stock constitute relative to the total number of issued and
outstanding shares of FDC common stock, multiplied by $10,000,000.
Each Shareholder's Agreement also contains provisions pursuant
to which one-half of the shares of Common Stock of DI to be received by them in
the contemplated dissolution of FDC (as discussed above) shall be subject to an
obligation on the part of DI to issue additional shares if the shareholders hold
value less than $2.00 per share on January 31, 1998.
In addition to these provisions, the Shareholder's Agreement
signed by Lucien Flournoy provides that, for three (3) years following January
31, 1997, Lucien Flournoy shall not engage in competition in the business of
drilling oil and gas wells in the geographic areas in which FDC conducted its
oil and gas well drilling business within one (1) year prior to December 31,
1996. During such period, Lucien Flournoy also has agreed not to (i) request any
present or future customer or supplier of FDC or Drillers, Inc. to curtail or
cancel its business with Drillers, Inc., or (ii) disclose to any person any
confidential information of FDC or Drillers, Inc., or (iii) induce or attempt to
influence any employee of Drillers, Inc. to terminate his or her employment.
Lucien Flournoy's Shareholder's Agreement also contains a
provision under which DI agrees that it shall nominate Mr. Flournoy to serve on
its board of directors. As noted above, Mr. Flournoy currently serves as a
director of DI.
The summary of the Shareholder's Agreements provided above is
qualified in its entirety by reference to the copies of the Shareholder's
Agreements attached as Exhibits to this Schedule 13D.
Item 7. Material to Be Filed as Exhibits.
--------------------------------
1. Filing Agreement dated effective February 6, 1997, between the
Directors and FDC.
2. Shareholder's Agreement dated January 31, 1997, between Lucien
Flournoy and Drillers, Inc. and DI Industries, Inc.
3. Shareholder's Agreement dated January 31, 1997, between Maxine
E. Flournoy and Drillers, Inc. and DI Industries, Inc.
4. Shareholder's Agreement dated January 31, 1997, between Byron W.
Fields and Drillers, Inc. and DI Industries, Inc.
-5-
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5. Shareholder's Agreement dated January 31, 1997, between F.C.
West and Drillers, Inc. and DI Industries, Inc.
Signature.
- ---------
After reasonable inquiry and to the best of our knowledge and belief,
we certify that the information set forth in this statement is true, complete,
and correct.
_________________ FLOURNOY DRILLING COMPANY
(Date)
By:
---------------------------
Lucien Flournoy, President
_________________ ---------------------------
(Date) Lucien Flournoy
_________________ ---------------------------
(Date) Maxine E. Flournoy
_________________ ---------------------------
(Date) Byron W. Fields
_________________ ---------------------------
(Date) F.C. West
-6-
<PAGE>
JOINT FILING AGREEMENT
----------------------
In accordance with Rule 13d-1(f) under the Securities and Exchange Act
of 1934, as amended, the persons named below agree to the joint filing on behalf
of each of them of a statement on Schedule 13D (including amendments thereto)
with respect to the Common Stock, par value $0.10 per share, of DI Industries,
Inc., a Texas corporation.
EXECUTED effective February 6, 1997.
_________________ FLOURNOY DRILLING COMPANY
(Date)
By:
---------------------------
Lucien Flournoy, President
_________________ ---------------------------
(Date) Lucien Flournoy
_________________ ---------------------------
(Date) Maxine E. Flournoy
_________________ ---------------------------
(Date) Byron W. Fields
_________________ ---------------------------
(Date) F.C. West
<PAGE>
SHAREHOLDER'S AGREEMENT
-----------------------
This Shareholder's Agreement (this "Agreement"), dated January 31, 1997, is
among Drillers, Inc., a Texas corporation ("Buyer"), DI Industries, Inc., a
Texas corporation ("DI") and Lucien Flournoy ("Shareholder").
WHEREAS, Buyer and Flournoy Drilling Company (the "Company"), a Texas
corporation, are parties to an Asset Purchase Agreement dated December 31, 1996
(the "Asset Purchase Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the acquisition by Buyer of substantially all of the
assets of the Company ("Assets");
WHEREAS, in order to induce Buyer to consummate the transactions
contemplated by the Asset Purchase Agreement, Shareholder has agreed to execute
and deliver this Agreement as provided in Section 8.4 of the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Guaranty of Company Indemnification Obligation.
(a) The Shareholder hereby irrevocably and
unconditionally guarantees to Buyer the prompt and full discharge by the Company
of all of the Company's covenants, agreements, obligations and liabilities under
Section 9.1 of the Asset Purchase Agreement including, without limitation, the
due and punctual payment of all amounts which are or may become due and payable
by the Company thereunder when and as the same shall become due and payable
(collectively, the "Company Obligations"), in accordance with the terms hereof.
The Shareholder acknowledges and agrees that, with respect to the Company
Obligations, such guaranty shall be a guaranty of payment and performance and
not of collection and shall not be conditioned or contingent upon the pursuit of
any remedies against the Company. If the Company shall default in the due and
punctual performance of any Company Obligation, including the full and timely
payment of any amount due and payable pursuant to any Company Obligation, the
Shareholder will forthwith perform or cause to be performed such Company
Obligation and will forthwith make full payment of any amount due with respect
thereto at its sole cost and expense. The liabilities and obligations of the
Shareholder pursuant to this Agreement are unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(1) any acceleration, extension, renewal, settlement, compromise,
waiver or release in respect of any Company Obligation by operation of law
or otherwise;
(2) the invalidity or unenforceability, in whole or in part, of this
Agreement or the Asset Purchase Agreement;
1
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(3) any modification or amendment of or supplement to this Agreement
or the Asset Purchase Agreement;
(4) any change in the corporate existence, structure or ownership of
Buyer or the Company, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting either of them or their assets; or
(5) any other act, omission to act, delay of any kind by any party
hereto or any other person, or any other circumstance whatsoever that
might, but for the provisions of this Section 1(a), constitute a legal or
equitable discharge of the obligations of the Shareholder hereunder.
(b) The Shareholder hereby waives any right, whether legal or equitable,
statutory or non-statutory, to require Buyer to proceed against or take any
action against or pursue any remedy with respect to the Company or any other
person or make presentment or demand for performance or give any notice of
nonperformance before Buyer may enforce its rights hereunder against the
Shareholder.
(c) The Shareholder's obligations hereunder shall remain in full force and
effect until the Company Obligations shall have been performed in full. If at
any time any performance by any Person of any Company Obligation is rescinded or
must be otherwise restored or returned, whether upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, the Shareholder's obligations
hereunder with respect to such Company Obligation shall be reinstated at such
time as though such Company Obligation had become due and had not been
performed.
(d) Upon performance by the Shareholder of any Company Obligation, the
Shareholder shall be subrogated to the rights of Buyer against the Company with
respect to such Company Obligation; provided, that the Shareholder shall not
enforce any Company Obligation by way of subrogation against the Company while
any Company Obligation is due and unperformed by the Company.
(e) Pursuant to Section 9.3 of the Asset Purchase Agreement,
notwithstanding any other provisions to the contrary in this Agreement, the
Shareholder's liability under this Section 1 shall be limited to the sum of
$3,404,000 cash or, if the Company so elects, shares of DI Common Stock with a
total value of $3,404,000 at the last reported sale price of DI Common Stock on
the American Stock Exchange averaged for the ten trading days prior to the date
of payment of such indemnified amount.
2. DI's Obligation to Issue Additional Shares.
DI shall issue to the Shareholder after the Determination Date (as defined
below) the number of shares of DI's Common Stock, par value $0.10 (the "Common
Stock"), issuable to the Shareholder, if any, under the terms and subject to the
conditions set forth in this Section 2 (the "Additional Shares"). The number of
Additional Shares issuable to the Shareholder shall be equal to the number of
shares of Common Stock calculated by dividing (i) the Shortfall Amount by (ii)
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<PAGE>
the Average DI Stock Price during the Measurement Period, as such terms are
hereafter defined. Any fractional share resulting from such calculation shall
be rounded up to the nearest whole share.
(a) The term "SHORTFALL AMOUNT" shall mean with respect to each
Shareholder one-half of the positive difference, if any, between (i) the
product of (x) $2.00, multiplied by (y) the number of Distributed Shares,
minus (ii) the sum of (A) the gross proceeds of all Public Dispositions (as
such term is hereinafter defined), (B) the gross proceeds of all Private
Dispositions (as such term is hereinafter defined) and (C) the product of
(x) the Average DI Stock Price during the Measurement Period, multiplied by
(y) the number of Distributed Shares that remain beneficially owned by
Shareholder as of 5:00 p.m. New York, New York time on the Determination
Date.
(b) The term "DISTRIBUTED SHARES" shall mean, with respect to each
Shareholder, the number of shares of Common Stock distributed to such
Shareholder by the Company as a liquidating distribution.
(c) The term "DISPOSITION" shall mean and include a sale, assignment,
pledge, gift, transfer or other conveyance of some or all (or any undivided
interest in some or all) of the Common Stock, or any contract or option to
make any such sale, assignment, pledge, transfer or conveyance. The term
"PUBLIC DISPOSITION" shall mean a Disposition effected by the sale of all
or any portion of the Distributed Shares on the American Stock Exchange or
such other principal trading market on which the Common Stock is then
publicly traded. A Public Disposition shall be deemed to occur on the date
such transaction occurs rather than the settlement date thereof. The term
"PRIVATE DISPOSITION" shall mean any Disposition of Distributed Shares that
is not a Public Disposition, and does not result in the Shareholder
retaining beneficial ownership of the Distributed Shares. As used in this
Agreement, gross proceeds of a Private Disposition shall mean the greater
of: (i) the fair market value of all consideration given by the
transferee(s) in such Private Disposition, and (ii) the product of (A) the
Average DI Stock Price during the ten Trading Days (hereinafter defined)
immediately preceding the date of the Private Disposition multiplied by (B)
the number of Distributed Shares transferred in such Private Disposition.
(d) The term "AVERAGE DI STOCK PRICE" shall mean the average of the
last reported sale price regular way of the Common Stock on the American
Stock Exchange or other principal trading market on which the Common Stock
is then publicly traded calculated for the number of Trading Days over
which such average is to be computed, or if the principal market on which
the Common Stock is then traded does not report prices on the basis of sale
transactions, the average of the closing bid and ask prices for the Common
Stock over the applicable number of Trading Days.
(e) The term "MEASUREMENT PERIOD" shall mean the first ten Trading
Days immediately prior to and including the Determination Date on which
none of the Shareholders or their respective Affiliates shall have sold or
offered for sale any shares of the Common Stock in any public securities
market on which the Common Stock is then
3
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traded. In the event that any of the Shareholders or their respective
Affiliates have sold or offered for sale Common Stock on a Trading Day that
would otherwise be included in the Measurement Period, such Trading Day
shall be excluded from the Measurement Period and in substitution for such
day there shall be added to the beginning of the Measurement Period the
next preceding Trading Day on which no such sales or offers were made by
any of the Shareholders or their respective Affiliates. For purposes of
this paragraph (e), an offer of Common Stock shall be deemed to have
occurred in connection with an underwritten public offering only from the
period from and including the effective date of the registration statement
for the offering through and including the closing date of such public
offering. No offer of Common Stock shall be deemed to have occurred for
purposes of this paragraph (e) with respect to Common Stock covered by a
shelf registration statement under Rule 415 under the Securities Act except
on days on which orders for sales of Common Stock have been placed by any
Shareholder or their respective Affiliates on the American Stock Exchange
or other principal securities market on which the Common Stock may then be
publicly traded.
(f) A "TRADING DAY" shall mean a day on which the Common Stock is
traded on the American Stock Exchange, or the principal trading market on
which the Common Stock is then publicly traded if other than the American
Stock Exchange.
(g) The "DETERMINATION DATE" shall mean the one year anniversary of
the Closing Date under the Asset Purchase Agreement, unless the Shareholder
shall have sold all of the Shares before such anniversary date, in which
event the Determination Date shall be the next Trading Day following the
final sale of Shares.
(h) An "AFFILIATE" of a person shall have the meaning ascribed to that
term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC"), and, with respect to a Shareholder, shall include
all of the Company's other Shareholders.
(i) Promptly after the Determination Date, but in no event later than
ten business days after the Determination Date, Shareholder shall deliver
to the Company an originally executed, written certification sworn to and
notarized by the Shareholder containing the following information:
(i) a true and complete description of each Public Disposition by
Shareholder through and including the Determination Date, which
description shall include the number of Distributed Shares included in
each Public Disposition, the date of each Public Disposition, and the
amount of gross proceeds from any such Public Disposition;
(ii) a true and correct description of the character and terms of
each Private Disposition, including, without limitation, the number of
Distributed Shares included in the Private Disposition, the date of
such Private Disposition, the amount of all cash consideration given
by the transferee, and the nature and fair
4
<PAGE>
market value of all noncash consideration given by the transferee(s)
for, or in connection with, such Private Disposition; and
(iii) the number of Distributed Shares that remain beneficially
owned by Shareholder as of 5:00 p.m. local time in New York, New York
on the Determination Date, and the owner of record of such Shares if
other than Shareholder.
(j) Examples. Attached as Exhibit F-1 are illustrations showing the
parties' intended interpretation and application of the provisions of this
Section 2 to certain hypothetical fact situations.
Upon request of DI, Shareholder shall promptly provide such other and further
information and documents and affidavits as DI may request to verify the number
of Additional Shares, if any, issuable pursuant to this Agreement.
(k) Within five business days after being furnished the information
required to be provided by the Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI shall issue the Additional Shares and shall deliver to the Shareholder
a stock certificate for the Additional Shares duly registered in the name of the
Shareholder. Shareholder covenants and agrees that for a period of twelve
months following each sale of Distributed Shares during the Determination
Period, neither Shareholder nor its Affiliates shall purchase any shares of
Common Stock.
(l) Within five business days after being furnished the information
required to be provided by Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI may, in its sole discretion, in lieu of issuing the Additional Shares,
pay to Shareholder an amount in cash equal to the Shortfall Amount by wire
transfer of immediately available funds.
(m) The Shareholder agrees that he will not engage in a Disposition within
the ten Trading Days immediately prior to the one year anniversary of the
Closing Date. Shareholder also acknowledges and agrees that he may be requested
not to make a Disposition for a period of time by DI because of requirements by
underwriters of DI securities or as a requirement of the Securities Act. It is
understood and agreed that the period shall not exceed 90 days.
3. Non-Competition. In order to allow Buyer and DI to realize the full
benefit of their bargain in connection with the purchase of the Assets,
Shareholder will not, at any time, for a period of three years following the
Closing Date, directly or indirectly, acting alone or as a member of a
partnership or as a holder of in excess of 5% of any security of any class, or
as a consultant to or representative of, any corporation or other business
entity,
a. engage in any business in competition with the Business as
conducted by the Company at the date hereof in those geographic areas in
which such Business is conducted or has been conducted within one year
prior to the date of this Agreement; or
5
<PAGE>
b. request any present or future customer or supplier of the Company
or of the Business as conducted by Buyer to curtail or cancel its business
with Buyer; or
c. unless otherwise required by law, disclose to any person, firm or
corporation any details of organization or business affairs of the Company
or the Business, any names of past or present customers of the Company or
any other non-public information concerning the Business, the Company or
the Assets; or
d. induce or attempt to influence any employee of Buyer assigned to
the conduct of the Business to terminate his or her employment.
The Shareholder acknowledges that in the event the scope of the covenants set
forth in this Section 3 is deemed to be too broad in any proceeding, the court
may reduce such scope to that which it deems reasonable under the circumstances.
The parties hereto agree and acknowledge that Buyer and DI would not have any
adequate remedy at law for the breach or threatened breach by the Shareholder or
any of his affiliates of the covenants and agreements set forth in this Section
3 and, accordingly, the Company further agrees that Buyer or DI may, in addition
to the other remedies which may be available to them hereunder, file suit in
equity to enjoin the Shareholder from such breach or threatened breach and
consent to the issuance of injunctive relief hereunder. Shareholder understands
and agrees that the act of Buyer and DI in entering into this Agreement and the
Asset Purchase Agreement, and Buyer's and DI's covenants and payments hereunder,
shall and do constitute sufficient consideration for Shareholder to agree not to
compete against Buyer and DI as set out in this Section 3. Notwithstanding the
foregoing, nothing herein shall restrain Shareholder from contracting for the
services of third party drilling contractors for the drilling of oil and gas
wells or from engaging in and exploring for and developing oil and gas
properties for the account of the Shareholder or any of his affiliates.
4. Nomination to Board. DI agrees that it shall nominate Shareholder to
serve on its Board of Directors as soon as practicable after the date hereof.
5. Representation of Shareholder. Shareholder hereby represents and
warrants to Buyer and DI that Shareholder has no current plan or intention to
engage in a sale, transfer, exchange, distribution, pledge or other disposition,
or otherwise reduce his risk of ownership of, more than forty-five percent of
the DI Stock he receives from the Company.
6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to have
been duly received if so given) if personally delivered or sent by registered or
certified mail, postage prepaid, addressed to the respective parties as follows:
If to Buyer or DI:
DI Industries, Inc.
625 Paragon Center Drive
450 Gears Road
6
<PAGE>
Houston, Texas 77067
Attn: Thomas P. Richards
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attn: Frank M. Putman
If to the Shareholder:
Lucien Flournoy
1909 E. Main
Alice, Texas 78332
or to such other address as a party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
8. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9. Captions. The section headings herein are for convenience only and
shall not affect the construction hereof.
10. Assignability. Shareholder may not assign any of his rights or
obligations hereunder to any other person without the prior written consent of
DI. DI and Buyer may not assign any of their respective rights or obligations
hereunder to any other person without the prior written consent of Shareholder,
except that no such consent will be required in connection with an assignment by
Buyer or DI to an affiliate.
11. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof.
12. Amendment; Waiver. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing
7
<PAGE>
and executed by the party so waiving. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants, or agreements contained herein, and in any documents
delivered or to be delivered pursuant to this Agreement and in connection with
the Closing hereunder. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
14. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and nothing contained herein should be deemed to
confer upon any third parties any remedy, claim, liability reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
hereto as of the date first above written.
DRILLERS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
DI INDUSTRIES, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
SHAREHOLDER
_____________________________
Lucien Flournoy
8
<PAGE>
SHAREHOLDER'S AGREEMENT
-----------------------
This Shareholder's Agreement (this "Agreement"), dated January 31, 1997, is
among Drillers, Inc., a Texas corporation ("Buyer"), DI Industries, Inc., a
Texas corporation ("DI") and Maxine E. Flournoy ("Shareholder").
WHEREAS, Buyer and Flournoy Drilling Company (the "Company"), a Texas
corporation, are parties to an Asset Purchase Agreement dated December 31, 1996
(the "Asset Purchase Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the acquisition by Buyer of substantially all of the
assets of the Company ("Assets");
WHEREAS, in order to induce Buyer to consummate the transactions
contemplated by the Asset Purchase Agreement, Shareholder has agreed to execute
and deliver this Agreement as provided in Section 8.4 of the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Guaranty of Company Indemnification Obligation.
(a) The Shareholder hereby irrevocably and
unconditionally guarantees to Buyer the prompt and full discharge by the Company
of all of the Company's covenants, agreements, obligations and liabilities under
Section 9.1 of the Asset Purchase Agreement including, without limitation, the
due and punctual payment of all amounts which are or may become due and payable
by the Company thereunder when and as the same shall become due and payable
(collectively, the "Company Obligations"), in accordance with the terms hereof.
The Shareholder acknowledges and agrees that, with respect to the Company
Obligations, such guaranty shall be a guaranty of payment and performance and
not of collection and shall not be conditioned or contingent upon the pursuit of
any remedies against the Company. If the Company shall default in the due and
punctual performance of any Company Obligation, including the full and timely
payment of any amount due and payable pursuant to any Company Obligation, the
Shareholder will forthwith perform or cause to be performed such Company
Obligation and will forthwith make full payment of any amount due with respect
thereto at its sole cost and expense. The liabilities and obligations of the
Shareholder pursuant to this Agreement are unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(1) any acceleration, extension, renewal, settlement, compromise,
waiver or release in respect of any Company Obligation by operation of law
or otherwise;
(2) the invalidity or unenforceability, in whole or in part, of this
Agreement or the Asset Purchase Agreement;
1
<PAGE>
(3) any modification or amendment of or supplement to this Agreement
or the Asset Purchase Agreement;
(4) any change in the corporate existence, structure or ownership of
Buyer or the Company, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting either of them or their assets; or
(5) any other act, omission to act, delay of any kind by any party
hereto or any other person, or any other circumstance whatsoever that
might, but for the provisions of this Section 1(a), constitute a legal or
equitable discharge of the obligations of the Shareholder hereunder.
(b) The Shareholder hereby waives any right, whether legal or equitable,
statutory or non-statutory, to require Buyer to proceed against or take any
action against or pursue any remedy with respect to the Company or any other
person or make presentment or demand for performance or give any notice of
nonperformance before Buyer may enforce its rights hereunder against the
Shareholder.
(c) The Shareholder's obligations hereunder shall remain in full force and
effect until the Company Obligations shall have been performed in full. If at
any time any performance by any Person of any Company Obligation is rescinded or
must be otherwise restored or returned, whether upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, the Shareholder's obligations
hereunder with respect to such Company Obligation shall be reinstated at such
time as though such Company Obligation had become due and had not been
performed.
(d) Upon performance by the Shareholder of any Company Obligation, the
Shareholder shall be subrogated to the rights of Buyer against the Company with
respect to such Company Obligation; provided, that the Shareholder shall not
enforce any Company Obligation by way of subrogation against the Company while
any Company Obligation is due and unperformed by the Company.
(e) Pursuant to Section 9.3 of the Asset Purchase Agreement,
notwithstanding any other provisions to the contrary in this Agreement, the
Shareholder's liability under this Section 1 shall be limited to the sum of
$2,332,000 cash or, if the Company so elects, shares of DI Common Stock with a
total value of $2,332,000 at the last reported sale price of DI Common Stock on
the American Stock Exchange averaged for the ten trading days prior to the date
of payment of such indemnified amount.
2. DI's Obligation to Issue Additional Shares.
DI shall issue to the Shareholder after the Determination Date (as defined
below) the number of shares of DI's Common Stock, par value $0.10 (the "Common
Stock"), issuable to the Shareholder, if any, under the terms and subject to the
conditions set forth in this Section 2 (the "Additional Shares"). The number of
Additional Shares issuable to the Shareholder shall be equal to the number of
shares of Common Stock calculated by dividing (i) the Shortfall Amount by (ii)
2
<PAGE>
the Average DI Stock Price during the Measurement Period, as such terms are
hereafter defined. Any fractional share resulting from such calculation shall
be rounded up to the nearest whole share.
(a) The term "SHORTFALL AMOUNT" shall mean with respect to each
Shareholder one-half of the positive difference, if any, between (i) the
product of (x) $2.00, multiplied by (y) the number of Distributed Shares,
minus (ii) the sum of (A) the gross proceeds of all Public Dispositions (as
such term is hereinafter defined), (B) the gross proceeds of all Private
Dispositions (as such term is hereinafter defined) and (C) the product of
(x) the Average DI Stock Price during the Measurement Period, multiplied by
(y) the number of Distributed Shares that remain beneficially owned by
Shareholder as of 5:00 p.m. New York, New York time on the Determination
Date.
(b) The term "DISTRIBUTED SHARES" shall mean, with respect to each
Shareholder, the number of shares of Common Stock distributed to such
Shareholder by the Company as a liquidating distribution.
(c) The term "DISPOSITION" shall mean and include a sale, assignment,
pledge, gift, transfer or other conveyance of some or all (or any undivided
interest in some or all) of the Common Stock, or any contract or option to
make any such sale, assignment, pledge, transfer or conveyance. The term
"PUBLIC DISPOSITION" shall mean a Disposition effected by the sale of all
or any portion of the Distributed Shares on the American Stock Exchange or
such other principal trading market on which the Common Stock is then
publicly traded. A Public Disposition shall be deemed to occur on the date
such transaction occurs rather than the settlement date thereof. The term
"PRIVATE DISPOSITION" shall mean any Disposition of Distributed Shares that
is not a Public Disposition, and does not result in the Shareholder
retaining beneficial ownership of the Distributed Shares. As used in this
Agreement, gross proceeds of a Private Disposition shall mean the greater
of: (i) the fair market value of all consideration given by the
transferee(s) in such Private Disposition, and (ii) the product of (A) the
Average DI Stock Price during the ten Trading Days (hereinafter defined)
immediately preceding the date of the Private Disposition multiplied by (B)
the number of Distributed Shares transferred in such Private Disposition.
(d) The term "AVERAGE DI STOCK PRICE" shall mean the average of the
last reported sale price regular way of the Common Stock on the American
Stock Exchange or other principal trading market on which the Common Stock
is then publicly traded calculated for the number of Trading Days over
which such average is to be computed, or if the principal market on which
the Common Stock is then traded does not report prices on the basis of sale
transactions, the average of the closing bid and ask prices for the Common
Stock over the applicable number of Trading Days.
(e) The term "MEASUREMENT PERIOD" shall mean the first ten Trading
Days immediately prior to and including the Determination Date on which
none of the Shareholders or their respective Affiliates shall have sold or
offered for sale any shares of the Common Stock in any public securities
market on which the Common Stock is then
3
<PAGE>
traded. In the event that any of the Shareholders or their respective
Affiliates have sold or offered for sale Common Stock on a Trading Day that
would otherwise be included in the Measurement Period, such Trading Day
shall be excluded from the Measurement Period and in substitution for such
day there shall be added to the beginning of the Measurement Period the
next preceding Trading Day on which no such sales or offers were made by
any of the Shareholders or their respective Affiliates. For purposes of
this paragraph (e), an offer of Common Stock shall be deemed to have
occurred in connection with an underwritten public offering only from the
period from and including the effective date of the registration statement
for the offering through and including the closing date of such public
offering. No offer of Common Stock shall be deemed to have occurred for
purposes of this paragraph (e) with respect to Common Stock covered by a
shelf registration statement under Rule 415 under the Securities Act except
on days on which orders for sales of Common Stock have been placed by any
Shareholder or their respective Affiliates on the American Stock Exchange
or other principal securities market on which the Common Stock may then be
publicly traded.
(f) A "TRADING DAY" shall mean a day on which the Common Stock is
traded on the American Stock Exchange, or the principal trading market on
which the Common Stock is then publicly traded if other than the American
Stock Exchange.
(g) The "DETERMINATION DATE" shall mean the one year anniversary of
the Closing Date under the Asset Purchase Agreement, unless the Shareholder
shall have sold all of the Shares before such anniversary date, in which
event the Determination Date shall be the next Trading Day following the
final sale of Shares.
(h) An "AFFILIATE" of a person shall have the meaning ascribed to that
term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC"), and, with respect to a Shareholder, shall include
all of the Company's other Shareholders.
(i) Promptly after the Determination Date, but in no event later than
ten business days after the Determination Date, Shareholder shall deliver
to the Company an originally executed, written certification sworn to and
notarized by the Shareholder containing the following information:
(i) a true and complete description of each Public Disposition by
Shareholder through and including the Determination Date, which
description shall include the number of Distributed Shares included in
each Public Disposition, the date of each Public Disposition, and the
amount of gross proceeds from any such Public Disposition;
(ii) a true and correct description of the character and terms of
each Private Disposition, including, without limitation, the number of
Distributed Shares included in the Private Disposition, the date of
such Private Disposition, the amount of all cash consideration given
by the transferee, and the nature and fair
4
<PAGE>
market value of all noncash consideration given by the transferee(s)
for, or in connection with, such Private Disposition; and
(iii) the number of Distributed Shares that remain beneficially
owned by Shareholder as of 5:00 p.m. local time in New York, New York
on the Determination Date, and the owner of record of such Shares if
other than Shareholder.
(j) Examples. Attached as Exhibit F-1 are illustrations showing the
parties' intended interpretation and application of the provisions of this
Section 2 to certain hypothetical fact situations.
Upon request of DI, Shareholder shall promptly provide such other and further
information and documents and affidavits as DI may request to verify the number
of Additional Shares, if any, issuable pursuant to this Agreement.
(k) Within five business days after being furnished the information
required to be provided by the Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI shall issue the Additional Shares and shall deliver to the Shareholder
a stock certificate for the Additional Shares duly registered in the name of the
Shareholder. Shareholder covenants and agrees that for a period of twelve
months following each sale of Distributed Shares during the Determination
Period, neither Shareholder nor its Affiliates shall purchase any shares of
Common Stock.
(l) Within five business days after being furnished the information
required to be provided by Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI may, in its sole discretion, in lieu of issuing the Additional Shares,
pay to Shareholder an amount in cash equal to the Shortfall Amount by wire
transfer of immediately available funds.
(m) The Shareholder agrees that he will not engage in a Disposition within
the ten Trading Days immediately prior to the one year anniversary of the
Closing Date. Shareholder also acknowledges and agrees that he may be requested
not to make a Disposition for a period of time by DI because of requirements by
underwriters of DI securities or as a requirement of the Securities Act. It is
understood and agreed that the period shall not exceed 90 days.
3. Representation of Shareholder. Shareholder hereby represents and
warrants to Buyer and DI that Shareholder has no current plan or intention to
engage in a sale, transfer, exchange, distribution, pledge or other disposition,
or otherwise reduce his risk of ownership of, more than forty-five percent of
the DI Stock he receives from the Company.
5
<PAGE>
4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to have
been duly received if so given) if personally delivered or sent by registered or
certified mail, postage prepaid, addressed to the respective parties as follows:
If to Buyer or DI:
DI Industries, Inc.
625 Paragon Center Drive
450 Gears Road
Houston, Texas 77067
Attn: Thomas P. Richards
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attn: Frank M. Putman
If to the Shareholder:
Maxine E. Flournoy
1909 E. Main
Alice, Texas 78332
or to such other address as a party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
5. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
6. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
7. Captions. The section headings herein are for convenience only and
shall not affect the construction hereof.
8. Assignability. Shareholder may not assign any of his rights or
obligations hereunder to any other person without the prior written consent of
DI. DI and Buyer may not assign any of their respective rights or obligations
hereunder to any other person without the prior written consent of Shareholder,
except that no such consent will be required in connection with an assignment by
Buyer or DI to an affiliate.
6
<PAGE>
9. Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto) constitutes the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
10. Amendment; Waiver. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
11. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
12. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and nothing contained herein should be deemed to
confer upon any third parties any remedy, claim, liability reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
hereto as of the date first above written.
DRILLERS, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
DI INDUSTRIES, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SHAREHOLDER
-----------------------------------
Maxine E. Flournoy
8
<PAGE>
SHAREHOLDER'S AGREEMENT
-----------------------
This Shareholder's Agreement (this "Agreement"), dated January 31, 1997, is
among Drillers, Inc., a Texas corporation ("Buyer"), DI Industries, Inc., a
Texas corporation ("DI") and Byron Fields ("Shareholder").
WHEREAS, Buyer and Flournoy Drilling Company (the "Company"), a Texas
corporation, are parties to an Asset Purchase Agreement dated December 31, 1996
(the "Asset Purchase Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the acquisition by Buyer of substantially all of the
assets of the Company ("Assets");
WHEREAS, in order to induce Buyer to consummate the transactions
contemplated by the Asset Purchase Agreement, Shareholder has agreed to execute
and deliver this Agreement as provided in Section 8.4 of the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Guaranty of Company Indemnification Obligation.
(a) The Shareholder hereby irrevocably and
unconditionally guarantees to Buyer the prompt and full discharge by the Company
of all of the Company's covenants, agreements, obligations and liabilities under
Section 9.1 of the Asset Purchase Agreement including, without limitation, the
due and punctual payment of all amounts which are or may become due and payable
by the Company thereunder when and as the same shall become due and payable
(collectively, the "Company Obligations"), in accordance with the terms hereof.
The Shareholder acknowledges and agrees that, with respect to the Company
Obligations, such guaranty shall be a guaranty of payment and performance and
not of collection and shall not be conditioned or contingent upon the pursuit of
any remedies against the Company. If the Company shall default in the due and
punctual performance of any Company Obligation, including the full and timely
payment of any amount due and payable pursuant to any Company Obligation, the
Shareholder will forthwith perform or cause to be performed such Company
Obligation and will forthwith make full payment of any amount due with respect
thereto at its sole cost and expense. The liabilities and obligations of the
Shareholder pursuant to this Agreement are unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(1) any acceleration, extension, renewal, settlement, compromise,
waiver or release in respect of any Company Obligation by operation of law
or otherwise;
(2) the invalidity or unenforceability, in whole or in part, of this
Agreement or the Asset Purchase Agreement;
(3) any modification or amendment of or supplement to this Agreement
or the Asset Purchase Agreement;
1
<PAGE>
(4) any change in the corporate existence, structure or ownership of
Buyer or the Company, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting either of them or their assets; or
(5) any other act, omission to act, delay of any kind by any party
hereto or any other person, or any other circumstance whatsoever that
might, but for the provisions of this Section 1(a), constitute a legal or
equitable discharge of the obligations of the Shareholder hereunder.
(b) The Shareholder hereby waives any right, whether legal or equitable,
statutory or non-statutory, to require Buyer to proceed against or take any
action against or pursue any remedy with respect to the Company or any other
person or make presentment or demand for performance or give any notice of
nonperformance before Buyer may enforce its rights hereunder against the
Shareholder.
(c) The Shareholder's obligations hereunder shall remain in full force and
effect until the Company Obligations shall have been performed in full. If at
any time any performance by any Person of any Company Obligation is rescinded or
must be otherwise restored or returned, whether upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, the Shareholder's obligations
hereunder with respect to such Company Obligation shall be reinstated at such
time as though such Company Obligation had become due and had not been
performed.
(d) Upon performance by the Shareholder of any Company Obligation, the
Shareholder shall be subrogated to the rights of Buyer against the Company with
respect to such Company Obligation; provided, that the Shareholder shall not
enforce any Company Obligation by way of subrogation against the Company while
any Company Obligation is due and unperformed by the Company.
(e) Pursuant to Section 9.3 of the Asset Purchase Agreement,
notwithstanding any other provisions to the contrary in this Agreement, the
Shareholder's liability under this Section 1 shall be limited to the sum of
$248,000 cash or, if the Company so elects, shares of DI Common Stock with a
total value of $248,000 at the last reported sale price of DI Common Stock on
the American Stock Exchange averaged for the ten trading days prior to the date
of payment of such indemnified amount.
2. DI's Obligation to Issue Additional Shares.
DI shall issue to the Shareholder after the Determination Date (as defined
below) the number of shares of DI's Common Stock, par value $0.10 (the "Common
Stock"), issuable to the Shareholder, if any, under the terms and subject to the
conditions set forth in this Section 2 (the "Additional Shares"). The number of
Additional Shares issuable to the Shareholder shall be equal to the number of
shares of Common Stock calculated by dividing (i) the Shortfall Amount by (ii)
the Average DI Stock Price during the Measurement Period, as such terms are
hereafter defined. Any fractional share resulting from such calculation shall
be rounded up to the nearest whole share.
2
<PAGE>
(a) The term "SHORTFALL AMOUNT" shall mean with respect to each
Shareholder one-half of the positive difference, if any, between (i) the
product of (x) $2.00, multiplied by (y) the number of Distributed Shares,
minus (ii) the sum of (A) the gross proceeds of all Public Dispositions (as
such term is hereinafter defined), (B) the gross proceeds of all Private
Dispositions (as such term is hereinafter defined) and (C) the product of
(x) the Average DI Stock Price during the Measurement Period, multiplied by
(y) the number of Distributed Shares that remain beneficially owned by
Shareholder as of 5:00 p.m. New York, New York time on the Determination
Date.
(b) The term "DISTRIBUTED SHARES" shall mean, with respect to each
Shareholder, the number of shares of Common Stock distributed to such
Shareholder by the Company as a liquidating distribution.
(c) The term "DISPOSITION" shall mean and include a sale, assignment,
pledge, gift, transfer or other conveyance of some or all (or any undivided
interest in some or all) of the Common Stock, or any contract or option to
make any such sale, assignment, pledge, transfer or conveyance. The term
"PUBLIC DISPOSITION" shall mean a Disposition effected by the sale of all
or any portion of the Distributed Shares on the American Stock Exchange or
such other principal trading market on which the Common Stock is then
publicly traded. A Public Disposition shall be deemed to occur on the date
such transaction occurs rather than the settlement date thereof. The term
"PRIVATE DISPOSITION" shall mean any Disposition of Distributed Shares that
is not a Public Disposition, and does not result in the Shareholder
retaining beneficial ownership of the Distributed Shares. As used in this
Agreement, gross proceeds of a Private Disposition shall mean the greater
of: (i) the fair market value of all consideration given by the
transferee(s) in such Private Disposition, and (ii) the product of (A) the
Average DI Stock Price during the ten Trading Days (hereinafter defined)
immediately preceding the date of the Private Disposition multiplied by (B)
the number of Distributed Shares transferred in such Private Disposition.
(d) The term "AVERAGE DI STOCK PRICE" shall mean the average of the
last reported sale price regular way of the Common Stock on the American
Stock Exchange or other principal trading market on which the Common Stock
is then publicly traded calculated for the number of Trading Days over
which such average is to be computed, or if the principal market on which
the Common Stock is then traded does not report prices on the basis of sale
transactions, the average of the closing bid and ask prices for the Common
Stock over the applicable number of Trading Days.
(e) The term "MEASUREMENT PERIOD" shall mean the first ten Trading
Days immediately prior to and including the Determination Date on which
none of the Shareholders or their respective Affiliates shall have sold or
offered for sale any shares of the Common Stock in any public securities
market on which the Common Stock is then traded. In the event that any of
the Shareholders or their respective Affiliates have sold or offered for
sale Common Stock on a Trading Day that would otherwise be included in the
Measurement Period, such Trading Day shall be excluded from the Measurement
Period and in substitution for such day there shall be added to the
beginning of the
3
<PAGE>
Measurement Period the next preceding Trading Day on which no such sales or
offers were made by any of the Shareholders or their respective Affiliates.
For purposes of this paragraph (e), an offer of Common Stock shall be
deemed to have occurred in connection with an underwritten public offering
only from the period from and including the effective date of the
registration statement for the offering through and including the closing
date of such public offering. No offer of Common Stock shall be deemed to
have occurred for purposes of this paragraph (e) with respect to Common
Stock covered by a shelf registration statement under Rule 415 under the
Securities Act except on days on which orders for sales of Common Stock
have been placed by any Shareholder or their respective Affiliates on the
American Stock Exchange or other principal securities market on which the
Common Stock may then be publicly traded.
(f) A "TRADING DAY" shall mean a day on which the Common Stock is
traded on the American Stock Exchange, or the principal trading market on
which the Common Stock is then publicly traded if other than the American
Stock Exchange.
(g) The "DETERMINATION DATE" shall mean the one year anniversary of
the Closing Date under the Asset Purchase Agreement, unless the Shareholder
shall have sold all of the Shares before such anniversary date, in which
event the Determination Date shall be the next Trading Day following the
final sale of Shares.
(h) An "AFFILIATE" of a person shall have the meaning ascribed to that
term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC"), and, with respect to a Shareholder, shall include
all of the Company's other Shareholders.
(i) Promptly after the Determination Date, but in no event later than
ten business days after the Determination Date, Shareholder shall deliver
to the Company an originally executed, written certification sworn to and
notarized by the Shareholder containing the following information:
(i) a true and complete description of each Public Disposition by
Shareholder through and including the Determination Date, which
description shall include the number of Distributed Shares included in
each Public Disposition, the date of each Public Disposition, and the
amount of gross proceeds from any such Public Disposition;
(ii) a true and correct description of the character and terms of
each Private Disposition, including, without limitation, the number of
Distributed Shares included in the Private Disposition, the date of
such Private Disposition, the amount of all cash consideration given
by the transferee, and the nature and fair market value of all noncash
consideration given by the transferee(s) for, or in connection with,
such Private Disposition; and
4
<PAGE>
(iii) the number of Distributed Shares that remain beneficially
owned by Shareholder as of 5:00 p.m. local time in New York, New York
on the Determination Date, and the owner of record of such Shares if
other than Shareholder.
(j) Examples. Attached as Exhibit F-1 are illustrations showing the
parties' intended interpretation and application of the provisions of this
Section 2 to certain hypothetical fact situations.
Upon request of DI, Shareholder shall promptly provide such other and further
information and documents and affidavits as DI may request to verify the number
of Additional Shares, if any, issuable pursuant to this Agreement.
(k) Within five business days after being furnished the information
required to be provided by the Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI shall issue the Additional Shares and shall deliver to the Shareholder
a stock certificate for the Additional Shares duly registered in the name of the
Shareholder. Shareholder covenants and agrees that for a period of twelve
months following each sale of Distributed Shares during the Determination
Period, neither Shareholder nor its Affiliates shall purchase any shares of
Common Stock.
(l) Within five business days after being furnished the information
required to be provided by Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI may, in its sole discretion, in lieu of issuing the Additional Shares,
pay to Shareholder an amount in cash equal to the Shortfall Amount by wire
transfer of immediately available funds.
(m) The Shareholder agrees that he will not engage in a Disposition within
the ten Trading Days immediately prior to the one year anniversary of the
Closing Date. Shareholder also acknowledges and agrees that he may be requested
not to make a Disposition for a period of time by DI because of requirements by
underwriters of DI securities or as a requirement of the Securities Act. It is
understood and agreed that the period shall not exceed 90 days.
3. Representation of Shareholder. Shareholder hereby represents and
warrants to Buyer and DI that Shareholder has no current plan or intention to
engage in a sale, transfer, exchange, distribution, pledge or other disposition,
or otherwise reduce his risk of ownership of, more than forty-five percent of
the DI Stock he receives from the Company.
5
<PAGE>
4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to have
been duly received if so given) if personally delivered or sent by registered or
certified mail, postage prepaid, addressed to the respective parties as follows:
If to Buyer or DI:
DI Industries, Inc.
625 Paragon Center Drive
450 Gears Road
Houston, Texas 77067
Attn: Thomas P. Richards
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attn: Frank M. Putman
If to the Shareholder:
Byron Fields
1909 E. Main
Alice, Texas 78332
or to such other address as a party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
5. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
6. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
7. Captions. The section headings herein are for convenience only and
shall not affect the construction hereof.
8. Assignability. Shareholder may not assign any of his rights or
obligations hereunder to any other person without the prior written consent of
DI. DI and Buyer may not assign any of their respective rights or obligations
hereunder to any other person without the prior written consent of Shareholder,
except that no such consent will be required in connection with an assignment by
Buyer or DI to an affiliate.
6
<PAGE>
9. Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto) constitutes the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
10. Amendment; Waiver. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
11. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
12. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and nothing contained herein should be deemed to
confer upon any third parties any remedy, claim, liability reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
hereto as of the date first above written.
DRILLERS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
DI INDUSTRIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SHAREHOLDER
-----------------------------------
Byron Fields
8
<PAGE>
SHAREHOLDER'S AGREEMENT
This Shareholder's Agreement (this "Agreement"), dated January 31, 1997, is
among Drillers, Inc., a Texas corporation ("Buyer"), DI Industries, Inc., a
Texas corporation ("DI") and F.C. West ("Shareholder").
WHEREAS, Buyer and Flournoy Drilling Company (the "Company"), a Texas
corporation, are parties to an Asset Purchase Agreement dated December 31, 1996
(the "Asset Purchase Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the acquisition by Buyer of substantially all of the
assets of the Company ("Assets");
WHEREAS, in order to induce Buyer to consummate the transactions
contemplated by the Asset Purchase Agreement, Shareholder has agreed to execute
and deliver this Agreement as provided in Section 8.4 of the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Guaranty of Company Indemnification Obligation.
(a) The Shareholder hereby irrevocably and unconditionally guarantees
to Buyer the prompt and full discharge by the Company of all of the Company's
covenants, agreements, obligations and liabilities under Section 9.1 of the
Asset Purchase Agreement including, without limitation, the due and punctual
payment of all amounts which are or may become due and payable by the Company
thereunder when and as the same shall become due and payable (collectively, the
"Company Obligations"), in accordance with the terms hereof. The Shareholder
acknowledges and agrees that, with respect to the Company Obligations, such
guaranty shall be a guaranty of payment and performance and not of collection
and shall not be conditioned or contingent upon the pursuit of any remedies
against the Company. If the Company shall default in the due and punctual
performance of any Company Obligation, including the full and timely payment of
any amount due and payable pursuant to any Company Obligation, the Shareholder
will forthwith perform or cause to be performed such Company Obligation and will
forthwith make full payment of any amount due with respect thereto at its sole
cost and expense. The liabilities and obligations of the Shareholder pursuant to
this Agreement are unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(1) any acceleration, extension, renewal, settlement, compromise,
waiver or release in respect of any Company Obligation by operation of law
or otherwise;
(2) the invalidity or unenforceability, in whole or in part, of this
Agreement or the Asset Purchase Agreement;
(3) any modification or amendment of or supplement to this Agreement
or the Asset Purchase Agreement;
1
<PAGE>
(4) any change in the corporate existence, structure or ownership of
Buyer or the Company, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting either of them or their assets; or
(5) any other act, omission to act, delay of any kind by any party
hereto or any other person, or any other circumstance whatsoever that
might, but for the provisions of this Section 1(a), constitute a legal or
equitable discharge of the obligations of the Shareholder hereunder.
(b) The Shareholder hereby waives any right, whether legal or equitable,
statutory or non-statutory, to require Buyer to proceed against or take any
action against or pursue any remedy with respect to the Company or any other
person or make presentment or demand for performance or give any notice of
nonperformance before Buyer may enforce its rights hereunder against the
Shareholder.
(c) The Shareholder's obligations hereunder shall remain in full force and
effect until the Company Obligations shall have been performed in full. If at
any time any performance by any Person of any Company Obligation is rescinded or
must be otherwise restored or returned, whether upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, the Shareholder's obligations
hereunder with respect to such Company Obligation shall be reinstated at such
time as though such Company Obligation had become due and had not been
performed.
(d) Upon performance by the Shareholder of any Company Obligation, the
Shareholder shall be subrogated to the rights of Buyer against the Company with
respect to such Company Obligation; provided, that the Shareholder shall not
enforce any Company Obligation by way of subrogation against the Company while
any Company Obligation is due and unperformed by the Company.
(e) Pursuant to Section 9.3 of the Asset Purchase Agreement,
notwithstanding any other provisions to the contrary in this Agreement, the
Shareholder's liability under this Section 1 shall be limited to the sum of
$1,000,000 cash or, if the Company so elects, shares of DI Common Stock with a
total value of $1,000,000 at the last reported sale price of DI Common Stock on
the American Stock Exchange averaged for the ten trading days prior to the date
of payment of such indemnified amount.
2. DI's Obligation to Issue Additional Shares.
DI shall issue to the Shareholder after the Determination Date (as defined
below) the number of shares of DI's Common Stock, par value $0.10 (the "Common
Stock"), issuable to the Shareholder, if any, under the terms and subject to the
conditions set forth in this Section 2 (the "Additional Shares"). The number of
Additional Shares issuable to the Shareholder shall be equal to the number of
shares of Common Stock calculated by dividing (i) the Shortfall Amount by (ii)
the Average DI Stock Price during the Measurement Period, as such terms are
hereafter defined. Any fractional share resulting from such calculation shall
be rounded up to the nearest whole share.
2
<PAGE>
(a) The term "SHORTFALL AMOUNT" shall mean with respect to each
Shareholder one-half of the positive difference, if any, between (i) the
product of (x) $2.00, multiplied by (y) the number of Distributed Shares,
minus (ii) the sum of (A) the gross proceeds of all Public Dispositions (as
such term is hereinafter defined), (B) the gross proceeds of all Private
Dispositions (as such term is hereinafter defined) and (C) the product of
(x) the Average DI Stock Price during the Measurement Period, multiplied by
(y) the number of Distributed Shares that remain beneficially owned by
Shareholder as of 5:00 p.m. New York, New York time on the Determination
Date.
(b) The term "DISTRIBUTED SHARES" shall mean, with respect to each
Shareholder, the number of shares of Common Stock distributed to such
Shareholder by the Company as a liquidating distribution.
(c) The term "DISPOSITION" shall mean and include a sale, assignment,
pledge, gift, transfer or other conveyance of some or all (or any undivided
interest in some or all) of the Common Stock, or any contract or option to
make any such sale, assignment, pledge, transfer or conveyance. The term
"PUBLIC DISPOSITION" shall mean a Disposition effected by the sale of all
or any portion of the Distributed Shares on the American Stock Exchange or
such other principal trading market on which the Common Stock is then
publicly traded. A Public Disposition shall be deemed to occur on the date
such transaction occurs rather than the settlement date thereof. The term
"PRIVATE DISPOSITION" shall mean any Disposition of Distributed Shares that
is not a Public Disposition, and does not result in the Shareholder
retaining beneficial ownership of the Distributed Shares. As used in this
Agreement, gross proceeds of a Private Disposition shall mean the greater
of: (i) the fair market value of all consideration given by the
transferee(s) in such Private Disposition, and (ii) the product of (A) the
Average DI Stock Price during the ten Trading Days (hereinafter defined)
immediately preceding the date of the Private Disposition multiplied by (B)
the number of Distributed Shares transferred in such Private Disposition.
(d) The term "AVERAGE DI STOCK PRICE" shall mean the average of the
last reported sale price regular way of the Common Stock on the American
Stock Exchange or other principal trading market on which the Common Stock
is then publicly traded calculated for the number of Trading Days over
which such average is to be computed, or if the principal market on which
the Common Stock is then traded does not report prices on the basis of sale
transactions, the average of the closing bid and ask prices for the Common
Stock over the applicable number of Trading Days.
(e) The term "MEASUREMENT PERIOD" shall mean the first ten Trading
Days immediately prior to and including the Determination Date on which
none of the Shareholders or their respective Affiliates shall have sold or
offered for sale any shares of the Common Stock in any public securities
market on which the Common Stock is then traded. In the event that any of
the Shareholders or their respective Affiliates have sold or offered for
sale Common Stock on a Trading Day that would otherwise be included in the
Measurement Period, such Trading Day shall be excluded from the Measurement
Period and in substitution for such day there shall be added to the
beginning of the
3
<PAGE>
Measurement Period the next preceding Trading Day on which no such sales or
offers were made by any of the Shareholders or their respective Affiliates.
For purposes of this paragraph (e), an offer of Common Stock shall be
deemed to have occurred in connection with an underwritten public offering
only from the period from and including the effective date of the
registration statement for the offering through and including the closing
date of such public offering. No offer of Common Stock shall be deemed to
have occurred for purposes of this paragraph (e) with respect to Common
Stock covered by a shelf registration statement under Rule 415 under the
Securities Act except on days on which orders for sales of Common Stock
have been placed by any Shareholder or their respective Affiliates on the
American Stock Exchange or other principal securities market on which the
Common Stock may then be publicly traded.
(f) A "TRADING DAY" shall mean a day on which the Common Stock is
traded on the American Stock Exchange, or the principal trading market on
which the Common Stock is then publicly traded if other than the American
Stock Exchange.
(g) The "DETERMINATION DATE" shall mean the one year anniversary of
the Closing Date under the Asset Purchase Agreement, unless the Shareholder
shall have sold all of the Shares before such anniversary date, in which
event the Determination Date shall be the next Trading Day following the
final sale of Shares.
(h) An "AFFILIATE" of a person shall have the meaning ascribed to that
term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") as promulgated by the U.S. Securities and Exchange
Commission (the "SEC"), and, with respect to a Shareholder, shall include
all of the Company's other Shareholders.
(i) Promptly after the Determination Date, but in no event later than
ten business days after the Determination Date, Shareholder shall deliver
to the Company an originally executed, written certification sworn to and
notarized by the Shareholder containing the following information:
(i) a true and complete description of each Public Disposition by
Shareholder through and including the Determination Date, which
description shall include the number of Distributed Shares included in
each Public Disposition, the date of each Public Disposition, and the
amount of gross proceeds from any such Public Disposition;
(ii) a true and correct description of the character and terms of
each Private Disposition, including, without limitation, the number of
Distributed Shares included in the Private Disposition, the date of
such Private Disposition, the amount of all cash consideration given
by the transferee, and the nature and fair market value of all noncash
consideration given by the transferee(s) for, or in connection with,
such Private Disposition; and
4
<PAGE>
(iii) the number of Distributed Shares that remain beneficially
owned by Shareholder as of 5:00 p.m. local time in New York, New York
on the Determination Date, and the owner of record of such Shares if
other than Shareholder.
(j) Examples. Attached as Exhibit F-1 are illustrations showing the
parties' intended interpretation and application of the provisions of this
Section 2 to certain hypothetical fact situations.
Upon request of DI, Shareholder shall promptly provide such other and further
information and documents and affidavits as DI may request to verify the number
of Additional Shares, if any, issuable pursuant to this Agreement.
(k) Within five business days after being furnished the information
required to be provided by the Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI shall issue the Additional Shares and shall deliver to the Shareholder
a stock certificate for the Additional Shares duly registered in the name of the
Shareholder. Shareholder covenants and agrees that for a period of twelve
months following each sale of Distributed Shares during the Determination
Period, neither Shareholder nor its Affiliates shall purchase any shares of
Common Stock.
(l) Within five business days after being furnished the information
required to be provided by Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI may, in its sole discretion, in lieu of issuing the Additional Shares,
pay to Shareholder an amount in cash equal to the Shortfall Amount by wire
transfer of immediately available funds.
(m) The Shareholder agrees that he will not engage in a Disposition within
the ten Trading Days immediately prior to the one year anniversary of the
Closing Date. Shareholder also acknowledges and agrees that he may be requested
not to make a Disposition for a period of time by DI because of requirements by
underwriters of DI securities or as a requirement of the Securities Act. It is
understood and agreed that the period shall not exceed 90 days.
3. Representation of Shareholder. Shareholder hereby represents and
warrants to Buyer and DI that Shareholder has no current plan or intention to
engage in a sale, transfer, exchange, distribution, pledge or other disposition,
or otherwise reduce his risk of ownership of, more than forty-five percent of
the DI Stock he receives from the Company.
5
<PAGE>
4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to have
been duly received if so given) if personally delivered or sent by registered or
certified mail, postage prepaid, addressed to the respective parties as follows:
If to Buyer or DI:
DI Industries, Inc.
625 Paragon Center Drive
450 Gears Road
Houston, Texas 77067
Attn: Thomas P. Richards
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attn: Frank M. Putman
If to the Shareholder:
F.C. West
1909 E. Main
Alice, Texas 78332
or to such other address as a party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
5. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
6. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
7. Captions. The section headings herein are for convenience only and
shall not affect the construction hereof.
8. Assignability. Shareholder may not assign any of his rights or
obligations hereunder to any other person without the prior written consent of
DI. DI and Buyer may not assign any of their respective rights or obligations
hereunder to any other person without the prior written consent of Shareholder,
except that no such consent will be required in connection with an assignment by
Buyer or DI to an affiliate.
6
<PAGE>
9. Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto) constitutes the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
10. Amendment; Waiver. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
11. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
12. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and nothing contained herein should be deemed to
confer upon any third parties any remedy, claim, liability reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
hereto as of the date first above written.
DRILLERS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DI INDUSTRIES, INC.
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
SHAREHOLDER
-----------------------------------
F.C. West
8
